Case StudyCase Study
Negotiating with WalMart Buyers
Analyzes a series of successful deal-making strategies that can be useful when negotiating with a powerful buyer.
WalMart, the world’s largest retailer, sold $482.1 billion worth of goods in 2016. With its single-minded focus on “EDLP” (everyday low prices) and the power to make or break; suppliers, a partnership with Walmart is either the Holy Grail or the kiss of death, depending on one’s perspective.
There are numerous media accounts of the corporate monolith riding its suppliers into the ground. But what about those who manage to survive, and thrive, while dealing with the classic hardball negotiator?
In “Sarah Talley and Frey Farms Produce: Negotiating with Walmart” and “Tom Muccio: Negotiating the P&G Relationship with Walmart,” HBS professor Jim Sebenius and Research Associate Ellen Knebel show two very different organisations doing just that. The cases are part of a series that involve hard bargaining situations.
“The concept of win-win bargaining is a good and powerful message,” Sebenius says, “but a lot of our students and executives face negotiation counterparts who aren’t interested in playing by those rules. So what happens when you encounter someone with a great deal of power, like Walmart, who is also the ultimate non-negotiable partner?”
The case details how P&G executive Tom Muccio pioneers a new supplier-retailer partnership between P&G and Walmart. Built on proximity (Muccio relocated to Walmart’s turf in Arkansas) and growing trust (both sides eventually eliminated elaborate legal contracts in favor of Letters of Intent), the new relationship focused on establishing a joint vision and problem-solving process, information sharing, and generally moving away from the “lowest common denominator” pricing issues that had defined their interactions previously. From 1987, when Muccio initiated the changes, to 2003, shortly before his retirement, P&G’s sales to Walmart grew from $350 million to $7.8 billion.
“There are obvious differences between P&G and a much smaller entity like Frey Farms,” Sebenius notes. “Walmart could clearly live without Frey Farms, but it’s pretty hard to live without Tide and Pampers.”
Sarah meets Goliath
Sarah Talley was 19 in 1997, when she first began negotiating with Walmart’s buyers for her family farm’s pumpkins and watermelons. Like Muccio, Talley confronted some of the same hardball price challenges, and like Muccio, she acquired a deep understanding of the Walmart culture while finding “new money” in the supply chain through innovative tactics.
For example, Frey Farms used school buses ($1,500 each) instead of tractors ($12,000 each) as a cheaper and faster way to transport melons to the warehouse.
Talley also was skillful at negotiating a coveted co-management supplier agreement with Walmart, showing how Frey Farms could share the responsibility of managing inventory levels and sales and ultimately save customers money while improving their own margins.
“Two sides in this sort of negotiation will always differ on price,” Sebenius observes. “However, if that conflict is the centerpiece of their interaction, then it’s a bad situation. If they’re trying to develop the customer, the relationship, and sales, the price piece will be one of many points, most of which they’re aligned on.”
Research Associate Knebel points out that while Tom Muccio’s approach to Walmart was pioneering for its time, many other companies have since followed P&G’s lead and enjoyed their own versions of success with the mega-retailer. Getting a ground-level view of how two companies achieved those positive outcomes illustrates the story-within-a-story of implementing corporate change.
“Achieving that is where macro concepts, micro imperatives, and managerial skill really come together,” says Sebenius. And the payoffs—as Muccio and Talley discover—are well worth the effort.
Sarah Talley’s Key Negotiation Principles
- When you have a problem, when there’s something you engage in with Walmart that requires agreement so that it becomes a negotiation, the first advice is to think in partnership terms, really focus on a common goal, for example of getting costs out, and ask questions. Don’t make demands or statements. Rather ask if you can do this better. If the relationship with Walmart is truly a partnership, negotiating to resolve differences should focus on long term mutual partnership gains.
- Don’t spend time griping. Be problem solvers instead. Approach Walmart by saying, “Let’s work together and drive costs down and produce it so much cheaper you don’t have to replace me, because if you work with me I could do it better.”
- Learn from and lobby with people and their partners who have credibility, and with people having problems in the field.
- Don’t ignore small issues or let things fester.
- Try not to let Walmart become more than 20% of your company’s business.
- It’s hard to negotiate with well trained buyers who know that their company could put your company out of business.
- Never go into a meeting without a clear negotiation agenda. Make good use of the buyers’ face time. Leave with answers. Don’t make small talk. Get to the point; their time is valuable. Bring underlying issues to the surface. Attack them head on and find resolution face to face.
- Trying to bluff Walmart buyers is never a good idea. There is usually someone willing to do it cheaper to gain the business. You have to treat the relationship as a marriage. Communication and negotiated compromises are key.
- Don’t take for granted that just because the buyer is young they don’t know what they are talking about or that it will be an easy sell. Most young buyers are very ambitious to move up within the company and can be some of the toughest, most educated buyers you will encounter. Know your product all the way from the production standpoint to the end use. Chances are your buyer does, and will expect you to be even more knowledgeable.