Negotiation in a high interest economy

The latest news on the UK economy is suggesting a period of ever higher interest rates, and there are some particular consequences to that for negotiations. Not least is the continued pressure of upward price movement, as the impacts are felt all through the supply chain.

Shape shifting negotiations

Invariably, it means that negotiations are likely to change their shape, as trying to defend against those pressures will become increasingly challenging.

This suggests a number of options we might need to build in, particularly in our preparation phase.

1. What worked last time

Firstly, have you lived through a period of high inflation and economic instability? If not, it might be worth setting up a ‘what worked last time’ workshop in your organisation, to tap into the knowledge of how previous rounds of economic challenge were dealt with. A lot of it feels like the consequences of COVID, but the added pressure of interest rate rises change a lot of underlying assumptions. Those who experienced 2008/9 has a whole series of similar challenges to deal with, so there may be playbooks available, or which can be developed, for top tips to optimise outcomes.

2. Fast downward journey available

Secondly, it’s worth remembering that what goes up tends to come down again. If uplifts are inevitable, make sure you’re building in approaches which make sure that the downward journey is available to you as soon as possible. Knowing the indicators and timings are critical to make sure you get downward movement as fast (or faster) than the upward movement arrived.

3. Component elements

Then, it’s worth thinking about the component elements of the price increase you’re seeing. If you have an excellent understanding of the cost make up of the product or service you’re negotiating for, then you will have a better understanding of how the changes in input costs will affect the experienced price. Make sure anything can be justified.

I hear people say that they don’t have a should cost model – perhaps now is the time to build one. Even if it’s not 100%, it’s a great way to have a discussion about cost make up and price model. Understanding the suppliers price model is another great bit of preparation: how do they arrive at a price? It is well worth trying to understand their approach, as that will give you ideas for negotiation points.

4. It’s not all about price

Next, it’s well worth considering what you’re asking for alongside the inevitable pricing challenges. If you can understand a deep range of other benefits you should be asking for and accruing, it might offset some elements of price discomfort. To contradict the song, It’s NOT all about the price.

5. Getting what you paid for

Lastly, it’s worth remembering the challenges of contract management. If your price includes a whole set of deliverables, your organisation needs to make sure it wants those deliverables ( check back against your business requirements) and also that you’re actually getting them. This means we’ve got to understand where we are on current performance against contract. I know from discussions this is often really hard to establish, but this is about making sure you’re getting what you paid for.

It’s going to be a tough couple of years for negotiation. Make sure you’re systematically prepared for those discussions to give yourself the best chances for success.

Further reading

Blog post: Power in procurement negotiation

Blog post: How personality affects your Procurement Negotiations