2023 - a Year to be extra commercially vigilant
Updated: Jan 12
As we approach the end of 2022 and the beginning of 2023, businesses must be extra commercially vigilant due to the inflation levels seen in the past year. The rise in costs within organizations has led to sales departments being tasked with obtaining significant price increases to compensate for these costs. However, many companies were not successful in obtaining these increases, resulting in margin deterioration.
Management teams must now come to grips with the reality that their bottom line has decreased, and shareholders will likely call for action. This could take the form of procurement being tasked with bringing costs down and sales being tasked with pushing for even more indexation. This creates a perfect storm for 2023, as procurement and sales teams find themselves at odds with one another.
To prepare for this, management teams should be asking themselves if their sales teams are fully prepared to deal with procurement counterparts in defending any price reduction requests and implementing further price increases. Similarly, they should be asking if their procurement teams are fully prepared to work with sales counterparts in decreasing current spend and defending against additional indexation requests.
Effective negotiation is key to navigating these challenges. Research suggests that preparation is the key element in successful negotiation (1). It takes time to fully prepare teams for the challenges ahead, and businesses should not wait until it is too late to act.
To address these challenges, businesses can seek the guidance of experts in negotiation. These experts can provide support in developing strategies for managing negotiation pressures, how to manage price decrease asks, and how to manage a change in power.
One strategy for managing negotiation pressures is to identify and prioritize the key issues at stake. By understanding the priorities of all parties involved, businesses can develop a clear and effective negotiation strategy. Additionally, it's important to be aware of any potential power imbalances and work to level the playing field.
Another strategy for managing price decrease asks is to understand the reasons behind the request and to work with the other party to find a mutually beneficial solution. For example, if the request is based on a decline in demand, businesses can explore ways to increase demand through marketing and other efforts.
Finally, businesses can manage a change in power by regularly assessing the negotiation landscape and adapting their strategy as needed. This includes monitoring the performance of their own organization as well as that of their competitors and the overall market.
In summary, businesses must be prepared for the commercial challenges of 2023 by effectively managing negotiation pressures, price decrease asks, and changes in power. By seeking the guidance of experts in negotiation and implementing effective strategies, businesses can navigate these challenges and protect their bottom line.