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More precisely, negotiation is a set of interactions between two or more parties, intended to resolve a point of difference, to produce an agreement upon courses of action, to bargain for individual or collective advantage, or to craft outcomes to satisfy specific interests. Negotiation is a process where each party involved tries to gain an advantage for themselves by the end of the dialog; therefore it is intended to aim at compromise. The purpose of this article is to reveal and analyze negotiations from the perspective of the sales cycle, and to illustrate how buyers make purchasing decisions. Sales people often believe that negotiations occur only at the end of the buying cycle once the buyer is selecting a seller's solution. This couldn't be further from the truth! Negotiating should occur throughout the entire buying process. All buyers ask for information, white papers, demos, case studies, references or proof-of-concept before selecting a solution, so shouldn't sellers ask for - negotiate for - something of value in exchange? Is it true in sales that there are winners and losers in negotiations? The results of any negotiation can be designated into one of the following groups:
There are three stages in negotiation within a sales cycle.
The second stage in negotiation is the final step within the buying cycle when the buyer has chosen the seller. The seller should once more confirm that he is the vendor of choice using a sentence like: Before we start our contract or pricing negotiation, let me ask you if we are the chosen vendor and pricing is your only concern? If confirmed, then the pricing or contract negotiation can start. There are many elements within this phase. Let's break this negotiating down into more manageable and relevant elements to consider when planning for negotiations: Preparing for Negotiations: 1) Research All Pertinent InformationAll that is good in a normal economic climate, but we are in anything but normal, right? So what changes in tough and challenging times like we're in now? The third stage in negotiation is when it becomes a necessity to renegotiate an agreement. Many reasons can lead to such a necessity: bad economy, change in material pricing, change in project scope, and many more. Let's look at what renegotiation means. Renegotiating Agreements in a Tough Economy Suddenly any pretense of collaboration has gone out of the window. Buyers are now quite happy to win at the expense of their suppliers - and some suppliers are now raising their margins with unjustified price increases. For a supplier, the best time to negotiate a price increase is when the buyer is distracted by market-wide changes – i.e. sellers raise prices when everyone else is. So how should you handle this? Re-negotiating Done Deals It is really frustrating when you have another party attempting to re-negotiate a deal that you have already agreed upon - particularly if it is part of a complex long-term framework. The situation is likely to become emotionally charged because it may feel that one party or the other is now negotiating in bad faith. People start to make statements using "hot" words and "faux pas" to describe the other party's behavior (e.g. you reneged, we can't trust you etc.). This makes rational behavior unlikely. When you initially make an agreement with somebody, both parties are usually looking at a gain of some sort. When a re-negotiation takes place, at least one party will probably end up in a worse position than they were before the re-negotiation. It is very tempting to react emotionally to any attempt at contract negotiations; this can become dangerous. Under these circumstances people frequently make irrational decisions. The ego kicks in and people start becoming attached to the original deal without realizing - or refusing to acknowledge that the status quo has now changed. This frequently results in deadlock that doesn't help either party. Two things happen in a re-negotiation:
As the buyer, re-negotiating prices downwards will continually talk about how much profit the seller will still make - rather than how much it will cost them. One of the most effective ways buyers and sellers use in dealing with this is to swap out negotiators. This has the benefit of reducing the emotional content of the discussion, and also removes the attachment to the initial deal. Further research supports that people continue to throw good money after bad to support their initial position – yet another reason to change the negotiator. Before looking at what it means to the buyer, it is important to remind ourselves, especially when faced with the possibility that renegotiation may occur, to train the people responsible for, or involved with renegotiation. A renowned training consultancy conducted research during the last recession with one of their clients to see what the impact was, if no training was provided or stopped during these trying economic times. They trained part of the sales force and didn't train the rest of the sales force (the experiments 'control' group). What happened? Sales of the untrained (control) group fell by 13%. The trained had a gain of 17%. In terms of gaining new business the trained group performed 79% better than the control group. This highlights not just the importance of training, but of re-skilling when the negotiation game changes. Negotiations are conducted differently in many ways in times of bust to times of boom. The common buyer tactics in negotiations: Buyers may use a negotiating tactic referred to as mandated authority. The introduction of procurement department representative who says something like "It's the policy of our company, or my boss' edict is . . . Mandated Authority Many companies had a tendency to concentrate their negotiation training on aggressive tactics. Although these tactics will often yield a short-term results, as they were conceived to wrestle value from the other side without providing any contributing value in return. They are considered 'Win-Lose' by nature. You will frequently have to negotiate with others who apply these tactics aggressively against you. It is vital to notify the counterparty that you possess the knowledge and skills to neutralize their effect with appropriate counters. The counters separate the tactic from the person. So although you might be acting and sometimes judging the tactics employed, at no time do we recommend you lay blame on the aggressive person or attribute the tactic to the person's identity. Employing these tactics doesn't automatically make a negotiator a manipulator or aggressor. So we must make a distinction between a negotiator using manipulative tactics, versus a negotiator being manipulative because they are using these tactics. If you are unable to involve your "champion" - your key contact within the buying organization – things can get ugly during final negotiation process. Try to hold your ground without conceding more than you have planned for and remember the value your champion recognizes from your solution. Mandated Authority comes in two main forms:
You don't actually need to start negotiations with the decision maker. It is useful to develop a relationship with the lower level authority person with whom you are negotiating, as they exert a great deal of sway in your favor. Once you determine that someone holding a higher degree of authority is needed to move forward with the purchasing decision, inform your current contact that you will need to speak with that person. When faced with off the table items discussed in case 1 above, don't accept these at face value. If you do, the list will grow and you will have achieved nothing in exchange for these concessions. Discover the interests that lie behind those items that are deemed as non-negotiable. Having a mandated authority from whom to secure final approval is most useful in circumstances of high risk and in new and unfamiliar markets. Negotiation Decoy This is a very controversial tactic that raises the question: 'How can you know whether the other party is being totally honest when disclosing their interests?' Might they be 'loading the dice' in their favor by embedding extra false interests into their agenda? So you hear about 13 interests, when in actuality they only have 10? Here is an example of how this can create a win-lose in their favor. First, you make an exchange on an invalid or decoy interest of theirs, and it is only later when they drop this exchange from the agreement. The result is that this leaves you with an unmet interest of yours, and them with an agreement that meets all of their interests. A similar challenge arises when the other party agrees to 'forget' about their fabricated interests if you will forget about your real interests. How can you defend against this deceitful tactic? Being thorough may be enough. Remember to get them to explain their motivation behind each interest by asking how each interest helps them. Then work together to rank their interests. If you still feel dubious, trust your hunches and inquire further. Research more widely and if necessary, withdraw from immediate decisions and regroup. Your best method of protecting yourself consists of thorough preparation so you are able to predict, and then understand, what they should and will be asking for. Review their expressed interests against your expectations. Then expand your interpersonal perceptions to notice when the other party is being deceitful. There are always indicators and you are strongly advised to sharpen your senses. Extreme Offers From the buyer's perceptive he/she, will hear the seller ask for a lot more than he expected. As a seller, the buyer will offer you much less than you expected. The buyer's intent is to lower your expectations and thereby obtain a concession without having to give one in return. The danger is that you will be miffed and enraged, refusing to have any further dealings with the other party. It's vital to note that the other party's culture may ordain this tactic as a normal practice. A German or American trading in China will grow accustomed to excessive proposals. If the culture, in which you must operate, dictates excessive opening offers, then we suggest that you to blend in and take advice on how to play by local rules and customs. Especially in western countries, separate the individual from their behavior or tactic. If you are surprised, show your surprise and even allow yourself to chuckle. This can diffuse the situation and initiate an agreement. We don't generally recommend an unwarranted counter proposal. Let the other side know that their expectations need to be adjusted, and refer to other deals as precedents to persuade them by how much. The Negotiation Nibble Just when you believe you have fully agreed and are about to ink the contract, the buyer utilizing this tactic will ask "Transportation and insurance is included, isn't it?" There is a powerful urge to make this final concession for the sake of signing the deal. This urge must be resisted. The quid-pro-quo principle of getting something of value for giving something of value should be employed: "In contracts where we pay for transportation and insurance, we add an extra 3% to the price. So yes, if you are willing to pay the extra 3%, then we will cover these two items." We generally suggest you ask for the reason for the interest behind this newly raised request. If it was left out earlier by mistake, then perhaps there is an opportunity to meet this need in some other creative manner that meets both parties' needs. A terrific way to thwart nibbling and other disagreeable surprises is by being explicit and thorough in specifying precisely what is included and excluded in the deal. Cherry Picking Buyers can design their perfect deal through shopping around and by obtaining many bids before they first approach you. They may offer you a proposal that fully meets their interests on price and discount structures, quality, service, timescales etc. They may frequently tell you "this is what the competition is offering us, so you'll need to at least match it!" In actuality they would have "cherry picked" the most desirable offerings from each of your competition's proposals. By asking the identities of these potential competitors, you are better able to satisfy your own interests. Simply ask them who offered this dream deal, and whether this company actually did offer them an identical deal to the one they say you have to beat. If it seems too good to be true you may be right! Take the time to do your own market research. Examine the standard conditions and current deals of these named competitors. Draw the other sides' attention to the notion of quid-pro-quo and mutual concession making. Explain that if the deal is to be worth your while you will need to obtain something in return for altering your offer in favor of their cherry picked deal. It could be that you will be the one who is challenged with the task of bringing this buyer's expectations back down to earth, and perhaps you will win the deal in so doing. Remember savvy buyers negotiate in reverse preference order. They will get best and final pricing from sellers they do not intend to buy from and use these quotes to "beat you up" and get a discount or other negotiated value. Good Cop - Bad Cop No matter how often we watch these antics in old and new movies, many negotiators often don't recognize when this classic tactic occur in front of their very eyes. You will be facing two or more negotiators; one is aggressively demanding concessions while the other is, by comparison, more sensible. Often the hotheaded "bad cop" doesn't have to be there at all. The other party will make references to their aggressive boss or other team members' demands for your concessions. It is absolutely vital that you to notice what is transpiring, and remember that despite appearances, the 'good cop' is not on your side. You can alter the dynamics by calling them on their behavior: "You know what this reminds me of? A police interrogation scene from an old movie with that old good cop / bad cop routine. Now I know you guys wouldn't intentionally be doing that routine on me, so let's get back to the reason why came together today." Alternatively you could concentrate all your efforts on the bad cop, and ignore the good cop. Since it is the bad cop you have to please, it should be her/his interests that need to be fully understood. Competition The law of supply and demand can appear in many guises, a very subtle form of aggression. Similar to 'Cherry Picking' you may hear that your competitor proposed the same deal for a lower price. You may be informed that unless you meet their price the contract will have to go out for bids. There may be insinuations that relate to conversation or the products of your competitors. Perhaps you will observe a competitor's product catalogue on their desk with post-it notes peeking out from several pages. Time and again you will be faced with a generalization of "Everyone else is providing this service as standard". Of course you will want to contest this generalization immediately, or it sticks and they start believing their own claim. Identify whom exactly they have spoken with, and then precede to compare your offering to the buyer's needs and the other party in detail. Don't take their word for it; perform your own research if you don't already know what your competition is offering. First establish precisely how similar your competitors' offering really is. Quality, volume, service, delivery, time-scales and payment terms need to match to make for a meaningful price comparison. Very seldom will your offering be totally dissimilar from the competition. Ideally your meticulous preparation prior to negotiating would have armed you with information on your competitor's value proposition. Work to distinguish your proposal or offer so as not to be commoditized and beaten down on price. Negotiation Deadlines Deadlines can force parties into movement through making choices. Deadlines may be a result of circumstance (return flight departure time approaching), or have a real consequence (project grinds to a halt without a person or a product), or they may merely be a tactic to force your hand and deny you adequate preparation time. Ask for consequences - "What will happen if we don't meet your deadline?" Perhaps through working together you can open their eyes to alternatives that relieve the pressure from the seemingly unmovable deadline. Negotiation Limits Buyers impose limits on money, time, capacity, personnel and more. The most feared to a sales person is limited money. "We love you, your product and organization - we just can't afford to pay more than X." Perhaps you can deliver within their stated limit, but always apply the quid-pro-quo principle and receive something back for making any concession. "If I sell at X, then you will need to forgo your after sales support and reduce warranty to 1 year." "What would you like to take out of our proposal to get to the pricing you need?" One technique is 'sleight of mouth,' used to refocus the conversation on creating value, rather than the notion of a whole deal sale. Experience teaches that when the risk of losing a valuable product or service is fully understood, then the limiting restrictions are brought into proper perspective. "Yes I do understand your budget restraints. Let's also remember that the capabilities you said you needed delivers the value you mentioned to your company of 2000 hours per year, which is worth X2 discounted over 10 years. So the real cost isn't X, it's the risk of not saving X2." It's important to be able to discern between if your counterparty is using a limit as part of their arsenal of negotiating tactics, or if they are under a real constraint. Take it or Leave it This tactic is quite confrontational and can border on belligerence. Such open forms of aggression are best not met with equal force. Concentrate on the interest behind the demand, and then work together with the other party to generate options that allow the interest to be met in some other way. "The workers won't accept less than a 2% increase in salary, take it or leave it!" can be met with "I understand the workers require 2% more in salary, so please help me to understand what they will be doing with 2% more?" It could well be that this money would go towards their retirement plans. If so, the company could offer to raise the pension contributions to satisfy the desired security levels. Until you know why they want a 2% rise, you're not in any position to create alternatives. If you suspect a bluff, one good way to expose the bluff is to inquire, "Am I your vendor of choice, and If we come to an agreement, is this the ONLY obstacle in the way of concluding our deal and signing the agreement? If you don't pose this question, you run the risk of making a concession only to face another demand. Often you will flush out more of their interests through asking this question. Similar is "You are going to have to do better than that!" Again, we suggest you ask them " if we come to an agreement on the price, will you be willing to sign here and now?" You are not committing yourself, but merely exposing their intentions. Another consideration is to use the quid-pro-quo principle: "If we reduce your price, then we need you to increase your order," but be specific on how much of an order increase will reduce the price by how much. Power of Print and Policies We tend to give the written word and company policies more weight and credibility than the spoken word and requests. For this reason we recommend you list your prices in writing rather than discuss them verbally. Written words are seen in a light of enhanced legitimacy, and are less often challenged. Moral Appeal You will hear the other side framing their request as being the 'fair' or 'right' way. In so doing, by disagreeing with their proposal, you run the risk of being labeled as 'unfair' or 'wrong'! "If we agree to pay in 30 days, then it's only fair that you let us have our standard 5% discount". "Let's be equitable and share the costs on this." "If I take this deal back to my boss, he will chew my ear off! Can you please help me out just a little?" Remind the other party that you earned your trusted position through quid-pro-quo in negotiations. So if you make this concession for them, you must receive a concession in return. If there are interests of yours that are not fully met, now is the time to discuss them. "If I give you a discount of 5%, then I need you to add product group Y to this order." The moral appeal could conceal an interest that has yet to be fully met. In the third example you could ask, "So what interests would your boss want met, can you rank them?" Negotiation by Association Also known as 'Name Dropping'. This tactic is demonstrated when a seller brings up having done business with a VIP or a venerated company. Alternatively they may exhibit a picture in their office of themselves shaking hands with personalities or leaders like Nelson Mandela. The peril lies in the human tendency of wanting to conduct business with individuals who are well connected. Most important is to distinguish what is happening and not permit yourself to be influenced or swayed to treat this person any differently than you would have without this information. It's all too often no more than a thinly guised negotiating tactic. If you believe they are stretching the truth, ask them what they performed with the person or company. Appear interested and ask for details. If they cite a company ask for the name and position of the person they dealt with. If they become vague or change the topic you can draw your own conclusions. Negotiation Default The default tactic tests your thoroughness and diligence. You are given a benefit such as an extra service or more products, along with a contractual term or note stipulating that they presume these terms are to your liking. The responsibility falls upon you to contact the other party and explain that you did not ask for these additional products or services. If you are lazy and don't read all communication, or if you don't take action, you will be setting a precedent of implied agreement that is hard to escape from further down the line. Many feel taken advantage of and become aggressive as a result. We would again suggest that aggression is not the best route when negotiating with counterparties employing such tactics. It is best to be firm when replying to a default tactic. Make the other party aware that you know the intention behind the products, and that you would value them if they personally remove these variations from the agreement. Negotiating a Deliberate Mistake This tactic plays on your ethics or lack thereof. This tactic comes down to the ethics of your counterparty, and must therefore be aggressively guarded against when you suspect their moral standing or cultural preferences. You may be tempted with a contract or offering that is clearly to your advantage - contrary to your discussions. The risk lies in you're eagerly signing before the other party realizes their error or omission, only to have this matter brought to your notice and corrected later on. We suggest you point out the slip-up or omission as soon as you notice it. This tactic, as with the others, has a way of boomeranging and will catch up with you in the medium to longer term. Negotiation Planted Information It is somehow human nature to trust what we have learned about the other party because of what they have said about themselves. It is chiefly for this reason that (friendly) mergers and acquisitions (M&A) are often only announced shortly before being agreed upon by the parties involved. The danger exists when the press publishes an unfounded and speculative article; thereby shooting holes in the trust that has been steadily building between companies and their shareholders. There are many case histories that have recorded how one side 'leaked' information to the press in order to slant the M&A negotiation in their favor. As far as is practical, research the information that is available, and withstand reacting in the moment. If you have a good relationship with the other party, you can save a lot of time by sharing the information with them, face to face while negotiating, and asking for the truth behind it. If they confirm the rumor to be true, ask for their sources. Negotiation Withdrawal Withdrawal comes in two main forms: 1. Withdrawal of a previously agreed term or tentative agreement. 2. Withdrawal from the negotiations altogether. With the first, the other party will request that you retract their side of an already agreed tentative agreement. Be cautious by learning how circumstances have changed to warrant their changed need. Review your notes to see what you had promised to them, and remind them that you too will need to withdraw this item in return. Find out what interests they are looking to satisfy, and seek to create new options by negotiating creatively together. Corporate negotiations are characteristically highly complex - necessitating parties to sense when changes in circumstances demand a revisit. You will need to judge as to whether the second is a tactic or an actual withdrawal. Listen very carefully to their wording to identify whether they are giving you a conditional withdrawal. "We are going to have to break off discussions with your insistence on a 50% share in this venture!" Here you are given the 50% share condition/demand to overcome, without knowing their underlying interest. Start by reiterating those areas you know that you both agreed upon. Your overarching reason for meeting, your sharing interests, and the areas agreed so far. Once you are both back in an agreement frame, ask them why they don't want you to have a 50% share. It may be that in China the government controls joint ventures. Perhaps you can appoint the CEO while they appoint the Chairperson, and your decision-making procedures permit you to veto any proposals despite their 51% share. They get the public perception of control and you get equal say. Best Practices in Negotiations How many times in the course of a day do you find yourself negotiating a situation? I would be willing to guess that you encounter both planned and unplanned opportunities for negotiation several times a day, yet more often than not, you may find the act of negotiation difficult. If you push too hard, the deal goes astray. If you're too soft, you become known as a pushover. The key to sound negotiation is ensuring the appropriate approach to the kind of negotiation at hand. Using IT as an example, there are many kinds of negotiations; IT directors are continually involved with users, partners, executive management, and staff and, of course, suppliers. The environment in which we negotiate is now so specialized that a generic approach no longer delivers the best results. There are similarities between the approach to best practices in negotiations and that of implementing best practices in the workplace supported by the deployment of IT solutions. To facilitate the achievement of corporate objectives through negotiations, IT departments often employ an organizational negotiation capability. As in the IT environment, strategy drives process, which, in turn, drives implementation and support. This means that a negotiation strategy can be defined, a supporting negotiation process designed and implemented, and a negotiation supporting infrastructure established to continuously drive the improvement of negotiated outcomes while minimizing the losses associated with sub-optimal supplier and end user agreements. Negotiating with IT As IT executives acting as custodians of valuable company resources, it is incumbent that they ensure the appropriate application of negotiation strategies and tactics to achieve key company objectives. In this context, it is key to understand that there are a number of different negotiation engagement models available to them, depending on their objectives. Your browser may not support display of this image. It would be unlikely for them to engage in collaborative negotiations with a supplier that is providing products or services at a commodity level. Similarly, it would be equally unwise to engage in highly competitive negotiations with suppliers that are providing solutions that will have a significant strategic impact on their organization. We know that in negotiations, as in life, victims have a tendency to become aggressors. It therefore follows that if they are too competitive in their approach to negotiation, they can often leave suppliers feeling that they need to reclaim what they believe is rightfully theirs. We can recognize the symptoms of a deal that was negotiated too competitively by the issues that they pick up subsequent to closing the deal - issues with service level agreements, escalations and so forth. If deals are not profitable for their suppliers, they will go to great lengths to cut corners so they can meet their profit objectives - often to the detriment of the clients who drove too hard a bargain. When buyers enter into negotiations with suppliers providing strategic solutions that have a high value to their organization, they generally create a collaborative frame for the negotiations to ensure that they are able to extract maximum value from the proposed partnership. Your browser may not support display of this image. When negotiating in the IT environment, it is critical for practitioners to approach the entire negotiation process (preparation, engagement and debriefing) from a whole brain perspective and to apply the appropriate negotiation strategy in support of organizational objectives. Why do Negotiations Fail? Generally speaking, negotiators fail because they don't negotiate in a holistic way. Research has shown that our actions and communications will be most effective when they are used in a whole brain format. If you would you like to minimize the struggle and equip your sales people with the skills that are required to sell more effectively in this new technology marketplace, contact us at www.keyroad.com or call us at 415-934-1449 to determine if we can assist you in achieving your sales enhancement goals.
Philippe Lavie is president of KeyRoad Enterprises (www.keyroad.com). KeyRoad teaches organizations how to sell by delivering organizational sales processes, sales ready messaging, and sales skills development workshops, in addition to consultation in the areas of leadership, marketing, messaging, value justification (ROI), pipeline management, as well as on-going strategic sales planning both domestically and internationally. KeyRoad became a licensed affiliate to CustomerCentric Systems in 2002. He operates out of San Francisco and can be reached at plavie@keyroad.com or by calling 415-934-1449 More articles by Philippe Lavie More articles on Negotiating | |
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