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Negotiating Power and Limits. Tesco and Unilever

We have just had a remarkable (and quite rare) situation occur in the fast moving Grocery market. Tesco took a firm stance against Unilever and effectively decided to de-list certain products (e.g. Marmite!) as a result of what Tesco deemed to be unreasonable price increases.

From a negotiating perspective it makes for interesting analysis.

‘Information is power’ is a phrase we hear used often in a business sense and here we believe is a case in point. The CEO of Tesco, Dave Lewis, was previously an employee of Unilever and given that his last role there was as President of Global Personal Care he would almost certainly have had some significant knowledge in relation to the source or manufacturing points of the ingredients/ components of the various products that were subject to the price increase from Unilever. Unilever’s key reason for the price increase, as we understand it, was the declining value of the pound leading to increases in their costs (when buying in other currencies) from various sources around the world.

One of Tesco’s main arguments was that, as they understood it, many of the constituent ingredients/ components that helped make up these products were not sourced abroad but rather in the UK, so therefore currency variation/ weakness should not be a factor. Tesco therefore questioned the justification of the price increase and its credibility.  The only way they were able to do this and know that they had a strong case was from some knowledge about the supplier from whatever source. The source may well have been ‘on the pack’ but it seems that they knew significantly more than that. Tesco also positioned themselves smartly as a sort of ‘champion of consumer interests’ by protecting the consumer from these harsh (and unjustified) price increases – nice one Tesco!

A few things come out from this when considering best practice negotiating:-

  • Make sure that you look at the position from the opposite party’s view – what information do they/ might they have that could question/ challenge our position? Are we therefore approaching this in the right way? Have we underestimated their knowledge?
  • If challenged how credible is our position?
  • If the challenge comes what room for manoeuvre – ‘negotiating room’- do we have and if our credibility is questioned how can we counter that?
  • What sort of relationship do we have with the opposite party – do we trust them and if so would an ‘open book’ approach work in this scenario?
  • Who should be involved in this negotiation from our end and in what circumstances should the ‘negotiators’ be changed?

One thing is pretty certain – neither party would have wanted the ‘impasse’ they reached and as subsequent moves showed us, things were resolved quite quickly. We’ll never know the full outcome or reasoning behind each sides positions – did Unilever ‘go in high’ knowing they could come down and still make the margins they sought? Did Tesco really want to empty their shelves of key consumer brands if pushed and how much did they really know about Unilever’s sourcing?

The reality is that many SME’s that import their products from sources around the world will face price increases that they will need to pass on fully or in part at least over the ensuing weeks and months. They too will face the resistance from some of their customers that Unilever got from Tesco. How good are your team at negotiating? Do they know the key steps that can lead to a successful negotiation and how to deliver them?

We are experts in helping businesses improve their skills and negotiation is a key strength of ours – if you would like to meet for a no obligation/ no cost discussion about how we can make you/ your team negotiate better and maintain or improve your margins contact us on 0116 232 5231 or 0774 7023610 or at ignite@tinderboxbusinessdevelopment.co.uk

David Turner

Managing Director

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