Best Practices in KAM: Negotiation

We have recently run a number of workshops on negotiations in Key Account management involving a number of leading companies and Executive MBA’s from a leading business school. 

Here’s an article associated with these events that you may find useful.  It’s a seven-minute read.

 

Gaining better outcomes from negotiations with your key accounts

A quick search on Google reveals 28 million results for ‘best books on negotiation 2018’, and 106 million results for ‘negotiations in key accounts’.

Despite this attention, and no doubt great advice – I openly admit that I’ve yet to read even 0.001% of these – from speaking with business leaders and through my own experience, it’s clear that negotiations with important customers don’t flow as well as they might.

Inefficient and ineffective approaches not only diminish value delivery they also damage relationships; both are primary dimensions of successful key account management.

This short thought piece, targeted at managers in suppliers responsible for results with such key accounts, offers insights and guidance for improvements. I’ve aggregated these from working with top performing organisations, global and local, in markets sectors including grocery, technology, health, oil and gas and professional services.

Let’s consider some distinctive characteristics that impact on negotiations with key accounts.

High Value and leakage: Firstly, the nature of key accounts is that they are strategically important to the suppliers future. Given this, negotiations tend to relate to high value business where both parties have much to gain, or lose. And its not one off, such negotiations occur frequently over time as relationships are designed to be long term.

If a supplier is poor at negotiating with a strong customer, its opportunities to build its commercial results leak away, frequently in ways that are not immediately obvious.

Gaining 5% more business, 2% higher pricing or agreeing to provide 3% less service support will each have a significant impact on a suppliers profits.

Some, but all too few, organisations take the time to audit the quality and outputs from their negotiations with key customers.  One energy leader I worked with in the US identified that improving its negotiation capabilities when selling was a stronger route to improved margins than cutting its cost base or delivering new products.

Is it clear within your organisation of how much value is lost because of substandard negotiations with your key customers?  For your business it may be a piece of analysis that is truly illuminating.

Long timescales and changes: Linked to higher value business, the buying cycle for individual programmes being negotiated with customers may stretch over several years e.g. an oil and gas project or a hospital build.  Negotiations are often focused around a number of customer decision gates.  Across such time periods the customers requirements and the benefits of delivering these to the supplier can change dramatically.   What started out as a very attractive piece of business can quickly become a loss maker, sucking in more resource for less upside.

Suppliers need to proactively monitor such projects, taking the lead to renegotiate terms with customers where necessary and not only wait for customer decision gates.

For the supplier dropping a sales project after several months or years of pursuit may be a last resort but if its clear that the risks have become too high, or benefits too low it should be viewed as a real option.

More positively, as a customers project or needs develop new opportunities may come to light for more business with better pricing. Such possibilities need to be pursued.

Organisations that negotiate to win the initially specified business no matter what, lack commercial nous.

 

Complex and interconnected:   But individual pieces of business may also need to be seen in the broader context of the entire account relationship and lifetime value potential. The account relationship may need to be run sufficiently strategically by the supplier that an individual piece of business can be negotiated at a lower than desirable margin in order to secure other more fruitful business.  E.g. low margin on a local product installation to secure higher margin on repeatable service business or international contracts.

It may also make sense to agree to take on the customers commodity business needs in addition to higher added value projects in order to fulfil their desire for a ‘one stop shop’. It may also block out keen competitors trying to gain a foothold in your key accounts business.

Such approaches need to be carefully thought through and coordinated. Active, disciplined key account management of a complex, sometimes geographically spread, landscape can be essential.

Multiple Connections:   Negotiations that involve high value, complex, long term business generally involve many people and decision pathways through various criteria, committees and appraisal systems.

A fundamental discipline of key account management is building broader, productive customer relationships to positively engage those involved in decision making and with influence.

This is certainly true relating to managing the related negotiation landscape. Fail to build a positive relationship with the customers key sponsor and negotiating a positive outcome becomes very difficult; place your inexperienced team before the customer highly professional procurement group and the outcome will be less than optimal.

The customer may also introduce expert third parties to negotiate for them. Understanding of and connections to the wider negotiation ’channel’ can be imperative for success.

Key account managers have a key role in coordinating these relationships and connecting the right parties from within their own organisations, at the right times to support constructive negotiations.

But key account management should not place too much responsibility on the shoulders of any one account manager. Key account managers may leave your organisation mid-negotiation – particularly on an evolving programme across several years e.g. a large infrastructure project, but continuity with customers needs to be maintained.  Disciplines are required to record the customers decision making processes, negotiation status and required next steps.

Pay-offs From Active Learning:  Organisations often follow ‘standard’ procedures and adopt similar approaches to negotiation year after year. Some customers are aggressive and like a heated environment, others follow latest procurement practices whilst some seek truly collaborative, creative relationships.

The details around a particularly negotiation will always vary but the tone and style may be relatively consistent.  It can be helpful to identify and prepare for this, shifting your approach and those people your organisation involves accordingly.

Learning insights about the key accounts environment and performance will also provide helpful guidance.  If your customer is struggling with financial performance and laying off staff, expect and prepare for a focus on cost reductions, if it a seeks rapid expansion your fast delivery and innovative solutions may well give you the negotiating edge.

Training your teams on negotiation techniques can certainly be helpful, but will have much more impact if it is linked to true and deep customer insight and understanding of how the customer behaves.  Tactics, role plays and rehearsals can then be shaped accordingly.

Negotiating well with key accounts builds value and embeds productive relationships but requires active management and direction.

Arming your team with tactical negotiation skills and awareness is important but for key accounts, as outlined above, a more strategic look at value, time scales, the interconnected nature of business, decision making pathways and customer insights are elements that can really make your negotiating approach a commercially powerful competence.

 

Alistair Taylor is a Board Member of AKAM and Managing Partner of Brightbridge Consulting, a specialist in profitable customer development.  He has supported customer growth initiatives within a range of top global organisations and as part of this has advised on, and been involved with, high value negotiations.