Carl Ritchie Applies Margaret Peake’s Advice
Carl Ritchie is preparing for some difficult negotiations. He has established his strategy with his sales and marketing director: The objectives to be achieved are clear in terms of volume, price, and associated terms. Those objectives take into account the market, the competition, and the customer’s specific expectations. On each issue, a “bottom line” has been drawn, with special terms attached, where necessary. Lastly, the initial proposal has been drawn up to allow realistic room for negotiation on price, but also to create a “settling point” on delivery times.
The customer’s potential demands have been examined and their consequences measured with reference to profitability and cash flow. The potential concessions and gains in exchange have been inserted into a decision-making chart that Carl Ritchie will keep in his file during the negotiations.
Carl Ritchie has taken care to enter the negotiations from a position of strength: He has avoided revealing “sensitive” information that might have been exploited by the buyer. Aware of the customer’s scheduling imperatives, he has also been able to “play for time” and knows that the buyer must now agree to a deal quickly.
When the negotiations commence, Carl Ritchie keeps the Five Golden Rules in mind. Faced with pressure from the customer, who is demanding a significant price cut, Carl argues at length about the product, the technology, and the service, thereby applying Golden Rule No. 2. He also puts Golden Rule No. 5 into practice:
Carl RITCHIE: Apart from the pricing issue, are we fully agreed about all the rest?
BUYER: Just a moment. Could we discuss the price right now, as it’s the key issue.
Carl RITCHIE: I want to discuss the price once every other aspect of our agreement is clear.
BUYER: For now, I’m asking for an answer on pricing, so please don’t change the subject.
Carl RITCHIE: If you want an immediate response on pricing, I’ll give you one: No! Having said that, if we could look at the whole project first, I’d hope to be able to make a better-calibrated proposal on pricing. I’ll ask again: are we fully agreed about all the rest?
BUYER: There are two things that are bothering me: the delivery time and the invoicing of installation costs.
Carl RITCHIE: Are those the only two items that would prevent you from signing the contract?
BUYER: Those and the price.
Carl RITCHIE: So if we reach an agreement on those three items, can I count on your order right now?
BUYER: Absolutely!
Carl RITCHIE: There is one issue on which I really won’t be able to help you—namely, the installation costs. At our company it’s standard practice to invoice them separately, and I can’t adjust the price for that.
BUYER: Maybe not, but your competitors aren’t demanding payment for installation work.
Carl RITCHIE: The customer always pays one way or another. As far as we are concerned, we prefer a certain degree of transparency, and I have to separate out installation costs, and let’s not forget that they account for less than 1% of the total cost of the transaction. There’s nothing I can do about that. On the other hand…
BUYER: I’m listening.
Carl RITCHIE: On the other hand, I perfectly understand your wish to get a quick turnaround on delivery. The problem is that allowing you that would cause several weeks of chaos with the rest of our production schedule.
BUYER: But you know perfectly well that’s a crucial precondition for doing a deal with us!
Carl RITCHIE: I see. But it’s not easy for me to place such a cost burden on my plants. (Then, applying Golden Rule no. 3) For your part, would you be prepared to look at the issue of payment deadlines again?
BUYER: That has nothing to do with it!
Carl RITCHIE: I simply believe that to justify a very costly shortening of the delivery schedule, we might be able to make a slight adjustment to the payment schedule.
BUYER: What are you proposing?
Carl RITCHIE: If you accept the principle of installments paid at 30 days net instead of 45 days from the end of the month, I might be able to arrange for a special reduction to be made in the delivery time.
BUYER: I wouldn’t oppose that.
Carl RITCHIE: Let’s assume that, under those terms, I can probably commit to delivery by March 30 instead of May 15. I’ll confirm all this in writing by this evening, once I’ve got the plant manager’s agreement. Are we agreed?
BUYER: Yes, but there remains the issue of the price. I’m looking for a cut of about 5%, at least.
Carl RITCHIE: That comes to almost $15,000, which is completely out of the question.
BUYER: If this deal is of no interest to you…
Carl RITCHIE: It’s of great interest to me, but not at any price. I can’t offer you any more price cuts. However, I’ll make you a proposal. From your perspective, are you prepared to look at the issue of maintenance parts?
BUYER: I’m listening.
Carl RITCHIE: If you opt to take out a 2-year maintenance contract with us, I’d be prepared to offer you a large credit on all your spare parts and maintenance items.
BUYER: How much?
Carl RITCHIE: If this proposal allows us to sign a deal today, I’m ready to commit to $5000 a year for up to 3 years.
BUYER: That’s better than nothing.
A few hours later Carl Ritchie informs his chairman that the contract has been signed. The chairman smiles solemnly, thinking of the benefits that this contract will have for the whole company. He knows that it wasn’t easy to clinch that deal. After a moment’s silence he places his hand on Carl’s shoulder. “You’re an outstanding negotiator,” he said. “Sometimes I wonder how you learned so much.”