As we step into a new era of business, negotiation remains a crucial skill that separates successful ventures from the rest. However, negotiation is a complex art that few can master completely. At Pactum AI, we have transformed this art into a science and the science into an algorithm, revolutionizing the way agreements are reached and value is created for all parties involved.
When my co-founders and I founded Pactum, our core basis of this company was that we believe that the best deals are those where both parties benefit without causing harm – a concept known as Pareto optimality (this blog three years ago outlined our hypothesis). Back then, we understood that negotiating high-volume, low-value agreements, also known as tail spend, can be a challenge for companies. With a wealth of suppliers and limited resources, it becomes nearly impossible to effectively manage and optimize these deals, leaving significant value on the table.
That’s where our groundbreaking AI technology comes into play. We have harnessed the power of AI powered chatbots to automate vendor negotiations between businesses and their suppliers. Our AI system can complete complex negotiations in just a few clicks, finding agreements that benefit both parties within as little as 15 minutes. By automating negotiations, we enable companies to engage with suppliers on a mass scale, freeing up valuable time for their employees to focus on strategic endeavors.
Today, Pactum stands unmatched as the only company in the world with an extensive four-year track record of autonomous negotiations. This unparalleled experience spanning a diverse set of industries working with some of the largest companies in the world, uniquely positions us to understand invaluable insights on the classification and mapping of AI negotiations. This has led us to pioneer the concept of 4 Levels of AI Intelligence. Let’s delve into the 4 levels of AI negotiation intelligence that our technology encompasses, each representing a higher level of capability and sophistication:
Level 1: Standard
At this initial stage, AI agents, fondly referred to as “haggle-bots,” are proficient in negotiating deals with a limited number of terms. These negotiations typically involve straightforward transactions and require minimal internal or external data sources. For example, enterprises are purchasing thousands of inexpensive items weekly for their internal use, such as office supplies, that are not usually negotiated. Now, with AI chatbots this “unmanaged spend” can be managed by getting alternative prices, often from the same supplier, before a purchase. Once the new price has been agreed, the AI completes it by issuing an updated Purchase Order. No human from the purchaser side is involved from the beginning till the end of this process. To illustrate how Level 1 AI negotiation works, read this article from Harvard Business Review which showcased how Walmart used AI Chatbots to negotiate with suppliers. In this case, Walmart achieved 3% savings while maintaining an impressive 83% supplier satisfaction of bots over humans.
Level 2: Advanced
In Level 2, our AI becomes adept at handling more complex negotiations. It can capture and compare numerous rates and terms from different suppliers in real time. The AI is trained using sophisticated models, such as the Harvard Negotiation Style, to identify preferences, find commonalities, and create smart trade-offs. For instance, our technology has demonstrated repeatedly how the AI optimizes negotiations of commercial terms, encompassing various aspects like marketing, freight, warehouse, and returns, achieving savings that range from 10% to 15%. This translates to hundreds of millions of dollars of value that was not realized previously on the balance sheet.
Level 3: Expert
As our AI advances to Level 3, it transforms into a true negotiation expert. At this stage, it considers every detail, including performance metrics, margins, competitor analysis, and commodity fluctuations. Our AI proactively identifies new negotiation opportunities and effectively communicates complex data through simple graphs and reasoning. It can even generate persuasive arguments that resonate with suppliers. This level exemplifies the artistry of AI in negotiations.
An illustration of this capability can be seen amidst the backdrop of the economy’s recovery from high inflation. In this scenario, grocery retail chains are actively renegotiating prices with suppliers to accurately reflect the prevailing market dynamics while simultaneously maintaining their competitive edge for customers. Within the realm of volatile commodity prices, the AI chatbot springs into action, instantaneously initiating negotiations across a vast spectrum of suppliers. This agile response is made possible by its capacity to negotiate with thousands of suppliers concurrently, all in real-time.
To illustrate this potential further, let’s consider a specific scenario: imagine a product purchased for $1 and subsequently sold for $1.20. Now, envision a 10% reduction in costs, causing the purchase price to plummet to 90 cents, while the selling price remains steady at $1.20. This shift results in a profit of 30 cents. Remarkably, this adjustment signifies a 50% surge in profit margin compared to the previous 20 cents, signaling a substantial enhancement in profitability. The transformative potential of this formula amplifies exponentially when applied to an extensive array of products, underscoring the profound capabilities of AI in optimizing and streamlining multifaceted negotiations.
When the AI triggers the negotiation in the background it also activates the Smart Argumentation Script which is backed by negotiation science drawing on the various metrics and numbers mentioned above to achieve the most optimum deal. Without AI, a person would be manually gathering the relevant data, analyzing it, and writing a negotiation email – which could mean one email per supplier with multiple negotiation levers per product.
Level 4: Superhuman
At the pinnacle of AI negotiation, Level 4 showcases superhuman capabilities. For example, in this advanced stage an AI can show its superiority in logistics brokering where AI-powered bots use LLM (Large Language Models) technology to monitor communication channels like Telegram and WhatsApp, analyzing posts for logistics lanes that require coverage. They can now engage with carriers, check availability and rates, and autonomously reach agreements that generate pure net new income. The Level 4 AI operates at lightning speed, never sleeps, and acts and reacts within milliseconds. Being the first to reach this level sets a company using AI negotiations far ahead of the competition.
For example, in the case of our client Maersk, we have already achieved 15% savings in rate negotiations. By employing LLM in the background, the potential for significant growth is unlocked, as it thoroughly analyzes all communication to initiate negotiations. This would function akin to an autonomous agent (or an artificial intelligence employee) dedicated to identifying and executing both new and existing negotiation opportunities within the organization. What truly distinguishes this approach is the LLM’s ability to autonomously read and respond in real-time to messages on platforms like Telegram, WhatsApp, or email, even while employees are asleep. In enterprise settings, LLMs can subsequently collaborate with rule-based AI agents to facilitate contract closures.
The future of negotiations is already here
By embracing these 4 non-disruptive levels of AI negotiation intelligence, clarity and structure have been brought to the complex world of AI deal making paving the way for the future. Our technology offers a structured roadmap for enterprises to seamlessly integrate AI-powered chatbots into their negotiation processes, becoming AI-driven and gaining a distinct competitive edge in the ever-evolving landscape of business.
At Pactum AI, we have witnessed the transformative power of AI in optimizing negotiation outcomes and creating value for both parties involved. Our vision extends beyond automated contract negotiations; we aim to revolutionize the way agreements are reached across various domains, including employment contracts, licensing, and sales negotiations. With our AI leading the way, we envision a future where global commerce will be run through autonomous negotiations and GDP is increased on a global level.