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

The Best Carrots and Sticks Examples to Use in Negotiations

The Incentives and Penalties System

In the world of procurement, the procurement process often talks about how to source and negotiate with suppliers regarding the best amount and quality of materials versus the price the organization is willing to pay for those materials. We’ve talked about that in our procurement process article. 

For the negotiator, agreeing to pay for the high-quality material comes as the “carrot” while trying to come off cheap but getting inferior quality materials in the process becomes the “stick”. This example is aimed towards procurement teams that are looking to procure high-quality materials but at the cost of pricing.

The incentives and penalties system is a way of rewarding and punishing companies that choose to either follow the right path in acquiring materials or want to go through the shortcut through dubious means.

My Experience on Carrots and Sticks

As an experienced negotiator, the more tools you can use to get your desired results during a negotiation, the better. Right? It’s time to examine what are the best carrots and sticks examples that you can use to gain an advantage during negotiations.

The rewards that come from using the carrot and the stick method are a successful win-win situation. I will share some ideas and best practices to use when implementing this strategy. 

We don’t hear the phrase “carrot and the stick” as much as I used to. Gives and takes are two words for the same concept. Thinking of the important variables for you and your negotiation opponent communicates that we recognize the perspective of our opponent. Think about needs, aspirations, concerns, and pressure points: often the key to a win-win result.

Setting aside our self-interest priorities for a moment, just to consider how our counterpart might feel, is a game-changer.  When it comes to employing the power of rewards, creativity and ‘out-of-the-box thinking are typically required. Looking at a negotiation from your opponent’s perspective can spawn proposals that might induce them to agree to a win-win deal.

When conducting a supplier negotiation strategy myself in my time as Procurement Manager, I focused more on carrots than on sticks. As a person, I truly believe that better negotiation results come from a positive approach instead of a negative one. I spent hours calling, researching, and asking questions to make sure I understood all possible wants and needs that my suppliers could have before entering the negotiation. When determined, think of value in dollars to ask back when presenting the ‘carrot’ to the supplier. In cases where no agreement was reached because of any discussion about the value of the ‘carrot’, I turned the carrot into a stick by not giving the supplier what they wanted.

I only used sticks when negotiations didn’t go my way at all: examples of this were moving business to other suppliers, delisting of assortment, shorter contract periods, and so on, and so on.

Tips on Using Carrots and Sticks

The team of Procurement Tactics helps you out with some concrete tips on how to use the Carrot and Stick principle towards suppliers yourself: 

• I’ll consider buying a larger quantity if you can give me a 10% discount. ‘Here the reward is a higher volume’.
• If you can do it for that price, I’ll recommend you to my friends and even write a testimonial letter for your promotional use. ‘Here the reward is more future business.’
• I’d consider purchasing some of your other products if you can help me with this order. ‘Here the reward is a bigger deal’.
• I can reduce my price on this order if you’ll pick this up at our warehouse by Friday. ‘Here the reward is a price discount’.

You are likely more creative than me when it comes to identifying rewards in your own situation. Coming up with incentives becomes easier when you concentrate your efforts and thoughts in that direction. What are the possibilities in your negotiating?  What inexpensive thing could you give up as a reward that would convert your opponent’s hesitancy into action? Good negotiators recognize trade-off possibilities when offering incentives or rewards.

You can use this template to help you with your trade-offs:

Conclusion

Carrots and sticks are not usually heard as it is the same as give and take. Carrot equates to give and stick with take. Additionally, you have to ensure that you have an endless list of gives and takes. Not doing so will not give you the best result in a negotiation. 

Thus, you should focus more on what is the most important variable with the negotiating party before you go to war.

Also, make a long list of the important variables for both you and the negotiating party. The more variables on your list, the better. Try ranking them before you start the negotiation. You must take note that the best deals are created when you exchange the variables with a low value to you and a high for the other party instead of the ones with a high value to you and a low for your counterpart.