By Tony Hughes, CEO at Huthwaite International, a leading global provider of sales, negotiation and communication skills development.
These days administrations and profit warnings have become a common fixture in the global media. Once-booming businesses such as Toy R Us and Carillion have collapsed, while other household names are regularly in the spotlight for all the wrong reasons – revealing they are either crippled by cashflow, or are teetering on the brink.
When thousands of jobs are in jeopardy, investors and shareholders want fast answers and cost cutting, redundancies and short-term sales pushes are often the go-to solutions.
While the desire for a fast turnaround is natural, it’s vital that that those in a position of power consider other opportunities that can stabilise cash flow and improve profitability. One such area – albeit often overlooked – is strategic negotiation. A negotiation strategy, if delivered properly, can very quickly improve cash flow, reduce overheads and ultimately soften expenses to protect profit, for even the most troubled of companies. Not only that, but an effective negotiation strategy can help a business fight to see another day.
How does effective negotiation work?
Let’s use the recent, high profile model of Toys R Us model as an example.
When first established in the 1950s, the retail giant embodied the child-like desire to spend, spend, spend. It was consumerism at its very element, with mass appeal to parents and children alike. Toys R Us in the main monopolised the toy market. Manufacturers wanted to be stocked there, parents and children wanted to shop there. Toys R Us had bargaining power with its partners and suppliers, and as a result it could negotiate hard to secure competitive deals with manufacturers. As a business model, the toy store struck the balance between smart sales and effective negotiation. For example:
- It was accessible – most of Toys R Us stores were located out of town, perfect for 1950s baby boomers embracing the concept of consumerism and spending as part of leisure time. It was new, novel and provided shoppers with an easy place to please the family. Likewise, manufacturers were able to sell to a retailer safe in the knowledge they’d receive unrivalled brand exposure and sales.
- Innovative, imaginative and ahead of its game – its advertising and marketing were pioneering. It captured the hearts and minds of the nation and compelled people to buy into the idea of visiting a Toys R Us store. This only strengthened negotiation power for the retailer – positioning itself as the place to be stocked for toy manufacturers.
- A bona-fide market leader – at its peak, the retailer was a genuine market leader, not only when it came to brand awareness, but from a revenue perspective. That meant it was the brand to work with, whether you were a manufacturer, supplier, or other partner, even if that meant accepting lower margins than alternative retailers were prepared to offering.
However, somewhere along the line, this changed, and the brand was unable to maintain competitive pricing comparative to online retail giants like Amazon. At this point the retailer’s approach to negotiating should have changed in line with this, to ensure the business maintained its edge. This approach could potentially have safeguarded the business longer-term, and been utilised as a tool to inject much-needed cash into the business. However, many businesses often don’t even consider this approach.
The bargaining power of a ‘brand’
So what can we learn from the Toys R Us example? When a ‘chicken and egg’ situation occurs for a business and it fails to offer something exciting, appealing and unique to the market – ultimately you sacrifice your bargaining power to manufacturers, suppliers, service providers and indeed the wider supply chain. Fail to create bargaining power and you sacrifice the ability to create an affordable, exciting and innovative offering for your consumers.
Once the appeal has gone, a business can quickly become out-dated and as such lose its leverage. Brand reputation then becomes the real victim – customers and clients expect your offering to be failsafe. If this wavers, as we saw with Toys R Us, customers become alienated and as a result businesses and customers alike no longer regard your offering as ‘must have’.
Businesses must work hard to ensure that every pound really does count
Huthwaite recently conducted research with YouGov into the impact of an effective negation strategy which revealed that six-out-of-ten of the most effective margin-maximising business strategies require effective negotiation skills. Put simply, it is not enough to focus on innovation, sales and growth strategies. Businesses must also work hard to ensure that every pound really does count.
If a business fails to embrace the benefits effective negotiation can offer, it risks missing an opportunity to save huge amounts of capital, not to mention improve margin. Huthwaite’s research shows that businesses with a systematic approach to sales and negotiation experience 42.7% greater growth to the bottom line than those without. This fact alone highlights the importance of applying effective negotiation techniques to drive profitability across an organisation. In times of trouble, this is essential.
To further underline this point, Huthwaite’s data shows that six out of the top ten most popular margin-maximising strategies used by businesses all require strong negotiation capability to be truly effective. These being:
1) Improving productivity (53%)
2) Reducing overheads (53%)
3) Cost-effective purchasing (50%)
4) Improving customer retention (49%)
5) Reducing fixed costs (48%)
6) Managing general operating costs from suppliers (41%)
With effective negotiation skills, businesses can start maximising these tactics immediately, and for businesses like Toys R Us, this could make the difference between surviving, and going under. The question isn’t ‘if’, it should be ‘when’ can we start and how much can we save?
If you want to learn more about how Huthwaite International can help your team develop a highly effective negotiation strategy visit the Horizons hub, where you can find ground-breaking research and techniques on how to maximise negotiation and sales techniques for business success https://huthwaiteinternational.com/horizons/.