We look at the principles of negotiation. When should you compromise? Is it a mistake to make the first move?
We also consider the phases that negotiation goes through. Understanding these will help you control the agenda.
It is key to plan your strategy and tactics, compile a list of what you want to achieve, and know the value of concessions you want and are prepared to make.
- Start high, but remain credible. As we have seen, the starting point has a huge influence on the process and the outcome. Ask for as much as is credible, given your research.
- Don’t compromise. Try to bargain –you will probably get a better deal.
- Don’t be first to move. Once a party has moved, they have indicated a willingness to continue moving.
- If/When you do move, do it in small increments. Make your opponent work for every concession.
- Don’t put down a marker (a marker is a figure, a price, a timescale.) By putting down a marker you immediately put a ceiling on your achievable figure. In the example of the shirt we looked at earlier;-
Now imagine the same shirt was initially offered to you at 120USD, and you offer 60 USD. The seller does not accept and you spend some time arguing. Eventually he accepts your offer of 80USD. You are delighted, you have saved 40USD and got a bargain at only 80USD
If the trader initially asks for 120 USD you refuse and he says “what figure do you have in mind” and you put down a marker of 90 USD, you will never achieve the 80USD you eventually got. More likely you would end up paying 100USD!
- Get a return for any concession you make. Imagine you offer to take your children to the park if they tidy their rooms, and they don’t even look up from their screen. Then you offer to take them to the park AND buy them an ice-cream -you can be sure they still won’t look up, because they are waiting to see what you offer next!
- Never offer one concession after another without getting something in return. Make one move at a time. Successful bargaining depends on winning concessions of greater value than you concede.
- One of the skills here is placing an accurate valuation on the concessions. Give away what doesn’t cost you much but is of value to them, as in the earlier example of the page branding in the catalogue. Get something in return.
- If you have to threaten, use an emotional approach –“what would you do in my shoes? “Or “we have a partnership that works well for us both, we don’t want to jeopardise it, do we? “But don’t let your emotions cause you to lose your negotiating edge.
- Be careful about asking a negotiator “why?” Earlier when we discussed reasoning and logical negotiation we said if a negotiator has a well-researched and well-argued factual case to support their position, then their opponent’s position is significantly weakened.
- So if you ask “why ? “, and your opponent produces a well-reasoned, researched argument about increased costs of components, rising labour costs, deteriorated exchange rates, then you are on the back foot immediately. Don’t open that door for them if you suspect this is the situation!
- If you expect the approach above then you need to counter this with your own logical argument as to why you can’t accept a price increase because you can’t pass it on in this market ….
- Even if you have power, don’t abuse it or it will come back to bite you in time. Try to keep negotiations pleasant, especially if there is a long term relationship between the parties. You will often get better concessions if the other party knows you have power as your organisation is commercially dominant and you don’t use it to bully your way to a good deal. Instead rely on trading, say, better payment terms, for a price reduction.
- Always bear in mind that you may encounter the people you are negotiating with in another guise, when you are both in different roles or organisations, where they are more commercially dominant. Then your roles will be reversed – People have long memories in business!!
Phases of negotiation
Some negotiations are short and quick- buying a shirt in the market for example. Others, such as political negotiation, may take many years.
They all follow the same phases. Opening, testing, moving and agreeing.
Planned, professional negotiations have additional steps of preparation and planning prior to the negotiation, and review after the negotiation is complete.
The preparation and planning phase is the key in professional negotiations. Your work here will heavily influence the outcome if carried out correctly. The work undertaken depends on the product, the process and the parties involved, and the type of relationship.
If you are already in a commercial relationship, then some components will already be established, such as packaging, distribution or payment terms. It is sometimes worth revisiting established practice though, to see if savings can be effected.
And if you regularly buy a commodity from a particular supplier, it is worth talking to competitive suppliers to check you do in fact have the best deal.
If you intend to negotiate with a number of suppliers for the best package for a commodity, and you have a preferred supplier or partner, meet the other contenders first so you have a good view of the market and competitive offers before you enter negotiations with your preferred partner.
Alternatively if you have an open mind, make it clear that this is your first round of meetings and is mainly information gathering, rather than a negotiation. This will encourage people to be more open with you than if you approach meetings as negotiations. Then go back to the front runners to renegotiate when you have seen everyone and have a good understanding of the current market situation.
Preparation could include;-
- Market research –who are the players? Can you access company reports, market research reports, trade journals or magazines, supplier knowledge, trade exhibitions, trade gossip, colleagues?
- Is the market buoyant, emerging, reducing, or static?
- Is the potential supplier’s business strong or are they struggling? What do you expect their targets to be? What are their capabilities, limitations and capacity? What is likely to be on supplier’s shopping list?
- See other potential suppliers/partners, to gain an understanding of their situation.
- Your company’s requirements, including terms, delivery period, price, quantity, quality. You may need to confer with colleagues- for example your packaging department may specify packaging that will add to cost, which will need to be factored in now to meet price points and margin requirements.
- What needs to be added in to the ex-factory price e.g. If you are importing and buying in a foreign currency you will need to know exchange rates, freight costs, import duty rates.
- Is there likely to be a shortage or a glut of the product?
- What other external factors may affect your decision?
Then you need to plan your campaign strategy .Think about;-
- Your shopping list -Your requirements, their priority. Which are must-have and which nice –to –have?
- What bargaining tools can you offer them, what are their value as concessions?
- Your opening gambit –plan how you will start the discussion, but not reveal your hand.
- Their expected response.
- How you can bring them round to your viewpoint.
- Common ground –do you both want to do business?
- Will you or they have several representatives at the meeting-what will be the roles of your team?
- How will you gain and keep control of proceedings?
- What difficult issues might they bring up?
- Plan your targeted outcome, estimate their likely target, your acceptable settlement figure.
Beware of setting your target too high or too low. Sometimes you can achieve more than you would predict, so don’t cap your achievement by restricting yourself.
Consider the long run, if appropriate. What might be important to either party next year? Can it be factored into this agreement?
If you are working with a colleague, it can be useful to role-play with them playing the other party-or even with you playing the other party, which may force you to challenge some assumptions you have made!!
The more issues you can get settled in your mind in advance of the meeting, the less distraction you will have from the main event, and the more focused you can be on the key factors.
Effective negotiators spend a lot of time on this phase, and plan a wide range of variables, openings and proposals. They look at areas of common ground between the parties, and can deal with issues being introduced in any order.
Effective negotiators also listen for unusual solutions, taking account of things you hadn’t planned for because you didn’t realise the implications. Sometimes really great deals and partnerships can come out of a throwaway remark, so keep an open mind early on, especially if this is a first meeting.