When a large global retailer pushed new payment terms onto all of its suppliers, one of them asked us for help. Their commitment to the plan and resilience under pressure led to a great result.
The call came in:
A friend who specialised in helping healthcare and beauty product manufacturers to develop innovative formulations was visiting a client. He called me afterwards and explained that he'd made very little progress in the meeting as the company directors were so distracted and frustrated by a letter they'd received that morning. It was from their largest customer, a giant retailer, and it explained that their payment terms were moving from 30 days to 90 days, and that a new discount would be automatically applied to all invoices received, to fund a store expansion programme. My friend suggested they call me for advice, which thankfully they did.
The critical insights:
Having agreed to help them develop a negotiation strategy to try and minimise the damage of the new terms, we set to work analysing the business, the relationship, the key contacts and their historic experience of negotiating with this particular customer. Initial attempts to open a negotiation were all rebuffed, and it became increasingly clear that a higher-risk course of action would be required to escalate the issue and trigger a dialogue.
History and deeper data analysis showed that while the retailer's customers were very loyal to most of my client's products, simply stopping supply could take several months to force concessions from the retailer, and some of the less-loyal products would be vulnerable to de-listing during range reviews that the retailer had planned in the intervening time. That outcome would probably have been more expensive over the long-term, than accepting the retailer's initial demand.
What we did uncover though, was that my client also provided some of the product formulations for a premium private label brand owned by a different division within the same retailer, and that range was about to be relaunched on a very large scale. That division hadn't sent a demand, and those particular lines would be unaffected by the change, but we had found our point of leverage. We therefore developed a strategy to create internal pressure between the two business units to force open a dialogue, and designed a negotiating plan to mitigate the financial impact, formally lock in the existing terms, and protect the vulnerable parts of the range.
It was a tough negotiation, but my clients remained committed to the plan throughout, prepared intensively for each interaction, including role-plays with me, thoroughly reviewed every meeting and communication, and were courageously resilient in the face of mounting pressure to back down.
The negotiation was a success, the terms remained unchanged and no discount was conceded off future invoices.
In addition, my clients negotiated a formally signed agreement to their original terms, which they'd never been able to previously secure .
As a concession, to provide their cusomers with a win of their own, my clients agreed to increase promotional funding behind some of their key ranges which, when modelled, looked like it would at least break even for them and provide an annual sales and profit uplift for the retailer.
Several years on and their relationship remains in good health, their ranges are still on the shelves, and to date, they've not received any more demands to concede profits to this particular customer.