Handling Reciprocity in Negotiations
Reciprocity is a dirty little secret of business-to-business negotiations. It cuts both ways: A vendor buys your product or service and it’s: “We buy from you, now you have to buy from us.”
Or, you’re doing a procurement and your own people try to make reciprocity a condition for awarding the contract.
It’s an uncomfortable situation. Executive relationships and existing business relationships may even be at stake.
This goes on all the time, but nobody likes to talk about it. You have to learn to practice diplomacy while still doing what’s in the best interest of your company. Here’s how.
Walking a fine line
You want to be collaborative and an advocate for your company as well as make sure you’re getting the best value for the products that you’re buying. That’s a fine line to walk.
If it works out that both parties do want to buy from each other and there’s value on both sides, great.
But getting someone to do business with you at gunpoint is an awful way to start a relationship. In my experience, no one wants reciprocity to come to that, at least not the more level-headed people. It’s usually some cowboys out there who are pressing for it. It requires a good deal of finesse to do what’s right and keep everyone if not happy, at least not disgruntled.
Do your homework
My experience is that procurement people don't often take reciprocity into consideration. If they do think about it, it’s to hope that it won’t come up. So, they close their eyes and wish for the best. That’s not a good strategy.
When you’re going into a negotiation, do your homework to find out if reciprocity could be an issue. Does your company have other business relationships with the company you’re negotiating with? What is the value of those relationships? What is the quality? Is the relationship great, poor or just OK? Who are the key players in your firm and theirs? Get the facts and avoid surprises.
When I was in the healthcare business, most of the suppliers we negotiated with were in our national accounts program. I was able to go to the executive in national accounts and ask if we had a relationship with them.
Likewise, she would often call me and say, "Hey, we're proposing on a piece of business. Do we buy from this company or do you have any relationships there which could help us?" And if the answer was no, she'd sometimes ask, "Have they ever given us a proposal?” And I'd do the research to make sure her team didn’t get blindsided. We developed was an excellent relationship and collaborated on many opportunities.
If reciprocity does come up, acknowledge it and address it head on. Don't try to skirt the issue. That will only make matters worse. This must be addressed at a senior level and out of the view of the folks doing the sourcing.
If you're not doing business together, you can still open up lines of communication. You don't have to commit to a reciprocal relationship. Let them know where you stand, and provide as much information as you can.
If a firm that’s buying from you has bid for your business in the past but hasn’t prevailed, share as much information about that as you can.
The CPO can also offer to have a phone conversation with them. The goal is to get the right people talking. These should be people who are fair-minded and can explore a reciprocal relationship in a rational way. They also have to have to be senior enough to quiet down the cowboys if reciprocity doesn’t make sense.
What it comes down to is that everyone wants to feel they’ve have had a fair shot at getting the business. Everybody understands that sometimes you win and sometimes you lose. The biggest negative reaction comes when you don’t win the business and nobody knows why.
Considering the merits
A new negotiation can be a good occasion to consider, or reconsider reciprocity and see if it has merit. Think of it as a reintroduction of two people who’ve met before, but haven’t quite become friends yet. Here’s a chance for them to get to know each other better. Maybe something will come of it; maybe not. The key is connecting the right players to make sure each side understands the other.
Then, if an opportunity to propose on something does arise, or if there’s a proposal in flight, the relationship is in place.
If you’ve been up front and transparent all along, that’s far less of an issue. The line I always liked to use is, "Look, all things being equal, we like to do business with our customers. But all things aren't always equal."
They may not like hearing that, but they aren’t going to call the CEO screaming. If they do make a phone call, it’s more likely to be, "We're disappointed, but we understand."
A spoonful of sugar
Strong relationships are what makes disappointment go down with a spoonful of sugar. As a CPO, you should have relationships pretty high up in the organizations you do significant business with. Internal relationships are even more important. Build strategic relationships with people who are fans of the work your department does, such as the relationship I had with the national accounts manager.
You also want to develop a reputation in the organization as someone who is going to do the right thing. When you make a decision to go with a supplier that isn't a customer, make a phone call and let your internal people know.
Then call the procurement team or whoever will be notifying the losing bidder, and explain to them what happened and why.
Do that every time, and you’ll become known as tough but fair. You’ll be seen as adding value to the business, and reciprocity will become much less of an issue.