A brief exploration of market power and how it affects behaviour. This episode explores tactical behaviour when the power balance between the parties is relatively even, and neither party really 'needs' the other party.

1. This presentation explores
commercial acumen in
buyer/seller processes.
I analyze three negotiation
tactics and then draw out
some principles

2. WHAT IS ‘COMMERCIAL ACUMEN’?
UNDERSTANDING SOURCES OF POWER IN COMMERCIAL DEALINGS

3. A CONCEPTUAL MODEL
Commercial acumen is a composite of strategic and tactical factors.
In this example, the seller has the balance of power in the market,
perhaps for reasons of patents, licence or monopoly.
Smart behaviour by the buyer can moderate structural factors, but if
you need the other party more than they need you…
This reminds us that commercial acumen
isn’t just about us, and what we do.

4. TACTICS WHEN NEITHER PARTY NEEDS THE
OTHER
WHAT BEHAVIOURS ARE APPROPRIATE WHEN POWER BETWEEN THE PARTIES IS
BALANCED, AND NEITHER PARTY NEEDS THE OTHER?

6. NICKEL AND DIME
ADVICE FOR BUYERS
A value proposition has a reasonable
entry price, but the ‘extras’ add up, so
that the total cost is higher than
expected, as the value proposition has
been stripped out so that the
‘benchmark’ rate is lower than the
actual total cost.
“The unit price? $5000. No that does not
include the battery. That is $250 extra.
The case? That is $250 extra. Delivery?
That is $250 extra. A two year warranty?
That is $750 extra!
6
Is it ethical?Does it work?
Powerful
Weak
Be careful!
You’re fine!
A pricing tactic used by sellers which
may catch out price-focused buyers
If you are offered a de-specified
package, add in the extras to work out
the total cost of what you need. One
way to do this is to ask for a package or
‘turnkey’ solution so that the total cost is
clear, (with a cost breakdown, of course)

7. RACK RATE / HIGH BALL
ADVICE FOR BUYERS
The other party’s opening offer quotes a
“standard” rate which is at a premium
rate. The reality is that the rate (or term) is
an ‘anchor’ or an attempt to legitimise a
(relatively) extreme opening position. This
gives them scope for concessions.
When you challenge the rate (or the
term) the response is that “It’s our normal
rate!” or “Everyone else agrees to that
clause!” The buyer is then delighted when
a concession is made, as the buyer feels
that they have had a ‘win’
7
Is it ethical?Does it work?
Powerful
Weak
Be careful!
You’re fine!
Two negotiation tactics used in competitive
negotiations to set an aggressive ‘anchor’
and then try to dissuade the other party from
challenging it by claiming legitimacy
If the other party opens with an extreme
position, ask yourself what it reveals
about the legitimacy of their negotiation.
Try to relate your position to other
benchmarks, and avoid the ‘anchored’
original price conditioning you that you
are getting a good deal when they
(reluctantly) concede.

8. STANDING ROOM ONLY
ADVICE FOR BUYERS
The creation of a sense of urgency to act
now, because of (insert some artificial
event that threatens your ability to get
these terms in the future). The current deal
is only available for a limited time period
so you have act now or lose the deal!
“There is only one left”, “the price must
change tonight” are crass, but what
about “act now to get 2018 pricing!” or
“we are nearly at capacity, so if you want
to get one, I suggest you reserve one
now, as I cant guarantee there will be any
left if you delay!”
8
Is it ethical?Does it work?
Powerful
Weak
Be careful!
You’re fine!
A tactic used (mainly) by sellers to create a
sense of urgency to make a decision
If you are presented with a deadline,
validate how real it is. An annual price
review? Totally within the seller’s gift to
change this. Finite capacity? Unless
demand exceeds supply in the market,
this may be a ploy, so ask about
capacity or explore the implications of a
delay.

9. When the market is balanced,
and neither party needs the
other, there may be no
interest in either party in ‘the
relationship’ or ‘the bigger
picture’
A competitive negotiation
may result, with each party
trying to claim value

10. SO WHAT? WHAT ARE THE TAKE AWAYS?
WHAT ARE THE PRINCIPLES UNDERPINNING THESE EXAMPLES?

11. The ‘Nickel and Dime’ tactic
works on price-focused buyers
who do not understand the
total cost. So build a cost
model of all the costs
associated with the purchase
“What does that include?” is a
reasonable question, followed
by a request for pricing on
any relevant ‘bolt-ons’ that
may need to be added to
make the solution viable.

12. The ‘Rack Rate’ tactic works on
inexperienced negotiators who
can be intimidated by
challenging what appears to
be ‘legitimate’
There is almost no down side to
the ‘ambit claim’. If you get
away with it you are a hero to
your side, and if you concede
the other party is happy. Base
your targets on independent
benchmarks, not on the
supplier’s pricing

13. The ‘Standing Room Only’
tactic works when the other
party is procrastinating, or you
want to accelerate their
governance processes
What is the actual level of
urgency? Unless there is a
genuine deadline, it is likely
that the other party wants to
trigger you into acting quickly.
Point out that you need to
explore what happens if you
cant meet their deadline, and
see what happens

14. If you are
interested in
learning
about the
buyer’s and
the seller’s
perspective,
here’s a book
full of ideas
and practical
tips on how
buyers and
sellers
approach
negotiation.
It’s on
Amazon.com

15. This presentation is part of a
series on commercial
awareness.
Feel free to share it, and if
you want the original slides
for in-house use contact me
at www.paulrogers.pro