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NEWS
1. Negotiations contribute to Brand Equity. Your organization, like most others, expends significant resources building a brand that holds out certain promises to existing and potential customers. For organizations whose products are grounded in intellectual capacity (such as software companies) or whose services are based on knowledge and relationships (such as banks and insurance companies) the brand may form a significant portion of the company's market capitalization. Measures to promote and protect your brand are therefore crucial. There is, however, a significant path to travel between the promise of the brand and the real, sustainable brand equity which flows from customers' experiences of interacting with your company and your staff. You may be asking "what this has to do with negotiating?" Given that your organization exists in order to sell a product or service (and even not-for-profits or charities have to "sell" the idea of your donation being more valuable to you than some other use of your time or money) it is fair to say that in the course of these transactions, negotiations will ensue. These negotiations will cover a multiplicity of topics such as prices, quantities, discounts, durations, shelf-facings, delivery and so on. The customer's experience of these negotiations with your staff directly, and often irrevocably, contributes to their experience of your brand. In doing so it influences their propensity to do more business with you, their loyalty and perhaps most importantly their willingness to be an ambassador for your brand and to recommend it to others. It is therefore clear that negotiating is an important "moment of truth" for your customers and the more competent your people are at negotiating the better the impact on one of your most enduring assets - your brand. 2. Good negotiating minimizes the perils of commoditization. It is not alarmist to state that in the connected global economy commoditization cycles are becoming almost instantaneous. Global, real-time networks enable the flow of information in such a way that today's differentiated product or service can be copied and improved by your competitor tomorrow. Competing on the intrinsic features of your product or service is just not sustainable and is one of the reasons why your brand becomes so important (see 1 above). Apart from branding there are other things you can do to rise above the competition. One of the bases for overcoming the price pressure associated with commoditization is to go beyond merely building rock-solid relationships and to establish your company as a trusted adviser to your customer. Negotiating has an important role to play in cementing this trust. Good negotiators know that it's not just about getting as much they can on their terms. It's about arriving at a mutually beneficial position based on understanding and acknowledging each party's needs. Negotiating is a process (often prolonged) during which your customer gets many opportunities to assess your merits and trustworthiness. It therefore provides an excellent mechanism for deepening relationships and building a sense of shared ownership of the outcome that makes it very difficult for a price-based commodity supplier to usurp you. 3. Negotiating is fundamental to your success in the value network in which you participate. Around the world, and in every industry, the trend is increasingly towards competition between business networks. Strategic partnerships provide ways to create and capture value. Toyota's ability to manage a network of parts and component suppliers, automotive design houses, manufacturing plants, transporters and shippers and dealer networks is what gives it the edge over say a Nissan or Ford. In software, SAP's ability to bring together a network of industry titans such as IBM, Intel, Cisco and Accenture to craft a customer solution is what gives it the edge over say an Oracle or an Infor. An insurance company's ability to work with its distribution channels is fundamental to its success. And so it goes in many different industries. The basis for the networked value chain is each player finding their niche, (the place where they can add value better than anyone else based on some form of specialization or scale) and then seamlessly bringing all players together in a synchronized and aligned fashion. This is not easy to do. In many ways it goes against the grain of competitiveness and autonomy so prized in Western cultures and economies. At the heart of the problem lies each company's desire to capture as much value as possible for itself. If you cannot overcome this problem and make the economics work for everyone you will be beaten by those who can. The secret to good partnering lies in your ability to negotiate. Good negotiators know how to formulate the negotiation problem and structure the negotiation process so that sustainable agreements can be reached quickly and effectively. Negotiating experts understand and consider the likely consequences for all parties and are thus better able to reach viable and sustainable solutions. Your ability to negotiate with network partners may be all that lies between your success and failure in the networked, global economy. 4. The Influence on Customer Lifetime Value (CLTV) Growth has always been high on the agenda for both the ambitious entrepreneur and the CEO of the largest listed company. The old axiom "if you are not busy growing you are busy dying" will continue to hold true for time to come. For most companies (whether you are in a Business-to-Business or a Business-to-Consumer market) current customers are the best source of revenue growth. According to many surveys, the cost of acquiring new customers runs to 8 to 10 times more than the cost of keeping existing ones. So it makes absolute sense to hold on to the customers we have, BUT not at any cost. Despite this need for growth many companies continually shoot themselves in the foot and build themselves a steeper and steeper hill to climb through their failure to negotiate the best possible terms for themselves - in effect they are sabotaging their own futures. Perhaps driven by the pressure to meet quarterly revenue targets they give away value simply to close a deal now (normally, but not exclusively, in the form of discounts). What they fail to realize is that in so doing they have established a precedent that will come back to haunt them in every future transaction with that customer. Today's discount becomes tomorrow's norm and sooner or later even this is not enough and we give away even more and so it becomes harder and harder to stand still let alone achieve profitable growth. Note the emphasis on "profitable growth" - giving away value may help you make this month's budget number but profitless growth leads to a downward spiral of more and more burden for less shareholder return. Even worse - as your reputation for easy acquiescence seeps out into the market (and it will because people talk and move around within an industry) any new business you write becomes subject to the same pressures. Do you want grow your revenues? And do so profitably? Thought so. Well, the secret to building a profitable future for your organization lies in the ability to build each deal that you do with an eye on both the immediate value and the long-term consequences. Beefing up your ability to negotiate is the key to future success and maximizing the value of every customer over the lifetime of that customer. Stop weakening your growth prospects by establishing precedents that will come back to haunt you. Your customers have long memories and poor negotiations today will stay with you as long as the customer. Good negotiating not only helps you extract maximum value now but it establishes you as a professional and trustworthy partner for the future and sets the boundaries for all future transactions with your customers. Here's to your fruitful future based on excellence in negotiating. Simon Carpenter ABOUT THE WRITER
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