Do you work in retail or consumer goods, or negotiate with people who do? Then take advantage of Rodrigo Malandre’s guide to what is going through their heads as you sit opposite them at the negotiating table.
THE SELLER: INSIDE THE CONSUMER KEY ACCOUNT MANAGER’S HEAD
Devoted to managing and growing one account, Key Account Managers (KAMs) have an excellent understanding of their category and client. As experts in the performance of their SKUs, they manage analytics and insights and make time to prepare. Since buyers are always in a hurry and dealing with multiple KAMs, they rely on the more in-depth analysis of trusted KAMs. But this is no excuse for a retailer to avoid doing their own analytics to support buyers.
Buyers who want to collaborate with KAMs have two choices – they make the time to listen to their comprehensive presentations to explore potential value generation or they politely state they have limited time and only want top-level analysis. Buyers must also understand that KAMs try to execute the commercial strategy of their companies. They are under pressure to list new products, get more exposure of their brands and capture market share while still protecting margins and profit. KAMs work closely with trade marketing to allocate additional funding for special purposes. It’s close to impossible for them to shift that money towards cost and in addition, most companies pursue a pay-per-performance approach. This doesn’t mean that buyers shouldn’t push for lower costs, it just means they need to understand how consumer companies operate. A skilled KAM will be more open to collaborate in return for specific activities, rather than giving money away for free.
Buyers must also appreciate the changing dynamics of their market. Trends like revenue growth management are pushing KAMs to allocate investment in retailers in a stricter way following the principles of route-to-market strategies that enhance sales without compromising profits. If that is not understood and discussed, conflict is likely to systematically appear. In theory, both parties should spend a lot of time analyzing data, what has worked and what not, but the day-to-day nature of the business conspires against equalizing and optimizing variables and exchanges to maximize profits for both parties. Buyers need to rely on other internal sources for financial data or technical support if they struggle to find time to plan. Otherwise buyers will have to either rely purely on what the KAMs suggest, or be vulnerable to making commercial mistakes.
Another source of potential problems is logistics and inventory management. While buyers focus on fill-rate and keeping low inventories to maximize sales without compromising capital expenditure, KAMs are pushed to increase sell-in levels with enough inventory spread across different distribution centers and stores to support sales. Since logistics is often handled outside of the commercial areas, buyers should watch out for opportunities and loss of sales based on logistics decisions that do not consider the varying dynamics of shoppers’ behaviors. Buyers can intercede between KAMs and logistics areas and use that to receive in exchange good fill-rate performances and promotional investment support from KAMs when levels of stock are becoming unhealthy.
Fundamentally, buyers need to understand how KAMs operate and what their KPIs are. Find time or support to jointly discuss how to improve the profitability of the mix and operations, and realize what they can do in order to generate successful and profitable trades.
THE BUYER: GETTING INSIDE THE RETAILS BUYER’S HEAD
A retail buyer is busy and has no time to waste, and often not enough to prepare. Unlike the typical KAM who has one client, a buyer deals with 10, 20, 50, 100 or more vendors/suppliers. In smaller countries, buyers may manage more than one category, and/or their categories are complex. It doesn’t take a maths genius to figure that a KAM generally has more time than a buyer to prepare for negotiation. KAMs could do buyers a favour and be direct, avoiding long complex justifications and putting things in simple terms.
The use of a negotiation training is also part of key account management best practices. If the buyer is busy and the KAM wants them to think about doing things differently, sending an agenda before the meeting helps not only to create trust, but also to allow the buyer to prepare and reflect about the effects of a new promotion, listing or activity. When the buyer hears something for the first time in a meeting, their tendency may well be to respond with something noncommittal.
While KAMs’ KPIs include volume and market share, buyers are interested in margins, fill-rate, inventory levels and sell-out or speed of rotation of SKUs. The KAM must establish a common language and take care of the buyer’s interests and KPIs. They should put themselves in the buyer’s shoes and ask themselves some key questions: Why is the buyer reluctant to list this SKU or buy more? What are they afraid of? What is the problem they’re trying to avoid? The answers to these questions might lead the KAM to offer promotional activities on point of sale, or discounts if the SKU doesn’t perform in exchange for listings or volume commitments. Discovering the interests of the party is an essential part of conditional and creative trading, allowing value to be generated.
Retail buyers also rely on KAMs to provide insights into how to optimize the mix of products to generate better turnovers and margins. What the buyer is not so keen on is another request to include an extra SKU on the shelf. They might think, “Don’t they realize there is limited shelf space?” If the KAM’s company has an extensive list of SKUs, the buyer will expect to delist something in exchange for the new listing. KAMs should be prepared to deal with that request. The KAMs might try to resist, but if it is necessary, they need to provide a solution based on what’s possible to concede in exchange for what they want to achieve.
Often KAMs focus too much on their own goals and fail to understand the pressures and nature of the incentives that the buyer deals with. For example, a company with an EDLC (Everyday Low Cost) strategy teaches their buyers to avoid complexity of payments and incentives and pushes vendors to shift their money towards reducing cost and having a more constant price to customers. While retailers operating with a “high and low” strategy teach their buyers to push for aggressive promotions and to get better costs from vendors.
A KAM should always have their company’s best interest top of mind, trying to get the most value in return for what they invest in or concede to the retailer. Nevertheless, some adaptation is required for different commercial strategies from their counterparts, to steer the negotiations toward the different motivations and interests of the buyers they deal with.
In the end, the retail buyer’s willingness to cooperate will be strongly influenced by how the KAM’s negotiation approach addresses their interests and supports their company’s commercial strategy.