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Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy

Bargaining Power — 7 Powerful Strategies to Close Better Deals

Key takeaways

  • Bargaining power is essential in procurement as it involves influencing prices based on customer demand and supplier pricing.
  • Bargaining power is affected by information, alternatives, status, and social capital.
  • Strategies for negotiating with a stronger buyer include research, emphasizing your company’s value, and looking for creative alternatives.

So what do you mean by bargaining power? Is it the ability to find better deals? Or the ability to create the best deals out of difficult sellers?

For today, we are going to take a closer look at what bargaining power means, how it is used by procurement managers, and how you can take advantage of several strategies that will guarantee success in bargaining.

After reading this article, you’ll probably be the best when it comes to bargaining power.

Bargaining Power – The Works and How it Affects Procurement.

The word “bargain” has been around for ages. We all probably remember how our mother, brother, or friends would bargain for an item that they want to buy for hours. Bargaining is a truly useful skill, especially in procurement. This is because bargaining affects the final price of an item. 

So in Procurement Tactics language, bargaining power is the ability of a firm’s customers to influence the prices of the services and/or products it sells and suppliers to set the prices that the firm pays for the materials and services that it buys. 

Was that a mouthful? If your answer is yes, then just think of bargaining power as the final price set by the supplier based on how much your company or organization’s customers are willing to buy. Of course, other factors may also affect your organization’s bargaining power, such as product sourcing and the availability of supply chains.

bargaining-power

What is Bargaining PowerAffected By?

The bargaining power of parties during a negotiation is affected by information, alternatives, status, and social capital. We are going to discuss each in detail, so you might want to pay attention. Alternatively, this is explained in greater detail in our Negotiation Gamechanger course, so you might want to enroll in case you need a more in-depth explanation:

  • Information – This is all about information coming from the other party. How much do you know about the other party’s concerns, restraints, and preferences? The more information you have, the better informed you are to negotiate. You also have a higher chance of reaching the agreement that most benefits your business or organization.
  • Alternatives – For this one, your BATNA comes in as an important piece of the puzzle. The strength of your BATNA will always affect the strength of your bargaining power. When you have strong appealing offers compared to the other party, then you are more likely to come out victorious at the end of the negotiations.
  • Status – Your bargaining power is also affected by how your business is viewed by other companies. The higher your company status, the more bargaining power you have. It’s almost common sense to think so.
  • Social Capital – Your company’s social media presence can also affect your company’s bargaining power too. The number of professionals who follow your company blog or social media page can give your bargaining power enough weight to give you an advantage during negotiations.

Questions to Ask Yourself to Know the Level of Your Bargaining Power

1. How strong are my alternatives?

2. Can I come up with better alternative before the negotiation begins?

3. Should I use my alternatives as reference points during the negotiation?

4. Do I have any information about the other party in the negotiation?

5. Is the other party willing to make concessions with me at the negotiation table?

6. Do I have a good reputation with the other party?

7. Have I made any misjudgments that may damage my reputation?

8. Do I have a network or influence to use to learn more information about the other party?

Your StrategyWhen Negotiating with a Strong Buyer

Just like most days, there will come a time when you’ll be faced with a stronger buyer. Or you might be experiencing a slight slump in your company and your bargaining power is not as strong during negotiations. In that case, don’t fear. Here are some very simple strategies that you can use should you encounter a negotiator with a stronger buying power:

1. Research is the Key

Again, do your research. Find out the actual buying power or strength of the other party. Look for signs on what makes their buying power strong. If you can’t find it out, at least try to look for a way to create an alternative so you can get something out of this losing deal.

2. Find out why the Other Party is Negotiating with you

Sometimes, knowing the reason why the other party is trying to negotiate with you can give you an advantage. Try to learn why they are negotiating with you and gauge just how much they want you for your services or products.

3. Emphasize the Value and Strength of your Company/Business

It is never a problem to emphasize the value and strength of your company or business to the other party. You can openly declare those qualities to them or you can ask someone to vouch for your company/organization. 

4. Encourage conversation with the Other Party

Rather than looking to create a rigid and tense atmosphere during the negotiations, try to foster pleasant conversations instead. You already know that you are on the losing side of the negotiations, so at least try to appeal to the other side’s sense of goodwill.

5. Look for Creative Alternatives

Your BATNA might be weak, but it doesn’t mean that it won’t work at all. Try to find creative alternatives that can give you a slight gain after the whole negotiations. Besides, small gains are better than having none at all.

6. Know your Limits

If you feel that you are already at your limit and there is no possible way for you to get something out of the whole negotiation, then acknowledge that fact. Don’t try to force the issue; it will only come out bad for you.

7. Don’t Be Afraid to Walk Away

Finally, don’t be afraid to walk away. Remember, this is just one negotiation. You can try again during a re-negotiation or just take this to memory and try to get better bargaining power next time.

Conclusion

Bargaining power refers to the ability of a firm’s customers to influence prices and suppliers to set prices based on the dynamic interplay of various factors.

The article explores the key elements affecting bargaining power, including information, alternatives, status, and social capital. Each factor is dissected, emphasizing the importance of these considerations in negotiations.

Additionally, pertinent questions are provided to guide individuals in assessing the level of their bargaining power, ensuring a well-informed approach to negotiations.

For those facing a stronger buyer or encountering challenges in their company’s bargaining power, practical strategies are presented.

From thorough research and understanding the other party’s motives to emphasizing the value of your company and fostering positive conversations, these tactics aim to empower negotiators even in less favorable situations.

The importance of creative alternatives, knowing one’s limits, and the courage to walk away when necessary are highlighted as key principles in navigating negotiations.

Frequentlyasked questions

What is bargaining power in procurement?

It’s the ability to influence prices based on customer demand and supplier pricing.

What factors affect bargaining power in negotiations?

Information, alternatives, status, and social capital influence bargaining power.

How can I negotiate with a stronger buyer?

Research their buying power, emphasize your company’s value, and seek creative alternatives.

Masterthe Bargaining Power!

With our Negotiation Course For Procurement Professionals, you can become the ultimate bargaining master. Never be afraid to bargain with the other party ever again! 

About the author

My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.

Marijn Overvest Procurement Tactics