M&S Agrees To Grocery Price Rises Following Supplier Threats

Marks & Spencer has reportedly accepted wholesale price rises of up to 15% on some of its grocery lines after suppliers threatened to withdraw their products.

Where at: Clearly at the limits of supplier & retailer cost absorption, with ‘public’ announcements best left to the post-agreement stage

Where headed: Some face-saving rationalisation, knowing that scale savings rarely transfer directly into significant reductions in cost of production

Effect on you: opportunity for NAMs in other customers to watch from the ringside, and learn from premature moves

Action: Stick to defensible price increases based on latest analysis of competitor and customer financials…

Sainsbury's results - welcome to the real world of UK retail

Today’s interims reveal no surprises, and together with the Tesco, Morrisons and Co-op revelations, and given the relative transparency of Asda’s results and dialogue with the stockmarket (via Walmart), it can be assumed that everything is now out in the open, with the major players acknowledging that 'The grocery sector is undergoing structural change as customers shop more frequently, using online, convenience and discount channels more’.

True, the Tesco SFO investigation may eventually yield some additional output, but in the main this will be limited to more precise definitions of the elements of Commercial Income along with some amendments to accounting process and a switch to results-based reward that major retailers will ignore at their peril.

The UK version of capitalism is generally very forgiving, provided stakeholders can rely on the truth of what they are shown, and there is no reason to second-guess via the share price. Therefore a line will be drawn and all will move forward.

In other words both Coupe and Lewis are openly clearing the decks and making ready to do battle with the discounters and other retailers, on the premise that in a flat-line market, any growth comes at the expense of the competition… 

Share prices will inevitably follow…

From suppliers’ points of view, we are into a new era of transparency and demonstrable value-for-money, real-time.

Retailers are now into cost-cutting mode with aggressive sell-off of non-productive assets (and suppliers?) a key feature of the programme.

In future, everything will be measured, with a heavy emphasis on assessment in terms of demonstrable impact upon ROCE - the driver of share price.

This means that NAMs will need to re-calculate the cost of every element of the trade offering, especially Trade Investment, and will be expected to demonstrate the benefits of compliance via the impact on a retailer’s P&L and Balance Sheet.

In turn, given the challenges faced by the multiples, and their overt need for help, suppliers are in a once-only position to demand fair-share dealings in return.

For those that hesitate to grasp this unprecedented opportunity, this could well be the last trick they will miss…

Can hugging products make you feel like buying them?

As more of us shop online, new research by Saïd Business School, University of Oxford University, underlines the importance of physical interaction with products and shows how making an affectionate gesture towards a product can increase our attachment for it, and our propensity to purchase.

The authors suggest that the mere execution of an affectionate gesture towards an object can generate an emotional attachment. This attachment is most clearly seen for those products with humanlike characteristics and is strongest in those people who feel lonely....

Some product manufacturers and marketers are already putting some of these ideas into practice, to encourage a greater emotional and sensory connection with their products and services.  For example Nokia has developed technology in its mobile phones that allow users to squeeze the phone to send ‘virtual hugs’, increasing the user’s bond with the product each time they do this. Even those smart phones which encourage swiping rather than tapping are building valuable bonds between the consumer and product.

Application for enhancement of the buyer-seller relationship
For those NAMs that like to build on good marketing ideas, and given the humanlike characteristics of most buyers, we have researched how the same hug-approach might be applied to improving buyer-seller relationships.

A recent article in The Observer points out that the male-on-male embrace is becoming increasingly common among politicians, and men in general. But for many it’s tricky to get right. The article gives intimate detail ref political applications but we felt that this hugger’s list might best suit our readership:

A hugger’s guide for NAMs

1. The classic 
Clearly signposted, mutual, pleasant. The hug of a friend you’ve just winched from a crevasse, or someone you met six pints ago who has laughed at your jokes.

2. Touching distance
Half-consensual, the archetypal political clinch. It says: ‘I’m fine with this in principle, but let’s be clear that nothing surprising’s going to happen after pudding.’

3. Red-carpet bromance
‘Love does not consist in gazing at each other, but in looking outward in the same direction,’ according to Antoine de Saint-Exupéry.

4. ‘Wassup bro’
With legs well set you vertically clasp hands and lean in for a manly rub. Warmly informal without being too intimate, but not one for grandfathers.

5. ‘Oh, right’
Innocuous handshake develops into an unwonted yank ’n’ pat. The most likely to occur in a buyer-seller environment, yet also the most likely to turn into a kiss.

Given this last reference to kissing, and wishing to generalise this kamtip in terms of gender, our additional research revealed the hidden complexities involved in kissing the buyer

Kissing the buyer: X, XXX or XXXXX?
Given the increasingly cross-cultural mix, even in buying offices, it is obviously important to try to comply with local ‘norms’ when deciding to add ‘puckering-up’ to your selling repertoire.

A great article in the Economist gives the detail (and 91 hilarious comments). For instance, at this stage it might be wise to avoid all invitations to transfer to your French affiliate given that social kissing in France is a cultural labyrinth.

This map, created by Radical Cartography, on the Jaunted website, shows how many times French people in different regions typically kiss one another when they greet.

When it comes to buying and selling, offering a cheek can become most fraught with danger.
Some rules of engagement are obvious: one would never peck on first introduction, for example, no matter where in the world you were. But it is also best not to appear too stuffy or aloof. So with continental contacts, you can probably relax into the informal greeting pretty quickly. On the other hand, Americans, apparently, would much prefer to go unkissed. 

British buyers and sellers, as ever, straddle the awkward transatlantic space, probably only think of kissing once they had been to lunch a few times, and then only if they had managed to talk about something other than work…

All in all, the Americans probably have the right idea. Everyone knows where they stand with a firm handshake, or even a hug?

Hat-tip to Anette R. for the pointer to The Economist

Negotiating domestically against hopelessly uneven odds...

Ever wondered how your kids inherited - from the other household expert - and apply high level negotiating skills without ever meeting a buyer?

How they can up-the-ante in terms of the number of bedtime-stories on the evening you arranged to go to the game… How demand levels are even determined by the way you close the car-door on arriving home...

If in doubt, think of the innate skills and insight deployed by your domestic negotiators, by reflex, in beating you hands-down every time:
- A deep and abiding knowledge of every aspect of your character
- Seemingly infallible memories of even the most trivial of events, with word-perfect recall when required
- Infinite levels of sensitivity to your verbal and non-verbal behaviour
- Keen observation and monitoring of how you ‘negotiate’ with the other family experts
- Unashamed access to, and use of, every emotion in the ‘book’

However, the real issue is that we were all expert negotiators at the same age, but somehow (too many workshops?) developed the belief that something more ‘professional’ was required when dealing with ‘real’ negotiators…

In practice, deep study and playback of our domestic encounters might provide more insight and yield even more tools for your repertoire.

Come to think of it, why not explain ROCE to family members and let them flesh out subtleties and applications that you and I can only dream about…?

From an idea inspired by Jeremy Blain

Ambiguity in negotiation....(2)

“Oh! its you”

At least seven ways of conveying your feelings when answering a phone-call from the buyer…Why not try it?

In turn, practice will increase your sensitivity to the buyer’s reaction when you call…

You will hear more when you listen to the music behind the words in negotiation, remembering that the more you hear, the less you will need to give… 

Ambiguity in negotiation....(1)

"I never said you wasted my trade-investment...."

Seven levels of ambiguity, depending on which word you stress i.e. Always listen to the music behind the words in negotiation

Based on an idea in Ha! by Scott Weems

Selling ideas to the unresponsive buyer – challenging the status quo

A buyer who is ‘satisfied’ with your competitor’s brand, the status quo, is not in the market for change.

In other words, it is not possible to sell to a satisfied buyer.

Disturbing the status quo is crucial in making the buyer receptive to new ideas i.e. if the buyer is happy with the current situation, then there is no reason to change, and even less need to consider your proposition.  The first step means de-stabilising current levels of buyer complacency by appealing to their curiosity regarding how others are dealing more effectively with the same issue, or shocking them by exposing their personal vulnerability to changes in the market.

For instance, a buyer that buys at the same price and sells at prices equal to the competition yet nets 3% vs. the rival’s 5%, is obviously open to explanations…. Likewise, a highly geared retailer may not appreciate the danger of a 2% increase in cost of borrowing…

Successfully challenging the status quo means being able to capitalise on the key advantage of the NAM role – breadth of vision arising from experience of the category across the entire marketplace, an insight into all possible ways of making the category available to the consumer – combined with the indepth, but narrow view of the buyer operating within their own store environment.

This potential synergy can be leveraged when the buyer views the NAM as a pan-market expert, a source of insight as to how the other guys are doing. Nothing confidential, simply reassurance that tricks are not being missed…

However, successfully challenging the buyer’s perception of the status quo is not so much about opening the wound, but, having done so, being able to show a plausible link between your proposed solution and the ‘new’ problem.

Otherwise the buyer has simply been made available and receptive to your competitor’s next offer. 

How a daydreaming Buyer could be sending a smart buying signal

Given that lack of time often causes a NAM to attempt 100% engagement with a buyer, only to be distracted in mid-flight as the buyer’s attention seems to wander, such ‘lack of attention’ may in fact be a strong buying signal.

Latest research indicates that daydreaming can actually make you smarter…

In fact, apparently mind-wandering can offer significant personal rewards, including self-awareness, creative incubation, improvisation and evaluation, memory consolidation, autobiographical planning, goal driven thought, future planning, retrieval of deeply personal memories, reflective consideration of the meaning of events and experiences, simulating the perspective of another person, evaluating the implications of self and others’ emotional reactions, moral reasoning, and reflective compassion...

From this personal perspective, it is much easier to understand why people are drawn to mind wandering and willing to invest nearly 50% of their waking hours engaged in it.

So next time the buyer ‘wanders off’, prepare for the moment by front-loading your presentation with needs-based benefits and welcome the signs that the buyer is devoting 100% attention to optimising the business application, leaving you time to daydream about a mutually profitable outcome...  

Think you are Bluffing the Buyer? - The Myth of the Poker Face....

For those of us that think the role of KAM has become a game, with many of the attributes of poker, then latest research on the value of a poker face may save some disappointment in your next negotiation session…

A maxim of poker is to play your opponent, not the cards you’re dealt. A good player scruitinises opponents for clues: A slight wince may reveal that an opponent did not get a hoped-for card. Sitting up straighter could hint that he or she intends to make a big move. At the same time, a good player wears a poker face that reveals no hint of his or her true emotions.

But is it a myth? Can a social animal like a human really perform the sophisticated double task of keeping their face a mask while reading their opponents?

Holding a poker face is possible, but attempts to control the internal experience of an emotion “either fail to decrease or paradoxically increase emotion experience.” So trying to restrain your own nervousness while bluffing can only increase it, making it even more difficult not to reveal.

The research concludes that when it comes to identifying slight signs of emotion - the hints revealed by a careful player - someone trying to hold a poker face is more likely to miss them.

In other words, when next sat in front of the buyer and you are attempting to make a ‘take it or leave it’ offer, forget about trying to read the buyer’s reaction.

Instead focus on maintaining a poker-face regardless, hopefully causing the buyer to miss the subtle signs of your inner turmoil and anxiety at this ‘factory closure’ moment… 

Your annual report – what it tells the buyer, if you allow it...

Last night we downloaded the latest annual report (2013) of a medium-sized UK food supplier from Companies House, and extracted the following:

                            2012          2011                  Buyer’s reaction:
                            £’000         £’000
Sales                   65,000       55,000  +18%     “We helped, how about a discount?”

Net margin          8.5%          9.1%                  “Double our 4.3%, we need more…”

Stockturn             21 times     19.6 times         “...helped by our forecasting/efficiency, gimmee”
(i.e. days stock     17 days      18.5 days)   (potential lapses in availability = deductions opportunity?)

Trade debtors       56 days      56 days           “...we pay you in 46 days, we want 10 extra days”

Trade creditors     39 days      26 days          “this shows you are now taking 13 days extra to pay
                                                                       for ingredients, to cover cost increases!”

Incremental sales for each
£1k trade spend = £11,7k                       “Your large net margin means you can afford to invest more”

Return On Capital Employed
                                22%          25%       "Compared with our struggle to hit 11.5%, you guys have it easy"


*****NB. In-use demo here will connect you to a scenario treatment of the buyer-seller dialogue in practice!


This is just for starters!
If you feel that your team might benefit from a live run-through of your open domain figures at Companies House, and their application in negotiation, why not email me on bmoore@namnews.com, or give me a call on 07977 273409?

Calculating the actual outcome of a negotiation session - the real P&L of the deal...

As we begin (!) to emerge from the effects of the global financial crisis, survival-minded suppliers and retailers can benefit from maintaining strict financial measures and controls in optimising the joint-profitability of their trade partnerships.

One area that may need attention is ensuring that deal-evaluation includes the factoring-in of all concessions, both financial and non-financial. 

The following approach may help. 

As you know, negotiating a deal is essentially a process of compromise, in that instead of simply selling product at the regular price and making our normal supplier gross margin (50%) on the deal, we effectively dilute that margin by making additional financial and non-financial concessions to the buyer.

Financial concessions:
Financial concessions could include discounts, rebates, advertising & promotional allowances etc.

Non-financial concessions:
Non-financial concessions could include advertising & display material, POS, demonstrators, analyses of Sales, Promotional and Category data, etc.

We try to dilute the negative impact of giveaways by ‘insisting’ on receiving equivalent concessions from the buyer that ideally will replace any losses in negotiation.

For this reason it is essential to convert all concessions into their financial equivalents in order to keep a running check on giveaways and receipts during the negotiation process.

In practice, it is best to develop and manage a Negotiation P&L as follows:

Deal Analysis
Total sales to the customer in this deal at list price                             £250,000
Less Gross Margin of 30%                                                                 £75,000

Net sales to the customer                                                               £175,000

Less the Price concessions we gave:
- Quantity discount 3%                          £5,250
-   Advertising allowance 7%                   £12,250
-   Early payment discount 1.5%              £2,625
-   Listing fees                                         £6,500

Less the non-Price concessions we gave
-    POS material (estimate £5,000)          £5,000
-    In-store demonstrators                        £3,500
-     Samples                                            £2,500                                                

Total given away                                                                              £37,625

Less Concessions received from the customer
-  Earlier payment                                      £2,500
- 20% increase in facings                           £8,750  (estimate 10% sales increase)                                                                                                i.e. assume supplier 50% gross margin                                                                          
-  Exclusive in-store promotion                   £10,500 (estimate 12% sales increase)
i.e. assume supplier 50% gross margin

Total received from customer                                                          £21,750    

Net amount given away in negotiation                                            £15,875 
i.e. 9.07% of sales given away in negotiation

The above application hopefully demonstrates why factoring in the non-price concessions and insisting on buyer reciprocation is vital in negotiation.

It then remains to add value and devalue to optimise concession-exchange in the process.....simple!  

Why cash is making a comeback

Despite increasing reassurances by the banks (!) as to their safety and reliability, the rise of contactless payments and chip-and-pin has gone into reverse. New figures reveal that more of us prefer to use hard currency – whether because our accounts are empty or because we prefer the security of coins and notes.

According to a new report from the Payments Council and Link, which runs the UK's cash machines, the volume of cash payments rose by 200m in 2012, reversing the year-on-year decline over the past decade, with more than half of all our payments in cash, reflecting its easy use and its wide acceptance.

Whilst many prefer the anonymity of cash payment, remembering also to take the batteries out of their phones, or leave them at home, don't drive a car, or avoid walking past their daily allocation of 300 security cameras, and obviously ignoring the potential advantages of a 24/7 alibi, a key advantage of paying in cash means that we are continually confronted with the state of our personal finances. This helps to sharpen our savvy-consumer skills when paying with our ‘real money’…

NAM application
In the same way, NAMs who quantify and convert all concessions into cost and value, capturing the resulting impact on their company P&L, can  more easily demonstrate the value to the retailer in terms of both bottom-line result and incremental sales. This has to represent a major advantage over those who continually add cash & ‘non-cash’ concessions to their offering with little attempt to match and trade their way to a fair-share result.

Like the cash-paying savvy consumer, negotiating with real money automatically builds in the need for KPI achievement and compliance in order to provide all stakeholders with demonstrable value-for-money, besides being a constant reminder of our ability to make a profit or loss, via the use or abuse of 'our money'…  

Le Petit Dejeuner Reverse-Charge?

Joe, a recently retired Dublin grocer, decided to treat his wife Bridget to a long weekend in a Parisian hotel in Place Pigalle, in celebration of their ruby wedding anniversary.

The next morning, pausing only to indulge his lifelong habit of recording the serial numbers of each large denomination euro note in his wallet, they went to a nearby café where Joe ordered a couple of double expressos and some croissants for their sidewalk breakfast.

Asking for the bill, and fully prepared to offer a 10% tip, Joe was surprised at the waiter’s demand for €40, and requested an itemised bill. Pausing only to double-check the price-list on the wall, Joe followed the waiter into the café, in time to see him retrieving a crumpled bill for €15 from the waste bin, and asked him to explain the request for €40…

It was the ‘win some, loose some’ response that caused Joe to try to get even…

He handed over a €50 note, and the waiter offered change for €20… Joe held his ground, demanded the full €35 change and took the receipt, left the café and hailed a gendarme.

Inside the café Joe explained to the gendarme and waiter how he had been charged €40. The waiter insisted he had charged €15, and refunded €5 in exchange for a €20 note, so he could not have charged €40. He even opened his purse to reveal a mix of 50s, 20s and some small change…

Joe insisted he had handed over a €50 note and received €10 change, and even had a record of the serial number…

With a ‘win some, lose some’ shrug at the waiter, Joe pocketed the €50 and left to join Bridget on the corner…..

Moral: Running the numbers and keeping a record can pay off in mini-negotiations...and even the odds in day-job sessions…

The talk-ratio in negotiation - optimising scarce time with the buyer

With extending lead-times to gain access to the buyer, and the need to survive over-riding everything, a NAM can be tempted to jeopardise the outcome of a precious buyer-meeting by attempting to monopolise the conversation via a high-intensity monologue, eventually expressing 'hurt' at the buyer's unimaginative  demands for 'the margin'.

This basic mishandling of the session can be avoided by reverting to appropriate use of the 'talk-ratio' at different stages of the meeting. Essentially, relative interventions by seller and buyer should comply with the 30/70, 50/50, 70/30 rule as the meeting progresses through the different phases of beginning, middle and end..

The Beginning: NAM: 30%, Buyer 70%
Having resisted the temptation to unfurl the 200-slide 'presentation', NAMs may realise how little they know about the buyer, and lapse into interrogation-mode. However, time with the buyer is too precious to risk asking for basic facts that should have been researched elsewhere. NAMs should instead focus their 30% of the dialogue on fact-checking and opinion-checking using a mix of open and leading questions, seeking buying signals, and listening to and using the answers...

The Middle: NAM: 50%, Buyer 50%
Phase two should be a shared discussion of the issues, neutralising the objections ('if he ain't objecting, he ain't in the market...') and helping the buyer to buy, using a subtle combination of finance-based adding of value and devaluing of concessions, and testing possible 'need and solution' combinations. In other words, demonstrating a willingness to slice the cake to fit, and enlarging the size of cake only if justified by a willingness to buy more...
Good buyers love this bit...

The End: NAM: 70%, Buyer 30%
If the groundwork has been adequate, then the switch to 70/30 should be natural, and mutually beneficial, as the NAM is allowed to 'take over' the conversation and detail the solution, based upon facts established and agreed in earlier phases, with both parties confident that follow-through will meet, or even exceed expectations...

Time to ignore the flames and try a change of fuel?

How to choose the right customer, when trade-funds are scarce….

Given that even in precedented times key accounts were never created equal, in unprecedented times the differences have become greater and require even more careful classification in deciding whether a customer should be labelled invest, maintain or divest...

In the current climate, it is crucial to redefine what makes a customer special, and deserving of your increasingly scarce attention. This means starting with measuring real Potential, assessing scope for fair-share Partnership, establishing relative Profitability and your ability to Perform, all relative to other key customers in your supplier-portfolio.

Potential
Ignoring history, how important is the customer now in terms of relevance in the market, ability to adapt to new demands, responsiveness to new ideas, high growth phase of its life-cycle, and potential market share?

Partnership
To what extent are you and the customer strategically aligned in terms of urgency? In other words, if you are striving to sort next year’s agenda, and the customer is obsessing about this coming weekend, your minds will never meet.... 
In terms of relationships, would you drink with the buyer in the evenings, without having a reason? 
Is there a good cultural fit, in terms of trust, risk appetite and little need for second-guessing? 
Finally, is your brand profile well represented in the customer’s traffic flow in terms of consumer match?

Profit
If they represent 10% of your sales, do they also represent 10% of your profits, i.e. a fair share relationship is possible?

Performance
How good is your competitive appeal vs. available competition within the customer?

Whilst scoring well on the above criteria will not guarantee a successful ROI each time, at least you will be starting with the right customer….

Measuring value for the buyer? When the buyer needs convincing his gain is greater than your cost...

S:    …and, as you know, we still need to solve this problem of your out-of-stocks Thursdays…how about upping the weekly order?

B:    No way, I am already hitting my buying limits. How about delivering more frequently?

S:    Unfortunately, the 20-unit size of our shipping outer means you would then breach your on-going stocking quantities. I really want to help, but I need some basic information…

B:    I thought you were meant to be the expert on our business?

S:    I can give you some general solutions based on my assumptions, but the more data you let me have, the more precise will be my recommendations. Let’s agree the size of the problem first.

B:    I lose a day’s sales by running out of stock on Thursdays because your inflexible distribution system delivers to our depot on Fridays…

S:    We deliver on Fridays to optimise our coverage of this part of the country, keeping your cost-of-goods low. So, what are your daily sales of our brands?

B:    Confidential…

S     OK, let’s use assumptions for now:  you sell £5.5m of our brand per annum, making it just over £15k per day, at a gross margin of 35%, right?

B:    Near enough, but where is this getting us?

S:    So, if I could eliminate your out-of-stocks on Thursdays, it would represent £15k extra sales per week, £780k per annum, an annual extra gross margin of £273k  (£15k x 52 =£780k x 0.35 = £273k)

B:    How can you help?

S:    The obvious answer is for us to deliver on Wednesdays, but that means re-routing, extra mileage and other costs. Our logistics guys tell me it would cost us an extra £1.5k per trip, making it £78k per annum.

B:    Just a cost of doing business, and £78k is not a lot to improve customer service level.

S:    As a matter of fact, with our published net profit of 12%, this incremental cost of £78k needs incremental sales of £650k for us to break even (£78k/12 x 100). Your extra sales of £780k of our brand means £507k sales for us (£780k x 0.65, allowing for your 35% gross margin), so I need something from you that will generate additional sales of £150k per annum.

Buyer:          …I suppose if we are getting incremental sales of £780k per annum…
SuperNAM:     Great!  How about the two extra facings I’ve been wanting this past few months? 

Adventures of SuperNAM (15)

When the buyer does not benefit personally/directly from your rebate..

S:   …and of course, you also have a 2% early payment discount…

B:   ..that money goes to the Finance department.., it doesn’t benefit me..

S:   So, you’re saying it’s not important…

B:   Correct!

S:   Tell you what, I’ll take it from the Settlement  Discount bucket and add it to your margin, how about that?

B:   No, you can’t do that!

S:   You just said it wasn’t important….

B:   Well, it is important to my company, you can’t just remove it

S:   I am not taking it away from your company, I am simply transferring to a more important bucket…the total value stays the same…

B:   No, I can’t authorise that..

S:   Now let’s start again…. I represent the whole of my company in these negotiations. I had assumed you represented all of yours…

B:   Correct!

S:   But you have just implied that you are not responsible for all of the cake… I need to talk to someone who is responsible for the whole deal with us, someone who can factor in each piece…

Buyer:    I am responsible for the whole deal…

SuperNAM:   Great, so taking into account the 2% Settlement Discount, that makes your company’s total take equal to….

Adventures of SuperNAM! (12)

When the buyer knocks your trade spend…

S:   ….and I am offering £50k to support this price promotion, subject to conditions,…

B:   £50k is not very much…

S:   How come?

B:   Like I said, for a company of your size, a drop in the ocean…

S:   How much profit do you think we make?

B:   How should I know?  Lots…

S:   Our Pre-Tax Net Profit is 11%

B:   So?

S:   This means that when I put £50k trade spend on your desk, I need to see incremental sales of £455k before I let go of the money…

B:   That’s your problem…

S    OK, Sunshine, let’s talk about your problem… You think £50k is nothing…?

B:   Agreed!

S:   Your business makes 2.5% Pre-Tax Net Profit, right?

B:    How do you know that?

S:   Companies House online, £1 for the latest Annual Report. See, I’ve invested in you already, we call it preparation…

B:   Wish I had the time to surf the internet… Anyway, so we net 2.5%...

S:   This means that my little £50k is equivalent to giving you extra sales of £2m……

B:    Prove it !

S:    Fine.  Our £50k trade investment comes with no handling costs (except bank charges!!!), so it goes straight to your bottom line. It therefore represents 2.5% of sales, in your business model.

B:   So?

S:    £50k divided by 2.5 and multiplied by 100 gives you sales of £2m, bingo!

Buyer:    What do I have to do?

SuperNAM:  Now you’re talking…..


Adventures of SuperNAM! (11)

The myth of scale economies?

How to measure the actual savings on increased quantities?

Yesterday’s NamNews item ref Morrisons’ latest ‘routine negotiations’ not only scored our highest visitor-count, but more importantly raised the question of how much discount to give when a retailer offers bigger volumes for a lower price…

As always, accepting an offer that ‘feels good’ instead of running the numbers is a good way to compromise profitability...

Also, given the long lead times required to negotiate something you want, the pressure to agree a scale-discount in the heat of the final moments of a last-minute discount-negotiation can cause you to accept ‘an offer you can’t refuse’…knowing that if you do refuse, the guys back of the ranch can label it a bad decision, never having to test it with actual numbers…

The following steps may help:  

• Keep in mind that a 10% Increase in sales does not necessarily mean a 10% reduction in costs
• Also, as a supplier, you know more about manufacturing cost-savings than the buyer…
• Select a specific SKU for one of your leading brands in the customer’s portfolio
• Check out the sales, order sizes and average delivery delivery-frequencies of the SKU to the customer in question
• Check with marketing/finance/production the cost savings on sales increases of 10%, 20% and 30%
• (sales increases greater than 30% have to raise the question of whether you have been missing too many ‘potential’ tricks with the retailer…)
• Actual savings will be driven by packaging and ingredient scale economies, capacity relationships etc in production and delivery, but it should be possible to arrive at a conservative figure ( you won’t believe how low the savings are, using real figures …hence ‘the myth’ of scale economies)
• Ask for a quick check of other big SKUs (other brands in your portfolio) to isolate any ‘funnies’ in terms of exceptions
• In negotiation, focus the discussion on your chosen SKU and limit the ‘give & take’ to a fair share of the real savings
• Run a reality-check of the incremental sales required to produce the shared savings, just in case…
• Agree minimum order quantities, and timed delivery frequencies, along with quarterly purchase levels
• Build these conditions into a deal/contract tied to a discount paid retrospectively on performance, with on-time payment added for good measure
• After six months consider extending the deal to include the rest of your business with that customer
• This will hopefully bring your dealings a little closer to real scale-economies at the next ‘routine negotiation’, only this time with the benefit of a little history…

On the other hand, why not simply roll over, and over, and over……like other folk?

Everything is negotiable, when the chips are down…

Keith Ewing, owner of Number Eight Clothing in Stirling, commented that Independent retailers need to "put their heads above the parapet", as his shop was nominated as one of the UK's "top 100 inspiring shops" for 2013 by Draper's magazine. He listed rent-reviews, online, buying and display as key needs in independent retailing.

NAMs could help by sharing their negotiating expertise with appropriate retailers, as follows:

In practice, independent retailers can help themselves to survive by adapting the supplier-approach to business development:

• Cutting-costs: rent and rates are currently too high in these unprecedented times. Landlords and local government know this and are vulnerable to the ‘walk-away’ threat by retailers. In other words, retailers should calculate the level of rent and rates (seek help from commercial architects that can provide a broader view) that make the business viable, and renegotiate on this basis, ideally via a combination of lower rent and a ‘per cent of sales’ model, to force landlords to share the business risk.
• Driving sales: develop a strong online strategy by mining your customer records and collecting email addresses going forward in order to extend your reach beyond a shop visit. Optimise supplier help by negotiating better prices, terms and supply arrangement and especially instore merchandising in exchange for customer stats and enthusiastic/ innovative collaboration. Suppliers want you to succeed as a counterbalance to major multiple retailers and are willing to negotiate flexible packages for the right customers.

Being a business consultant to the retailer can optimise the trade partnership and broaden the NAM’s expertise in managing other customers.

Sharing negotiating expertise can help....