The Role of Leverage in a Technology Acquisition Negotiation
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Generally, the company with the most leverage in a negotiation gets the better deal. Without leverage, the other company has no reason to concede anything except the standard terms. On the other hand, if you have leverage, you can use it to shape the deal to your liking. Gaining leverage is one of the biggest benefits of going through such a rigorous technology acquisition process. Information provides you with leverage. Gathering this information during the Research phase and creating a competitive environment between vendors is what gives you the most leverage walking into a negotiation. For example, during the Research phase, you might learn that your chosen vendor has recently lost two deals to its top competitor. Contacting the buying companies to find out why they chose another vendor could identify an issue with the product of the vendor you are negotiating with. Bringing this issue up during negotiations will really put the heat on the vendor because the company recently lost two deals for that specific reason. Research the vendor thoroughly, so that you know everything there is to know about the vendor, and you will discover what it can and can't concede during the Negotiation process.
Determine your leverage points. Start by creating a list of leverage points in your favor. An example list might include the following items:
Name recognition: The vendor can use this as a marketing tool. Strategic customer: The vendor sees your business as critical to the success of its company.
Potential future sales: If you are buying 100 licenses of the vendor's product and there is a good chance that you will purchase 2,000 licenses within the next two years, you can use this future purchase to get volume pricing on the initial 100 licenses.
First to a market: You are the first large customer in a specific market to use this type of technology, and the vendors want to be the first to prove that they can support your type of business.
Timing: If you know that the vendor is in a hurry to close the deal before the books close on the company's fiscal year, you can use that as leverage by delaying until the last minute and forcing the vendor to concede a few important terms before you close the deal.
Buyer advantage: The buyer automatically has leverage based on the fact that the vendor is competing for your business.
By identifying all of the leverage points that you have in dealing with a particular vendor, you will be in a better position to use them in developing your strategy.
What leverage does the vendor have? Knowing what cards the vendor holds allows you to develop counterstrategies to minimize the benefits that these leverage points will provide. Create a list of the vendor's leverage points such as the following sample list:
Your business is not critical to the vendor's success.
The vendor's product is by far the best solution, and the vendor knows it.
The vendor's product is by far the lowest priced solution (and the vendor knows it).
The vendor has limited supply of a product in high demand.
The vendor knows that you are in desperate need of the technology quickly.
These are just a few examples of the leverage that a vendor might have when dealing with a customer. If you take the time to define these leverage points, you may be able to counter them or eliminate them.