Dealer Leverage – Negotiating With DMS Vendors 101
“You don’t get what you deserve, you get what you negotiate”
The most powerful tool in any negotiation is leverage. Of course, dealers know this instinctively. A dealer negotiating for a new DMS computer services contract can maximize the leverage he exerts not only by carefully planning his strategy, but also by using every tool at his disposal. Let’s, therefore, review the essentials along with a few less evident ways to take control in these financial skirmishes.
The strategy many dealers employ is simple. They rely solely on their negotiating skills and assume, if they talk tough and threaten to leave, their vendor will just surrender and give them a great deal. There’s only one drawback to this method – it doesn’t work. Since so many dealers attempt this tactic, the vendor reps are well prepared. Remember, the reps do this every day, the average dealer only once every five years or so. Everything has changed since the last time the dealer looked at this and while the rep can spend all his time on the deal, the dealer has his business to run. The results are predictably poor for the dealer. Veteran reps just don’t believe the dealer’s blustering and, since most dealers don’t really intend to change vendors, they just have to wait for the dealer to cave. It comes down to credibility. Here are a few simplified tips to be sure you hold on to your leverage and get the right deal:
1. Start the process early. If you absolutely must make a decision by a certain date and the vendor knows this, your power diminishes with each passing day. Furthermore, since most vendors need at least six months to schedule an installation and get operational, you should initiate the process at least a year, and in some cases, eighteen months in advance. There is no more powerful strategy than to be in a position where you don’t have to act immediately. You can just sit back and watch the deal get better.
2. Get competitive demos and bids. DMS vendor reps from competing firms talk to each other all the time. If you tell the rep from ABC that you are leaning towards XYZ without really considering XYZ or even getting an XYZ demo, the ABC rep will know. He’ll assume you aren’t going to switch and your leverage will vaporize. In the best case, you may actually discover a better, less expensive alternative. At the very least, you will be able to play the “I’m going to leave” card credibly and effectively.
3. Control your information. DMS vendor reps often cultivate friendly relationships with dealership personnel who are not directly involved in the process. Often these employees can intentionally or inadvertently pass sensitive information to the other side. Sometimes these informers have their own agenda (e.g. “I don’t want to have to learn a new system – we can’t change to XYZ”) or they think they are “helping their friend”, the vendor rep. In either case, a carefully constructed plan can be undone by a leaked comment. Control what the reps gather from within your store. Rather use vendor-friendly staff members to unknowingly disseminate disinformation that is to your advantage (e.g. “You had better do something fast, Mr. Dealer is going to change to ABC”). Only the dealer and his negotiating team should be privy to the dealer’s actual plan and intentions.
4. Know what you need and know what to pay. This is much more complicated than it sounds and you will likely find you need some professional help to figure it out. In a marketplace where the standard is chaos with even the very names of the products changing constantly, it can be almost impossible to know when you have the optimum deal on the right configuration. The best deal is often made by the dealer who knows exactly what he needs and what it will cost. A “low ball” offer can be disastrous if it is too high and the vendor greedily accepts it. Conversely an offer that is really unreasonably low can also create problems as the rep loses interest or scrambles to find ways to de-content the proposal and cover his tracks. The best offer is one that is just a bit less than the best deal the vendor is willing to accept. A vendor will pull out all the stops to make that deal happen.
5. Never negotiate when you are under pressure. DMS vendors always seem to have a reason why you have to act without hesitation. Recognize that these are their timetables, not yours, and the pressure is usually artificial. Good deals will still be around when you are ready to move. Especially in this market, you can almost certainly count on a better deal coming along. The other kind of exerted pressure is some sort of ominous deadline. Your contract is ending. Your computer will no longer be supported. There’s a price increase coming. If you have followed the first rule above and started early enough, these are doubtless there to create urgency that will force you to act precipitously. Verify the bona fide situation by asking a professional who is knowledgeable about industry practices and history. Ascertain what other successful dealers have done in this circumstance and remain faithful to your plan and your schedule.
The economic events of recent days have put inordinate pressure on dealers. The same pressures affect the DMS vendors. With some dealers holding back and waiting for the dust to settle, the deal you can negotiate now may be the best you will ever make. Remember: You are not buying computer hardware and software; you are contracting for computer services. The price you pay is dependent solely on your negotiating strategy. If you are thinking about the future and you see an opportunity, apply all your leverage and make a great deal!