How Do You Introduce New Information Into A Negotiation?

A company is negotiating an agreement to resell another company's software. In due diligence the company encountered a customer who was offered a single user license for the same software at one-third the price that they have been asked to pay upfront. What is the best way to approach the vendor for additional information without divulging the source of his intelligence? Does this change the negotiation?

Advice from a group of CEOs:

There is no need to divulge your information source. Just tell the vendor that you have done some research and encountered at least one company that was quoted the price that you found. Ask the firm to explain this to you. See how they respond. Their response may tell you a lot about how they operate.

What rights do you receive under the arrangement that has been offered by the firm? Do you receive any exclusivity - geographic or by customer segment? What guarantees does the firm make about their own sales promotions to your market segment? What will happen if a customer in this segment makes direct inquiry to the firm? Will this inquiry be directed to you? Will the firm write these guarantees into the agreement, with penalties for breech?

Perform a careful financial analysis of the opportunity. Model the customer segment, number of customers, likely purchasers and potential revenue stream, plus all of the direct and indirect costs of sales associated with developing this revenue stream. Look carefully at the customers in the segment and their purchase and use behavior for this type of software. Is this behavior changing and how? What is the potential impact on your sales potential? Consider a transactional model versus a flat-fee model. Under the transactional model, the customer pays a small fee per transaction. If transactions are frequent, then they can pay much more under this scenario than under a flat fee arrangement. However the transactional model is more attractive to some customers because of the pay as you go feature.

Counter the vendor's offer to you with a pay-down option that pays the vendor more over time, but allows you access to the software without a substantial up-front payment and limits your exposure if sales do not ramp as you anticipate.

Visit the vendor and sit down with the President. Prepare well for this meeting, and see how this individual responds to your questions. You may get a much better deal through this approach than by working with the sales team. You also may develop other partnership options with the President that can benefit you long-term.