We all negotiate all the time– with our kids, partners, taxi-drivers, market traders, colleagues. Most people do it intuitively without analysing the process.
Professional negotiation is to some extent a learned skill. There are some important principles and tactics to study and understand which can help you to achieve the best deal for your organisation.
Every negotiation is different and will depend on the people and companies concerned, the product and service, and the market and conditions.
There are many books written on the subject, but as a professional buyer I can think of many occasions when the theory is fine, but the practical situation calls for a different tactic because of the culture, personalities, previous or future deals and trade –offs.
As in all things, the more we understand the theory, the better we will be at applying it to our advantage. The best negotiators have a range of options at their fingertips and are able to predict the likely response to a tactic in a negotiation
What is negotiation?
It is a process through which two or more parties move from their different initial stance or position to a point where they reach agreement.
The word move is the key here. If parties do not move, no negotiation has taken place. If you ask a shopkeeper how much their product is and they say £10 that is not a negotiation. So although you may buy the product you are trading, not negotiating.
Commercial negotiation (as opposed to political) typically takes place when one party is buying, the other is selling, and both parties want to get the best deal they can. So each party tries to strike the best deal for their organisation.
There can be many components in a transaction;-
- Quality of product
- Quantity of product
- Timing of delivery
- Payment terms
- Packaging and presentation
- Shipment method
- Delivery location
- Customer service
- Quality assurance
Notice that price is not necessarily at the top of the list. Many people see negotiations as being mainly focused on price. Depending on the product or service it may not even be an important component. Consider luxury products such as designer clothing or handbags, or Fairtrade or organic food.
There are several styles of negotiation. Most common are;-
- Logical and Reasoning
Compromise and bargaining are most often used in the USA and Britain, whilst the emotive styles of Threatening and Emotional are more common in Europe, the Far East and the Eastern Bloc countries, while Germany and Scandinavia are known for their Logical and Reasoning styles.
Compromise The parties look for a middle ground agreement. Each point is negotiated separately, finding a middle ground on each one.
Bargaining The parties trade options to construct a package acceptable to both. This can be complex, and it is important to understand the value of a concession such as exclusivity.
We will discuss this further in planning. If you have an idea of the value of an option to you, and to your opponent, then the most cost-effective thing to do is to give away (after a struggle!) any option that does not cost you much, but means a lot to them.
As an example, if you were a buyer for a catalogue company that did not give a lot of prominence to suppliers branding on the catalogue page, and knew that would be a great concession to your supplier, you could offer them a banner heading across their product on the catalogue page.
This costs you nothing but a little selling space, but the prominence of the brand will help your sales as well as your supplier. This is worth a lot to the supplier , and they may even be able to claim credit from their marketing department for the advertising space achieved- possibly in the form of financial support from their marketing department for the price concession you are about to ask them for!!
But the trick is not to say ”oh you can have that, it costs me nothing “. You need to make them fight for it, and win a concession in return.
Threatening “If you don’t meet my target I may have to find another supplier.” This can be a dangerous tactic, as it may rebound on you at a later date if or when the power shifts, but if used successfully may lead to one party conceding.
Emotional “My job depends on this deal …”, “we will go out of business if you don’t help us …” Can be effective in moving your opponent towards your target.
Logical and Reasoning. If a negotiator has a well-researched and well-argued factual case to support their position, then their opponent’s position is significantly weakened. In an ongoing relationship, it would seem unreasonable to refuse in the face of their logical and reasoned facts.
Effective negotiators need to have a range of interpersonal skills, only some of which can be learned. They are normally personable, courteous, and receptive to ideas, have excellent listening skills (and use them!), understand body language, know their subject, are authoritative and organised and are respected by members of their industry.
And often they will negotiate on less obvious components that differentiate them from competitors.
Perception of value, and negotiating process
If a negotiation is entered into then there is a ritual to be followed, otherwise the person who secures a deal is not sure they have done the best deal possible.
For example you are in a market place and the seller wants 100 USD for a shirt. You offer 70USD and the trader immediately accepts. You wonder if you could have got it for 50USD. You feel cheated – you didn’t get a chance to negotiate.
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
But this is the same shirt you were disappointed to secure for 70USD! The value is not intrinsic, it is perceived. You fought for your saving of 40USD, and your purchase price of 80 USD- you beat the trader through your negotiating skills.
See the importance of the starting price? And the process?
We have already seen that many components make up the best deal for each party in a negotiation. The two parties each have an ideal position, a target position, and a deal breaker position, at which they would walk away.
In the example above I would imagine our shirt seller has the following positions
Ideal position 100USD (in the first scenario) or 120USD (in the second scenario). This is the price he has opened at, he won’t be offered more than that.
Target position 70USD, that’s why he accepted straight away.
Deal breaker position probably below 50USD-but how much below? If we knew that we would get the best deal.
So in any negotiation there are two opposing situations.
|A’s ideal||A’s target||A’s deal break|
|B’s ideal||B’s target||B’s deal break|
The compromise area is between each parties target and deal break position, where the two arrows overlap, so an agreement can be reached in that overlap area. If the arrows don’t overlap agreement will be difficult and may fail.
Now, if we only knew our opponents parameters, negotiation would be easy!!
A lot of negotiators don’t even know their own parameters. But this is what sets professional, successful negotiators apart. They know their own parameters and what every compromise will cost them, and they plan to gain a fair idea of their opponent’s parameters through research.