Retailers and their suppliers are squandering opportunities to grow their businesses together strategically, a former Target executive told attendees at the third annual New General Market Summit, hosted by Drug Store News and Mack Elevation. “The discussion between retail and CPGs has been reduced to one issue only: How much money are you going to give me? How much cost reduction can we get?” said Daniel Duty, founder and CEO of Minneapolis-based Conlego Consulting. “When the negotiation is reduced to a single issue, the ability for one organization or both to drive growth declines.”
Although such market forces as omnichannel retailing are exerting pressure on trading partners to become more price-competitive, Duty said retailers and suppliers need to focus their negotiations on larger issues, such as growing overall category sales and finding opportunities for collaboration. When one side or the other enters into negotiations demanding concessions — what Duty describes as competitive as opposed to collaborative negotiation — it becomes a win-lose situation in which the range of potential outcomes is limited, he said.
“In today’s retail environment, I don’t think that these types of competitive power plays work very well,” he said. “We are at a very precarious time in retail where we need each other to grow, and we need each other to innovate.”
In the 15 years he spent leading negotiations with business partners at Target, Duty found that the most successful collaborations revolved around long-term, joint business planning in which both sides shared information about their goals and strategies, and agreed on what the outcomes of their partnership should be. Perhaps the foremost illustration of this approach is the retailer’s ongoing collaborative initiative with Procter & Gamble, called “Destination Beauty,” in which the two companies have been working together to elevate Target’s cosmetics offering.
“Sales have risen dramatically over 10 years for both sides, and continue to rise,” Duty said. Target and P&G launched the effort after a significant investment in research yielded reams of valuable data, Duty said. Then they began building the beauty department out in a flexible way that allowed both sides to make adjustments as needed.
That kind of collaborative relationship can only be achieved if the two sides come to the negotiating table prepared to share their goals and strategies with each other, Duty said. “Strategic partnerships elevate the conversation,” he said. “They elevate to bigger strategies, and they elevate to the right people in the organization who can make quick decisions.”
Partnering strategically also helps ensure commitment from both sides. At Target, that commitment yielded such benefits as obtaining first-to-market and exclusive products from suppliers; in return, the retailer gave its strategic partners the first shot at bidding for new business opportunities.
For companies new to the process of joint business planning, Duty recommended carefully selecting just a few partners. “Pick someone who you want to grow the business with, who will think about the business differently and will help you grow the business,” he said. “It doesn’t have to be the top accounts, it could be someone that is emerging, who you can grow with.”
Trading partners need two key skills in order to succeed in collaborative negotiations, according to Duty: the ability to ask good questions and the ability to listen. Asking good questions about trading partners’ goals and listening to them carefully help both sides understand each others’ key interests, or the things they consider most important. At Target, key interests include qualities such as differentiation, Duty explained.
“If you can meet their most important interests — their needs and goals — you will get a good deal,” he said. “And if they can meet your most important need in exchange, we all walk away feeling like we got something good from the deal.”
(Click here to view the full Special Report: New General Market Summit 2017.)