Approaching the buying negotiation process: a case in retailer buying behaviour

Understanding retailer buying behaviour (RBB) has become increasingly important from both food & grocery suppliers’ and retailers’ points of view. Developments in the structure of the food & grocery supply chain have made retail chains become gatekeepers to consumer markets (Hirschman & Stampfl 1980), since producers wanting to sell their products to consumers have to sell them to retailers first (Davies 1990). In order create and maintain a trade and cooperation relationship with retailers, knowledge of retailer buying behaviour is not be ignored by producers (Davies 1990; Hansen & Skytte 1998). These considerations notwithstanding, no conceptual model of retailer buying behaviour has gained wide acceptance so far, and this might be the reason why the research findings appear fragmented and as yet incomplete. In particular, it appears that most of the previous research has been concerned with generating lists of criteria used by retailers when deciding whether or not to accept a new product; other areas that have caught the interest of researcher are: the role of buying committees, the relationship with manufacturers, European buying alliances, the use of information, retail buyer task, sales man influences, acceptances of trade deals, country or origin effects and new information technology. It seems then that more research is needed to understand retailers’ choices on products and manufacturers, and in particular the behaviours that ensue from those choices, such as negotiation practices. This paper is based on the belief that it would be rewarding to study in more depth that particular area of RBB issues that concerns business negotiations. Negotiations between the manufacturer and the retailer are of course vital in establishing the terms of trade, and whether there will be any trading: if negotiations break down, the retailer will have to settle for a less than ideal supplier. Despite the obvious importance of business negotiations, only a few studies have investigated the aspects of this interaction (Lindqvist 1983; Dawson & Shaw 1989; Knox & White 1991; Shaw, Dawson & Harris 1992; Ossiansson 1995; Runyan & Sternquist, 1995; Bowlby & Foord 1995). A common thread in these studies is the emphasis on closer and long-term relationships between manufacturer and retailer. It is in fact not uncommon for relationships to last 6-8 years (Knox & White 1991; Shaw, Dawson et al. 1992). It therefore seems like a model of retailer buying behaviour should incorporate some kind of processual angle that would capture the different kinds of negotiations that take place between the retailer and the manufacturer. Lindqvist (1983) analysed 44 manufacturer - retailer negotiations by interviewing both parties. He found that negotiations can be split into three categories: • Annual contracts, namely negotiations where the parties agree upon the general terms of trade or whether there will be any trading at all. • Joint marketing campaigns, namely negotiations where the parties agree upon joint national marketing campaigns. • Product negotiations, namely negotiations where the manufacturer offers the retailer a new product or product group. It is almost exclusively the last category of negotiations that has caught the researchers’ attention, and only a few researchers have analysed it as a negotiation; besides, most have analysed it from a pure retailer perspective (ie taking into considerations merchandise requirements). This paper takes its cue from the above considerations. It attempts to provide a contribution towards a bridging of the gap of research on negotiation processes by focusing the analysis on annual contracts negotiations. Annual contracts set the trait for buying conditions with the individual producers, and define discounts, promotional contributions and prizes, payment and delivery conditions. In particular, this paper addresses the question of how dealers face the negotiation issue. The paper is based on data coming from a case study concerning a major Italian mixed goods retailer. It seeks to provide initial, exploratory insight on the way dealers prepare for the annual contracts process of negotiation with suppliers, and on which means they call in order to try set the pace and boundaries of the negotiation. The study applies a conceptual framework developed within recent studies in Cognitive Science, in order to gain a better understanding of the elements that compose a dealer’s negotiation approach and framing. Taking into consideration a single retailer buying central, the methodology used by buyers in setting up the arguments and representations of the negotiation issue for each one of the producers involved will be analysed on the lines of a cognitive semantics approach. Cognitive semantics maintains that the representation of concepts be organized around conceptual spaces, namely sets of dimensions which identify a conceptual set, and that a negotiation of meaning can be happen within such conceptual spaces. This tenet allows for an analysis of the way the issues pertaining the negotiation are organized into the comprehensive, coherent representation of the negotiating arguments the producer is to be presented with by the retailer. Thus, the focus of the analysis is not on the single elements that come up in the negotiation process, but rather on the way they are jointly used by the retailer in order to extract better contractual conditions from the producer. From the analysis conducted it appears how the dealer concentrated on a relatively reduced set of variables in order to set up and frame a system of conceptual spaces which jointly point to the negotiation feasible area, that is the area within which an agreement with the producer could be acceptable. This is attained by the retailer through the construction of a set of matrices whereby the it mapped the position of the producer relative to that of its competitors, both for what concerns variables or contractual conditions concerning directly the producer and the dealer, and the average values of the same variables at an aggregate national level. The producer is thus faced with conflict resolution areas, and is guided in understanding the rationale behind the setting of their boundaries, as well as of retaliation prospects. This seems to point to a confrontational approach to the negotiation, whereby the producer is presented with negotiation areas, rather than with optimal, closed-ended numerical objectives. It seems to the writer that instead of generating lists of buying criteria, there is reason for research in focusing on understanding how the variables are utilized and built into negotiation strategies, and on the role of negotiation strategies’ building in the negotiation process itself, in order to increase the explanatory power of research in RBB. Considering the exploratory nature of the study, limitations and further lines of research are presented and discussed along with conclusions, and some practical implications are highlighted which could stem out of a wider analysis of the issue of negotiation processes in retailer buying.