Would you agree to give something away without being sure of getting something in return? What might it take for you to even consider this idea? In some quarters of the grocery trade, negotiations between suppliers and retailers have changed in the last twelve months, such that the idea of “negotiation without Conditionality” is exactly what is being entertained. It sounds like a contradiction in terms, anathema. Is this realistic, and under what circumstances might it be a sustainable way of working between trading partners?
How have we got here?
The historical context is that over the last twenty years, many manufacturers and retailers have spent an increasing and disproportionate amount of time negotiating listing terms, leading to a proliferation of discounts and payments which ultimately made trading terms phenomenally complicated. In the meantime, it is recognised that the consumer got left behind, with such in-store consequences as an inordinate number of promotions, and crowded, over-segmented product ranges.
A new way of working?
A new, radical way of working was required, and it can be summed up with two words: the first is Consumer. And the other is Simplification. Yes, it’s Back To Basics: buyers and sellers have painfully had to face the fact that ultimately they live or die by the degree to which they manage, together, to create value for the ultimate arbiter – the Consumer. The emphasis is now back on driving the top line.
What does this mean from a negotiation perspective? It means a drastic reduction in the number of variables being negotiated, and a far tighter negotiation agenda. In an effort to simplify terms, some retailers have asked suppliers to move discounts and investments previously linked to performance straight into the invoice price. This means that discounts and investments which were previously conditional are now de-conditioned.
“Negotiation without Conditionality”?
Conditional trading – If You… Then We… – ultimately is about managing risk. Under a strictly conditional negotiation model, a supplier could leave it to the retailer to ultimately deliver “the plan”. Now, it looks like risk is being transferred back to the supplier.
The question is – how can suppliers and retailers work under this model in a sustainable and collaborative way?
The way to make this business model work is for both parties to work together to reduce the overall level of risk and make the plan deliver. The biggest risk in the consumer industry in the end always boils down to one thing: not selling enough. This can result from a huge variety of reasons – from supply problems, to poorly activated in-store activities, or poor marketing decisions.
So, these are some of the most important things which can help minimise the risk of the plan not working, optimise implementation and therefore, maximise Sales:
Align strategies – buyers and sellers need to forge closer partnerships, aligning category strategy to brand strategy and commercial strategy. They need first of all to share a vision of what they are trying to achieve together.
Engage the whole team. This type of partnership may require working cross-functionally. The plan needs the engagement and buy-in of senior management, marketing and retail operations. It involves carefully orchestrated meetings with all the appropriate stakeholders.
Make a Plan. Both parties need to agree a SMART plan which they will aim to achieve over the year – the plan should outline a commitment for both parties to achieve a shared vision in terms of marketing, ranging and distribution.
Use facts, not opinions. In order to minimise risks, marketing plans, selling stories and buying decisions should be based on Fact. This requires knowledge and understanding of, for example, commodity prices, cost structures, consumer data, shopper data.
Get sign off. Ensure that the plan is signed off by senior sponsors, and that functional top-top relationships exist: this means you have a means of escalating when things go wrong and senior sponsorship will help to make things happen during the year.
Be pragmatic. Be realistic when setting targets: what is actually achievable, given the level of stock available / distribution / visibility / etc?
Consider the risks. Be realistic about the risks involved: what could go wrong at every stage of the value chain or the plan? What can be done to mitigate these risks?
Review Performance vs Plan – often! Put in place processes and measures to regularly monitor the plan: who/how/when will we measure and communicate performance against plan?
This is not an exhaustive list. The point is that if, as a supplier, you are going to shift previously conditioned discounts and investment into price, then you now need to be far more customer-centric in the way you sell your ideas, and you need to take some of the responsibility for making the plan deliver. You have to get involved and do all you can to make it happen.
The need for Trust
There is a fundamental ingredient which underpins this negotiation model – Trust. Trust under the model described here becomes even more important. It can be argued that when every concession is conditional, there is less need for trust: a payment is not made until a condition has been met. Under this model on the other hand, there are less conditions and therefore, trust plays an essential role. This trust must not be betrayed, because once it’s broken, it takes a long time to be rebuilt, if it can be rebuilt at all. The relationship must be protected, by communication, and by being reliable, consistent and more transparent – especially in the way problems are managed. And we all know there will be problems, from time to time. The way these problems are addressed is key.
Putting the customer first and simplifying trading terms is eminently sensible. On the face of it, in terms of negotiation this looks like a straight transfer of risk from one side to the other. The answer is for both supplier and retailer to work together towards minimising the overall level of risk, by taking joint responsibility for delivering the sales plan. This requires a far more collaborative way of working, a different mind-set and even new capabilities, such as strategic partnering and creativity, and above all, leadership.
This new approach to negotiating will work if it delivers value to ALL three key parties – retailer, manufacturer and consumer. And if it works, it will be here to stay, on a platform of trust and collaboration. If, on the other hand, the trust is broken and the model does not deliver, then things will inevitably revert to the traditional, and, some might say, “safer”, conditional trading model.
Time will tell…
ShareShare A New kind of Negotiation in FMCG?