Reference no: EM133152899

Case Study for Coursework 2:

Negotiating With WalMart Buyers

WalMart, the world's largest retailer, reported $514.4 billion worth of goods sold in 2019. With its single-minded focus on "EDLP" (everyday low prices) and the power to make or break; suppliers, a partnership with Walmart is either the Holy Grail or the kiss of death, depending on one's perspective.

There are numerous media accounts of the corporate monolith riding its suppliers into the ground. But what about those who manage to survive, and thrive, while dealing with the classic hardball negotiator? 

In "Sarah Talley and Frey Farms Produce: Negotiating with Walmart" and "Tom Muccio: Negotiating the P&G Relationship with Walmart," HBS professor Jim Sebenius and Research Associate Ellen Knebel show two organizations which are having very different background doing just that. The cases are part of a series that involve hard bargaining situations. 

"The concept of win-win bargaining is a good and powerful message," Sebenius says, "but a lot of our students and executives face negotiation counterparts who aren't interested in playing by those rules. So, what happens when you encounter someone with a great deal of power, like Walmart, who is also the ultimate non-negotiable partner?"

The case indicates how P&G executive, Tom Muccio pioneers a new supplier- retailer partnership between P&G and Walmart. Built on proximity (Muccio relocated to Walmart's turf in Arkansas) and growing trust, the new relationship focused on establishing a joint vision and problem-solving process, information sharing, and moving away from the "lowest common denominator" pricing issues that had defined their interactions previously. From 1987, when Muccio initiated the changes, to 2003, shortly before his retirement, P&G's sales to Walmart grew from $350 million to $7.8 billion.

"There are obvious differences between P&G and a much smaller entity like Frey Farms," Sebenius notes. "Walmart could clearly live without Frey Farms, but it's pretty hard to live without Tide and Pampers." 

Sarah Meets Goliath

When Sarah Talley first began negotiating with Walmart's buyers for her family farm's pumpkins and watermelons, she was 19 in 1997. Like Muccio, Talley confronted some hardball price challenges, and like Muccio, she acquired a deep understanding of the Walmart culture while finding "new money" in the supply chain through innovative tactics. 

For instance, Frey Farms used school buses ($1,500 each) instead of tractors ($12,000 each) as a cheaper and faster way to transport melons to the warehouse. Talley also was  skilful at negotiating  a coveted co-management supplier agreement with Walmart, showing how Frey Farms could share the responsibility of managing inventory levels and sales and ultimately save customers money while improving their own margins.

"Two sides in this sort of negotiation will always differ on price," Sebenius observes. "However, if that conflict is the centrepiece of their interaction, then it's a bad situation. If they are trying to develop the customer, the relationship, and sales, the price piece will be one of many points, most of which they're aligned on."

Research Associate Knebel points out that while Tom Muccio's approach to Walmart was pioneering for its time, many other companies have since followed P&G's lead and enjoyed their own versions of success with the mega-retailer. Getting a ground-level view of how two companies achieved those positive outcomes illustrates the story-within-a-story of implementing corporate change.

"Achieving that is where macro concepts, micro imperatives, and managerial skill really come together," says Sebenius. And the payoffs-as Muccio and Talley discover-are well worth the effort.

Sarah Talley's Key Negotiation Principles

• When negotiate with Walmart, think about the partnership terms and focus on a common goal. Do not make demands or statements. If the relationship with Walmart is truly a partnership, negotiating to resolve differences should focus on long term mutual partnership gains. 
• Do not spend time griping. Be problem solvers instead. Approach Walmart by suggesting, "Let's work together and drive costs down."
• Learn from people who have credibility in the field.
• Do not ignore small issues.
• Not to let Walmart become more than 20% of company's business.
• Never go into a negotiation without a clear negotiation agenda. Make good useof the buyers' face time. Get to the point as time is valuable. Bring underlying issues to the surface and find resolution face to face.
• Never bluff Walmart buyers. In fact, should treat the relationship as a marriage. Communication and negotiated compromises are key.
• Do not take for granted that the buyer is young or they do not know what they are talking about. Most young buyers are very ambitious to move up within the company and can be the toughest as well as educated buyers.

Source: Adapted from Negotiating with Walmart Buyers, Negotiation Experts, viewed on 10 th January 2022, < https://www.negotiations.com/case/negotiating-wal-mart/>

Questions:

1. By understanding the negotiation principles practiced by Sarah Talley, discuss Sarah Talley focus on the distribution of outcomes or focus on both outcomes and the relationship. Support your answer with relevant facts from the case.

2. "Like Muccio, Talley confronted some hardball price challenges, and like Muccio, she acquired a deep understanding of the Walmart culture while finding "new money" in the supply chain through innovative tactics."

According to the above statement, do you think acquiring a deep understanding of WalMart culture is able to help Sarah Talley to create value in the negotiation? Justify your answer. Besides, suggest Sarah Talley on the approaches to creating value in the negotiation with WalMart.

3. WalMart, as the world's largest retailer, is having higher leverage than its suppliers. Discuss the hardball tactics that WalMart might use when negotiating with its suppliers.

4. Based on your understanding of the case, do you think distributive negotiation or integrative negotiation is appropriate in the negotiation between Sarah Talley and WalMart? Justify your answer.