A Good "Fake"
Have you ever been in a situation where you had no leverage, no good negotiation options but desperate to achieve a good result? Can you fake leverage, an alternative supplier? Yes, you can. Just be very, very careful. Faking an alternative is the absolute last resort for a negotiation. It is high risk. If it fails, there can be serious consequences. It also takes a lot of preparation work. So, to be sure, I only use a fake in the most desperate and rare occasions.
I was once successfully ‘faked’. I was a young salesman for a North American automotive battery company, and my biggest customer was a high-end German car manufacturer, an OEM with a production facility in the US. We had succeeded in creating a specification with the OEM’s Engineering Department that made us the only source for batteries in hot climate markets, such as the US, Japan, and South Africa. We had effectively created a monopoly using the “harmonious” relationship between our engineers and the OEM’s (see Figure 1 Communication and Relationships).
Death of a fake alternative: It only works, if Engineering is part of the plan!
Although we did not abuse our position within the OEM’s supply chain, I was aware of the strength of my bargaining position. I had given tiny discounts of 1% and less over the past two years. Now, it was time for another annual price negotiation in Germany. Self-assured and with another 1% discount in my pocket, I made my way across the Atlantic. When I arrived at the Administrative Center of my customer site—that was where the Purchasing Department was collocated with Engineering—I registered at the front desk. Instead of the buyer, whom I expected to greet me, the engineer responsible for batteries came for me. Franz was a familiar face and we had a warm relationship. He asked me to join him briefly in the basement where he had a small test lab. Franz mentioned that he had tested a few batteries and cut them open. He wanted to show me the failure modes.
When we arrived at his lab, Franz walked ahead of me. The lab consisted of two rooms. The first contained large water containers to the left and right of the walkway. These water containers served as temperature simulators in long-term cycling tests. Basically, the batteries sat in the water and the water temperature mimicked cold and hot climates. The test determined how often a car could be started in a specific climate before the battery failed. The second room into which Franz was now leading me was a small shop with a work bench and tools. Here, batteries that had finished the cycle test could be taken apart to analyze failure modes.
As I walked behind Franz, I noticed four batteries in a cycle test that had the words “hot climate” written on their lids. Hot climate? I immediately did a double take. These were not our batteries! Franz had already gone to a workbench in the other room, so I had no choice but to follow. My head was spinning. Had Franz developed an alternative to our hot climate battery? I could certainly find out—if I had time to call my engineers and start some inquiries. But it would not be today. Franz showed me three failure modes with just enough time to spare to rush upstairs and make it on time for the Purchasing Department price negotiations meeting.
My alarm turned into panic when we arrived in the conference room on the fourth floor. Usually, the buyers were tough, no smiles, no platitudes. This time it was the opposite: The two buyers welcomed me with big fanfare, offered coffee, smiled, and made small talk (unheard of among Germans). They sat across from me, smiling confidently. At this point I was sure that they had developed an alternative, although they never mentioned it. They asked for a 5% discount. After a bit of back-and-forth, I gave in at 2.5%. That was the most I had ever allowed, but with this OEM providing sixty percent of my business, I could not take the risk of losing the account. My job depended on this customer.
It was years later, while I pursued other ventures, that I reconnected with Franz by chance. He had come to visit another supplier in a nearby town and decided to contact me. Franz, Bob, our head engineer, and I had spent time fishing on a nearby lake on occasion. Since Franz stayed in a hotel over the weekend, I offered to take him out on the lake. So, Saturday morning, I hooked up my small fishing boat, filled the cooler with some sandwiches and beer, and picked Franz up at his hotel. We had a splendid time, talking about the good old days, common friends, and mutual colleagues. The topic of the price negotiation a few years back came up during the conversation. Franz laughed so hard that tears streamed down his cheeks. “We got you good that time!” he exclaimed. “You should have seen your face!” I had never seen him laugh like that before. I had to join in. “What did you guys do?” I asked.
Still sobbing, Franz told me the story of how, two weeks before my arrival for the negotiation, the buyers had come to him and asked for help. “We have nothing on Harry,” they complained. “Can you help?” Franz came up with an idea. He went to a gas station and bought four batteries, removed the labels, took a sharpie, and wrote “hot climate” on the lids. The buyers were in on the fake, of course. Franz knew that I, the nosy salesman, would surely notice the batteries he had placed conspicuously into the water containers. All three buyers guessed I was scrambling to change my approach based on what I had discovered just before I came into the conference room. And they could hardly keep from laughing. I had been had!
But I am not angry at all. I love good planning and execution. Franz never lied to me, neither did the buyers. The fake included clever time constraints and well-placed assumptions that did not give me time to do more research. A well-deserved win on their part!