This popular ploy regularly is used to counter almost any customer request for a vendor concession. In this ploy, the vendor’s sales representative explains if the vendor granted the customer’s request, the vendor would be “setting a precedent” and consequently be forced to offer similar concessions to all (or at least some) other customers.
In many respects, this ploy is a somewhat ambiguous extension of the negotiating strategy inherent in the classic “We Can’t Do It For You Because the GSA Won’t Let Us” ploy.
Because the “setting a precedent” ploy is both ambiguous and flexible, it is a particularly hard ploy for customers to rebut or overcome. The essence of the customer’s problem is that as a rule they do not have access to the information necessary to challenge the vendor claim that forms the heart of the ploy.
In effect, when the vendor’s representative states: “We’ve never given that concession to anyone, and if we gave it to you in this situation, we’d have to offer it to everyone who asked for it,” the customer has two problems.
First, the customer has no way of knowing whether the vendor has or has not granted the same or a similar concession to another customer. Second, the customer does not know whether the vendor really would have a “precedent” problem if the concession was granted to the customer in the present negotiations. (Some vendors view prior “concessions” as negotiable items in subsequent acquisitions while other vendors have a policy of viewing a prior concession as having no bearing whatsoever on subsequent transactions.)
Because the customer really doesn’t know, doesn’t have the facts, from a negotiating viewpoint the customer often is at the mercy of the vendor. The customer must either accept the vendor’s representations as true or reject them as false. There is little or no opportunity for independent verification.
Despite this basic problem of a lack of information, there are several viable customer strategies to counter the “setting a precedent” ploy. Customers should consider implementing one of the following tactical counterploys.
First, the customer should demand the vendor provide a list of all other concessions or “precedents” previously granted by the vendor. In this approach the customer should show apparent interest in the vendor’s alleged “problem” which might follow from granting precedent setting concessions. The customer’s negotiator should ask the vendor’s sales representative: “You mean you would really have a precedent problem if you granted us this concession? Does your firm really take these special cases so seriously? Do you keep track of this sort of thing?”
Usually, the vendor representative unsuspectingly will pick up the friendly challenge and go to great lengths to explain the vendor’s supposed “policy” in this area, perhaps with a few references to previous “precedent” problems.
At an appropriate point in this explanation, the customer should respond by asking the vendor’s representative for a list of all prior vendor concessions or “precedents.” In effect the customer should explain: “Look, you said you kept track of this kind of thing and that your company has a policy of granting any prior concession to any customer that subsequently asks for it. Before we can negotiate further, we’re certainly going to need a list of all your available previous concessions.”
At this point, the vendor’s representative is likely to counter with some denial, expression of disbelief, or claim of ignorance. If the vendor rep claims not to see the logic of the customer’s reasoning, it may be beneficial for the customer to press for the original concession on the ground that after all, the vendor does not appear to have a “precedent” problem or any specific policies that prevent the granting of such a concession.
If the vendor’s representative claims there is no list of prior concessions, or that the marketing team “doesn’t think” prior concessions have been granted (a very unlikely event), then the customer should respond by demanding the vendor produce a knowledgeable representative who has the information before negotiations can proceed. The customer’s negotiator might merely observe: “How can you possibly talk about precedents and what you can or can’t do if you don’t even have a list of what prior concessions have been granted?”
The fact is most major equipment vendors do have pre-approved contract changes and addenda. However, a customer must have a strong negotiating posture to get access to these materials.
Second, the customer should threaten to obtain the precedents from other sources. In a variation on the tactics previously described, the customer simply breaks off the negotiations to do some digging to obtain information from other parties about the vendor’s previous concessions. The most likely sources of information about prior vendor concessions are other customers, customer groups, specialized publications and professional negotiators and advisors. Preferably, the customer already will have accessed these sources before the start of negotiations; however, deadlocking the negotiations to examine all sources on an immediate basis still can be effective.
Moreover, the mere threat by a customer to break off negotiations for this purpose often becomes an effective customer strategy even if the customer does not really attempt to collect useful information. Threats of negotiation breakdowns get the vendor’s attention.
Third, if the vendor’s representatives insist the vendor never has granted a particular concession or series of concessions, the customer should consider asking the vendor to include a “most favored nation” provision in the vendor/customer agreement. This is language which states if the vendor has granted any customer a better price or broader concession during a specified period (generally beginning before the execution date and continuing for some stated period thereafter), then the vendor is obligated automatically to provide (or at least offer) the same concession to the customer.
This type of provision can be drawn to apply to the entire vendor/customer agreement or tightly restricted to designated sections of the agreement. This latter approach is particularly useful in countering vendor claims that a specific provision requested by the customer would create an unacceptable precedent.
There is one caveat of which the customer representatives should be aware. Vendor sales representatives often suggest the requested concession be granted through some form of “side letter” signed by the vendor representative or branch manager to avoid the supposed “precedent” problem. Too many customers jump at this “opportunity” and agree to side letters. As a rule the vendor employees have a good reason for not wanting to put side letter concessions into the formal contract. Usually, the vendor’s contract review group never sees the side letter and it may have no legal or binding effect on the vendor.
All well-drafted vendor agreements include an “integration” provision that states the contract itself is the only binding agreement among the parties, and that no other documents or promises will be binding unless formally incorporated into the contract or executed as an amendment to it. If the side letter is not directly incorporated by reference into the contract, it may not have any legal effect.
Even more serious, most vendor/customer contracts are executed by a vendor vice president or corporate officer rather than by a member of the marketing team. Most vendor side letters are executed by an employee lacking the legal authority to sign such a commitment on behalf of the vendor.
If the side letter approach is the only viable alternative available, the customer should follow two strict rules. First, the side letter must be formally incorporated into, and attached to, the primary written agreement or written amendment(s) thereof. Second, if at all possible the side letter should be signed or countersigned by the same vendor officer who signs the vendor/customer agreement or amendment on behalf of the vendor.
The “setting a precedent” ploy is difficult to counteract by most customers because they lack the necessary information and do not understand how to get what they need. The countervailing tactics outlined here should assist customers to break through what seems to be a vendor version of the Great Wall of China erected specifically to avoid making concessions.