Power in Negotiations - How Retailers can Create Environments for Value Creation

Retail?negotiations can be complex and challenging, especially as the majority of buyers are dealing with multiple suppliers in a single category. Power dynamics, as with all negotiations, play a critical role in these negotiations and can greatly affect the outcome.

In this newsletter, we'll be discussing the concept of power in negotiations and how retailers can create environments for value creation. We'll also explore how behaviour as a retail buyer can set the tone for the entire supply chain.

Firstly, let's talk about power in negotiations.?Power is the capacity or ability to influence the outcome of a negotiation.?In negotiations between retailers and suppliers, both parties have different types of power.

Retailers have informational power (access to customer data), coercive power (ability to withhold business, leverage through alternative supplier proposals), or expert power (knowledge of the market).

Meanwhile, suppliers may have bargaining power (leveraging brand & market demand, control of supply and cost prices), social power (relationships with other retailers), or knowledge power (insight into trends and innovations).

For a true value creation outcome, where the total value is grown,?a collaborative negotiation environment is critical.?However creating an environment for true collaboration (and not fictional partnership) is not always easy.

?So where to begin:

1.?The power of choice - If power is the capacity or ability to influence the outcome of a negotiation, then what needs to be exercised here is the power of choice. Choice to consciously create 'maximum total value' through working collaboratively?with a supplier rather than capture 'maximum retailer value' independent of the supplier.

This whole system value creation approach isn't common, but in the absence of it retailers are limited to negotiating deals that only distribute the value that already exists between the two parties, rather than gain access to explore deals that open up mutual value creation opportunities.

2. Be deliberate - Collaboration and value creation takes considerable time investment. Developing deeper levels of trust and understanding of each other's businesses doesn't occur without investing time and energy. As retail buyers, your time is limited so you need to choose?carefully, and strategically, the suppliers you want to create long term value creation partnerships with.?

Recognise that with some suppliers your relationship will, and can only, be transactional. By consciously choosing where your time will be invested you can focus more intentionally on building collaborative relationships with the suppliers that strategically matter.

3. Learn to trade value without competing - Recognise that while creating value and growing the total pie is the goal, at some point, even in a collaborative negotiation, you will need to split the new bigger pie. The danger here is that behaviours can easily default to being competitive and value distributive. Through actively listening and understanding the deeper interests of your supply partner you'll better recognise the opportunity you have to trade more effectively what is high value to them to more effectively get what is high value to you. Splitting the pie doesn't have to be even, and it also doesn't have to induce competitive transactional behaviours, not when you are skilled in?creating and trading value?effectively.

4.?Share openly and honestly. Establishing value creation partnerships with strategic suppliers can give you a competitive edge. By building trust and assessing risk, you can be open and honest about your expectations and goals for the partnership, while also identifying areas where support is needed to address weaknesses. This openness of weaknesses deepens trust and allows both parties to leverage their power to drive change and create value throughout the entire system, leading to even greater value and opportunity to create competitive advantage.

?

Why is this important?

As the world moves towards?conscious capitalism, by working collaboratively with strategic suppliers, retailers can set the tone for the entire supply chain. Adversarial or short-sighted negotiations can lead to reduced trust, damaged relationships, and lost opportunities for growth and innovation especially in unlocking value through the entire system.

Retailers, adopting a long-term perspective and considering the broader implications of their negotiation strategies will help create a positive impact across the supply chain.

By approaching negotiations with a collaborative mindset, as a retail buyer you can build stronger relationships with your suppliers and ultimately achieve better outcomes for your business.

In conclusion, power dynamics play a critical role in negotiations between retail buyers and suppliers but it's the power of choice that each party must?consciously exercise, to create?a collaborative negotiation environment,?that?optimises the value that can be created through the entire value chain.