The Influence Of The Marketplace In Negotiations

Posted 4th Sep

We’ve talked about the interests that we and our suppliers have and how those interests can determine the path of a negotiation . However, we also need to understand the way in which the negotiation is influenced by the marketplace in which we and the supplier find ourselves. 

The marketplace determines much of the positioning between two sides in a negotiation and describes the theoretical dependency one side has on the other. At a simple level, a large marketplace, filled with equivalent suppliers, should be skewed towards the buyer, as the buyer can make choices about which supplier to use, and to leverage that decision-making process to the buyer’s advantage. Equally, a marketplace with a single supplier within it has power skewed towards the sales side. 

As ever, it’s never quite that simple. In either of the basic scenarios described above, the interests of both sides can change behaviour within that marketplace. In a wide-open marketplace, where change is theoretically possible, it may not be in the interest of the buyer to change suppliers, which weakens the buyers position. This might happen because of the costs of changing to a different supplier, not only in the short term, but also the longer-term effects that change (such as where there is a large installed base of supplier’s equipment) the change may be challenging to manage. Equally, where there is a single supplier, there may be interests which are served by having an excellent relationship with a particular buyer, such as access to a particular marketplace, or brand, or another attribute. 

This all means that we can use a model of the marketplace to help us with our thinking here. Porters original 5 Forces is a great place to start, but we can customise it to give us more insights. In the negotiation field, from a buyers perspective, we need to understand the competition in the marketplace, but also the elements that we can exercise which give us power from our position on the right of the original model. We can modify this with the interests we have which may impact the levels of power that we have. In itself, this gives both insight to the negotiation, but it should also test the category strategy which led to this negotiation. 

We also need to think about the suppliers power and any modifying interests that the supplier may have; this goes back to the need to build a really clear picture of those interests to be able to deliver a useful level of insight into the negotiation which is coming up. 

Over on the left side of the modified version of the model, we find the suppliers power; not our supplier, but those supplying our supplier. This can be interesting for a negotiation, as looking at this aspect shows how badly squeezed our supplier is by their suppliers. In these cases, a negotiation can be influenced by the interest the first-tier supplier has in aligning itself with the customer. 

Of course, the modified model contains two further areas with differences from the original: the opportunity presented by new entrants, and the opportunity presented by substitutes. Once again, we are checking if any position taken by the supplier has merit, or if there are opportunities for us to understand how extra pressure is being applied to the supplier. Where either of these two factors are in play, there may be an interest for the supplier to defend specifically against those areas. 

So, examining the marketplace and understanding the pressures within it gives us the opportunity to look for more of the suppliers potential interests and see how we can explore those for both our benefits. 

As we are in the phase of preparing a negotiation, we are likely to be thinking that the supplier does have something to offer to us. As such, the use of the tools as described above should not be aimed at redefining the category strategy, but to make sure we have good insight into the suppliers most likely areas of thought and interest. If we can understand that, and start out by seeking ways in which we can get interests to align, we may well have a different, and more successful negotiation than we might expect. 

To learn more about how the marketplace can help us understand suppliers interests, please contact us at www.futurepurchasing.com/contact

Our next blog on negotiation will be looking at our personality, and how that affects the ways we negotiate.

Further Reading


Knowledge Hub: Negotiating with Strategic Partners


Tagged by topic: Negotiation

  by Mark Hubbard

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