Procurement negotiations – looking for asymetrical value

It's great to see so many comments on our post about neuro-linguistic programming and negotiation the other day - we'll come back to that later. But we saw an example of one interesting aspect of negotiation planning with our hotel earlier this week in Philadelphia, the Palomar*. One of the unusual "perks" for guests is a free wine tasting hour from 5-6pm every evening. It's not really a "tasting" - it is basically free wine and truffle-oil popcorn (which has cocaine-like addictive qualities).

Their restaurant also came up with a free dessert and glass of dessert wine for us as we were "celebrating". They asked when I booked whether it was for a special event and I said that we'd just celebrated our anniversary last week - "that's near enough" they said, and came up with the freebies at the end of a very good meal!

So what has this got to do with negotiation, I hear you ask. Well, the cost to the hotel I estimated of the wine event is, at most, $200 a night - around $1 per hotel room. The cost of the freebies at dinner? A handful of dollars. But the perceived benefit  and the perception of value to the guests is, I would argue, far greater than this. Would I pay an extra dollar a day for this hotel compared to a similar competitor because of their added value? I certainly would. Maybe even $5 a day?

This is therefore an example of asymmetrical value. The cost of what the hotel is giving away in the "negotiation" with their guests is less for them than the perceived value to the recipient.

And that's exactly the sort of thing we should be looking for when we plan our procurement negotiations. What can I concede that has a lower value to me than to the supplier? A great example can be agreeing to be a reference site in some way. That doesn't cost you anything, but can have huge value to the supplier. Equally, if they are doing their planning, they will be looking for things that have a high value to you but don't really cost them much. A lot of warranties and guarantees fall into this category - the buyer wants them and values them highly, the supplier may feel that the chances of them ever being invoked is pretty low.

So this should be an essential aspect of the planning process, and we'd be interested to hear of other examples of asymmetrical value in negotiations - I'm sure there are some fascinating experiences to share!

(*I can absolutely recommend the Palomar - very good hotel, great location, but made special by the best hotel staff I have ever come across).

First Voice

  1. Calum:

    Completely agree with this post – I think the vital thing is to get an appreciation of the value of the work to the supplier – how does it fit with their strategic plans, is it new and innovative for them, is it high profile and so will help them grow etc.
    Leveraging this in the discussion allows a buyer to get better value and flush out their real commitment to the outcomes and for you to evaluate the likelihood of getting the benefits expected (not just the transactional delivery of the service) which has to be a major part of the procurement decision.

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