Key Account Negotiation

Enhance Value with Your Key Accounts

More trading variables enhance the value equation between both parties. I recall in one previous engagement with a large industrial, the commercial team identified 109 variables to be traded.

Renegotiation of Key Account Contracts

Do your biggest and most valued customers have a stranglehold on your profits? 8 steps for managing business-critical key account negotiations.

Key account profits that seem to be in terminal decline, commercial terms with major customers that are outdated and don’t work in today’s environment. These are familiar issues for many of the companies that I work with. However, when dealing with high-value customers the closeness of personal relationships and the fear of losing a business critical account can be paralysing and prevent action to restore profitability. It is often hard to see a way forward, but with a well-structured approach it is possible to both hold firm on commercial terms and to maintain a constructive relationship. In this article I outline an 8-step approach to successfully manage sensitive key account negotiations:

1. Get the Executive Team to set and adhere to clear and specific renegotiation objectives for key accounts. Margin improvement goals and potential concessions to achieve them need to be defined and agreed upon. A departmental-only silo approach to negotiation planning is doomed from the outset. A company-wide top-down approach agreed by all concerned on how to engage key partners is critical for success.

2. Segment your customer base into at least three tiers and build a robust negotiation plan for each accordingly. The first tier is comprised of your main accounts where the majority of your revenue is derived. The second is your middle tier of customers and the third, the long tail, is where you can more clearly dictate the terms of the relationship. The approach to each tier should include a preconditioning strategy (which manages the expectations of the other side), the initial proposal which opens realistically extreme, the repackaged deal, the potential threats defined and agreed in advance and finally, the necessary requirements to fulfill the re-negotiated contract.

3. Define key stakeholders both internally and externally and understand who in the negotiation process can influence the outcome as well as decide it. Try and determine the professional objectives, personal motivations and distinct negotiation style of each player on the other side of the table before the deal unfolds. If they are competitive, develop a strategy that lets them ‘win’. If they are collaborative, bring more creative issues to the table. Be clear on how you can help them be successful over the long-term.

4. Brainstorm all value-enhancing trade variables in the account relationship. Appoint an internal cross-functional team (marketing, sales, ops, logistics, legal, finance etc.) to carry out this exercise. More perspectives lead to more variables identified. And more variables enhance the value equation between both parties. I recall in one previous engagement with a large industrial, the commercial team identified 109 variables to be traded. Many of these were of great value to the key account but were being given away without compensation for my client.

5. Support those in the trenches. Those often in the lower ranks who are actually renegotiating the deal often feel personally isolated, vulnerable and exposed when the stakes are high and they are required to deal firmly yet with minimal fall-out. These individuals need reassurances that they have company-wide backing to deliver the objectives outlined at the outset.

6. Manage your risk and know your limitations. As the deadline approaches (self-imposed or otherwise), the heat of the exchange can be fraught with risk. Make sure all internal stakeholders understand early on their limitations, walkaway points, potential threats from both sides and parameters of what ultimately is the worst acceptable outcome. If this is defined calmly in advance, negotiation teams will have a clear mandate on how best to manoeuver when tensions rise.

7. Manage the negotiation escalation process by continuously engaging all stakeholders internally. When negotiations get heated, senior management/ CEOs/ MDs will undoubtedly get that distressed phone call from their counterparts on the other side. If they are not part of the process from the outset, these empowered individuals in your business will often make those unnecessary concessions when pressed to do so, eroding value even further. I’ve seen it happen too many times – value leakage from those in positions of authority. They say yes instead of no because they can.

8. Share your progress internally and stick to the plan, it will work. A well-devised plan that involves and has the buy-in from all parties in your business will undoubtedly succeed. A critical success factor for a positive negotiation outcome is a regular feedback loop used throughout the negotiation. Vital pieces of information will be obtained with each negotiation exchange either face-to-face or in written form. It is important to put in place a forum where this information can be shared regularly among key stakeholders once negotiations have begun. It is my strong belief that if you plan for failure in advance of any negotiation, you can systematically avert it and gain the upper hand.

Negotiation is 80% planning, 20% execution. If you and your colleagues systematically follow these 8 important steps, not only will you be able to execute your negotiations more effectively, but also you will significantly improve profitability across your key accounts. And in doing so, you will command more respect from your counterparts strengthening these vital relationships over the long-term.

Karim Davezac is Managing Director of Merindol Negotiation