What if negotiating became reasonable?

Le 21 October 2014

Over the last few years, the price war has reached worrying proportions and is starting to show its limits. Neither suppliers, distributers nor consumers really seem to do well out of it. Thankfully, there are other future alternatives.

 

A “triple loser” analysis to negotiating

Who will be the winner in the headlong rush for profit? At a time where the “win-win” arrangement appears to be contaminating our society, the conclusion is sobering. Without having thought up an alternative business model, most suppliers are always forced to sell their products cheaper to the retailers who were once competitors and are now coming together to reduce purchase prices still further (Auchan and Système U, Intermarché and Casino). At the other end of the chain, the consumer finds themselves with cheaper products but of poorer quality. As for the distributors, even if they occasionally manage to preserve their market shares, they must then reinvest it all in price positioning. By abusing suppliers and neglecting consumer expectations, they lose out too.

 

As things stand, the effects are adverse for each contracting partner. Supplier-distributor relations sour, low prices have devastating effects on margins and the health of businesses, the consumer regards the supply chains, the quality of products and their environmental impact with suspicion. Today, we find ourselves dealing with a “triple loser”-type negotiation which is not helping boost consumption. It is therefore becoming urgent to restructure a “triple winner” contract in which the consumer will be central.

 

The “triple winner” contract, an idea for the future

When negotiator and buyer become partners to aim for the mutual gain of the consumer, they give a meaning to their own profit requirements as well as a coherence to the entire value chain. We subsequently make the shift from a “win-lose” (and often “lose-lose”) rationale to a “triple win”. This rationale is based on reasoned negotiation which, in the medium term, allows investment, innovation and quality while generating consistent prices.

 

There are already systems up and running in the supermarkets sector. For example, Comté cheese is priced around €18 per kilo from which the producer gets an average of €3. Food box schemes offer it at around €12 per kilo and the producer (who obviously sells lower quantities compared to supermarket networks) pockets €6 to €9. In the first case, the product is mediocre and the producer gains very little from it. In the second case, there is a quality product, the consumer is satisfied and the producer gets something out of it too.

This example encourages us to explore innovative ways of doing things to develop new profitable markets with the emphasis on new networks, export, or even better, adapting to the demand. The French dairy industry produces high quality milk at a competitive price. Supermarkets resell the milk at around €1 a litre whereas the milk, which has become almost tasteless, was bought from the producer at 30 centimes a litre and they subsequently lost money producing it.   However, processing it into milk powder, for example, which is in high demand in China, would be much more profitable.

 

The “triple win” approach is not naive, but it requires courage, imagination, careful thought and creativity. We must find solutions with added value in addition to a reasoned approach and build our BATNA (Best Alternative To a Negotiated Agreement) to sell better and elsewhere. The aim is not to scupper our clients’ supermarket markets, but to enter them, remain there or to grow in them in a coherent and healthy way.

 

Stubborn preconceived ideas

But this process cannot happen without combatting stubborn preconceived ideas beforehand. These see negotiating as a fight that must be won and from which you must emerge victorious, where there cannot be several winners. It is like a game of poker in which you can lie, bluff, conceal things and you must progress wearing a mask. This idea that when negotiating, we have to beat our enemy, whose interests are bound to be opposed to ours, must be killed off. In an article dated 28 August 2013, Michel GHAZAL, a negotiation and conflict management consultant, tackles these preconceptions and affirms that, “negotiation is the ultimate and most civilised way to resolve conflicts and differences between countries, between companies and even in one’s private life.” The Harvard method of reasoned negotiation and the strategy of mutual gain that it has introduced in Europe has, in fact, shown its effectiveness in much more hostile situations such as international conflicts.