Consulting: Understanding Negotiation

Dr. Brian Monger

What is Negotiation?

Successful negotiation is the process by which two or more parties arrive at a mutual agreement, by means of discussion and bargaining, within an agreed time scale.

Negotiation is usually the final stage in the selling process.  Once the customer has agreed that your product is the one he wants, both parties often have to negotiate the price, terms of the agreement or both.  This is where good negotiating skills become essential.  In the chapters which follow we will show you how to prepare for a negotiation and the steps you need to go through to reach a successful conclusion.

Types of Negotiation

There are four possible outcomes to a typical negotiation:

Party 1             wins                 wins                 loses

Party 2             loses                wins                 loses

To succeed in a negotiation, both parties must want to reach an agreement.  If you discover early on that the other party is reluctant, or worse, not interested, then it would be much wiser to abandon the negotiation.  On the other hand, walking away from a negotiation has long been used as a high risk bargaining move.  This approach is not one that should be taken in normal business negotiations.  By keeping the channels of communication open, you leave room for consideration of alternative proposals.

Also, it is not wise to play the ‘tough guy’ with a hostile attitude.  The other party may simply refuse to negotiate under those circumstances.  Your objective is to sustain the other party’s desire to negotiate, not to subject him to so much pressure that he feels he must give in.  These approaches are counter-productive.

Preparing to Negotiate

Phases of the Negotiation

The formal, age-old process of negotiation continues to pass through well established phases that are widely accepted.  There is no shortcut to a successful negotiation.  However, after the period of preparation, the negotiation phases often pass so quickly that you hardly notice them.

The following points summarise the stages you will have to go through in a negotiation.

1.         Make a specific and detailed analysis of your aims, objectives and concessions you can and cannot make, and the limit to which you can go.  List your questions.

2.         Contact the other party to establish a positive relationship.

3.         Exchange information with the other party to develop trust and review the objectives of both sides.  Weigh up the differences.

4.         Summarise both positions.  Clarify any discrepancies of interpretation about events leading up to the present position

5.         Propose and negotiate.  Say what you want.  Accept conflict as part of the discussion process but never use abuse or lose your temper.  Use the “what if” approach.  For example, “I can’t extend your credit limit at the moment, but what if I increased your cash purchase discount by three per cent?  How would that be?”

6.         Bargain.  Don’t give in now.  Exchange equal deals.  Dont give something for nothing. Maintain communication.

7.         Agreement.  Review the points one by one and confirm all aspects of the understanding by both sides.

8.         Implementation.  Once the agreement has been reached, it is worthless until it has been implemented.  You should have defined clearly as part of the negotiation process whose responsibility it is to implement the deal.

Preparing for the Negotiation

Careful preparation is essential to a successful negotiation.  This entails deciding your objectives at the start, weighing up the different variables which could occur in the course of the negotiation and, if necessary, practising the negotiation with your colleagues.  Let us examine each of these points in a little more detail now:

Set your objectives

Aim high.  The more you ask for, the more you will obtain.  Ask for a little and that is what you will get.  Aim high and you will settle high.  Perhaps not as high as your original objective, but in the same region.  This equation should be a useful guide:

Your chosen objective = A realistic number + a little more

However, you should be wary of having unrealistically high expectations.  If your initial request is unrealistic, you will lose credibility with the other party.  You may be forced to retreat, and settle on something lower than you would have liked.

Define the variables

This is where you start to collect information into two groups.  Your opponent’s needs, objectives and priorities and your own.  In any negotiation, there are a number of negotiable items.  These are the variables of a negotiation.  How many variables can you think of when negotiating the terms of a deal?

Did you come up with all of the following?

  • amount/quantity
  • term
  • credit
  • discounts/allowances
  • guarantees
  • delivery
  • date available.

You want lots of variables!

The greater your skill as a negotiator, the more variables you will identify.  Failure to identify a variable means you are giving away a potentially valuable bargaining tool and weakening your position.

It is important to identify all possible variables and then assess their importance to:

  • the customer;
  • yourself (your Organisation).

Anticipate Their Objectives

The opposite party is not going to hand you the information you want on a plate, so it will be necessary to make calculated guesses about his objectives and the kind of matters likely to come up for discussion.  Ask yourself the question “what if”? to reveal possible directions the negotiation might take.  For example, “What if his computer software budget hasn’t been increased this year?” This exercise is one of exploration and chance discovery, but worthwhile – you will feel the benefit of this research when the time comes to face the other party.  The other person will respect you for your thorough background knowledge.

You should keep some assumptions confidential.  You can confirm these later as the negotiation progresses.  Other assumptions should be revealed sooner.  By having a list of questions ready, you will be able to check the accuracy of your assumptions.

Power

Many books on negotiating skills identify power as being the key to successful negotiation.  In your opinion, who is more powerful in this negotiation?  If failure to reach agreement will hurt you more than it hurts the other party, you are the weaker one.

Power can be drawn from a number of sources. 

Information is one of the principle ones.  Define the information you need, how much to keep to yourself, and which details to reveal and when.  The party with the most information is the one with the greater power in the negotiation.  Do not assume that the other party knows your situation.  For example, your customer is unlikely to know how important a particular transaction is to you.  You may feel weak because you have not done any new business for a month, but if you divulge that to the customer you are giving him negotiating power.

Timing also affects the strength of your bargaining position.

Power is subjective

In the attempt to evaluate who is the more powerful party in a negotiation, one important thing is often overlooked.  Power is subjective and if the other party believes you to be the stronger, then you are.  It is in your interests that the other party believes you to be the more powerful, even if the facts of the matter (known to you but not to him) suggest that this is not the case.

If you perceive the other party to be more powerful than you, don’t give up.  And don’t let your lack of power force you into an unacceptable agreement.  You should always have in mind a minimum acceptable agreement, which will give you the discipline not to allow yourself to be out-negotiated.  It is also helpful to have an alternative in mind if you fail to reach an agreement.

Know the Competition

Everything that applies to you also applies to the customer. Just as you may have other customers up your sleeve, he may have alternative suppliers he can turn to who may be able to match your offer.  It is therefore essential that you are aware of the competition.

Your customer may use this as a negotiating tactic.  If he says, “ABC Co. offers an identical service to yours, but they are 10 per cent cheaper” you need to know if that is true or not.  And if it is true, what should you do?  It is unlikely to be true.  Try to find some feature which differentiates what you are offering from what ABC Co. is offering.

Authority

Authority can be exercised at different levels and by different people in the negotiation process.  You need to be sure that the person you are negotiating with is the person with the power to make the decision.  If you are negotiating with a team, you should find out who is responsible for which area.  For example, it is no use trying to negotiate the price of a training course with, say, the personnel director, when the decision-maker on costs is the finance director.  You may, however, be able to negotiate with the personnel manager on the number of people he is prepared to put through the training course

What if the person you are negotiating with is not the right person? 

There is no harm in asking for a meeting with the real decision maker.  Be careful that the person with whom you are negotiating is not just claiming not to have the authority as a negotiation ploy this is explained in the section on psychological warfare.

Concessions

Some things will be easy to trade, but others will be impossible.  Do your calculation well in advance to determine which items you can afford to sacrifice, in order to get the main prize.  Sometimes it will not be necessary to give concessions, only a token modification to create goodwill.  How far you go in this phase can make or break the success of the whole negotiation.  What will the other side be seeking?  What are they unlikely to concede?  Plan ahead.  If you have prepared properly for the negotiation, and identified all the variables correctly, you will be in a good position to know what you can and can’t concede in the negotiation.

Test Your Assumptions

Having prepared for the negotiation, it is important to verify that the variables and objectives you identified are correct before you begin the actual negotiation.  You should prepare a list of appropriate questions to check the accuracy of your preparation.  These are essential if you want to take control of the negotiation and maintain it.  Using questions skilfully can help you to control the direction of the negotiation and protect yourself against awkward questions from the other party.

The Negotiation

Once the preparation phase is complete you are ready to move onto the discussion.  This is the stage where both parties begin to exchange information and create an atmosphere of mutual trust in which they are able to negotiate.  If your opposite party is agreeable, an informal meeting may be a good way of preparing the ground, for example over a game of golf or a meal.  The most important thing is to try to build a friendly atmosphere for communication in the beginning.  The first meeting may simply establish an agenda, and should not be too ambitious.  If the negotiation is the final stage of a sales call, you will have gone through this at an earlier stage.

It is important to open the negotiation in the right way.  If you begin negotiating in a competitive way, the immediate response will be aggressive or defensive.  This will set the wrong atmosphere for finding common interests and options, which are the basis of a successful negotiation.  More importantly, it will be difficult to change the atmosphere later to a collaborative one.  Once the process is under way, both sides’ attitudes become progressively harder to change.

You should begin by attempting to find out what the other party wants before you reveal what you want.  This gives you the immediate advantage of knowing how much room you have for negotiation.  If you reveal what you want first, the cost will escalate immediately.

Be careful where you pitch your opening bid.  You want to leave yourself plenty of room for negotiation, but you don’t want to be so out of line that you lose credibility with the other person.  Again, be aware of what the competition can offer.

Avoid any attempt to move directly towards definite proposals at this stage.  You should never accept the other party’s first offer, as they will be expecting to have to negotiate.  This may seem to be unnecessarily delaying the negotiation, but it is not.  Premature agreements can lose you a great deal, due to inadequate consideration of options.

Searching for options is serious work, requiring deliberate concentration on options without straying into the realm of proposals.  If you have prepared properly and considered all the variables at the outset, this stage of the negotiation should go smoothly.  Skilled negotiators will devote more than a third of their time to looking for common ground and building the right climate of agreement.  It is important to remain objective, avoiding personal and contentious issues at this stage.  The old song from the days of ,swing’ put it like this; “accentuate the positive, eliminate the negative”.

Long or Short Term

It is common to look for short-term advantages, and many do so without realising how different the view would be if they had considered the subjects from a long-term angle.  Business strategy is normally long-term, so it would be wise to bear this in mind in all phases of the negotiation.

It is often easy to overlook time limits in the general enthusiasm of reaching an agreement.

Without time limits for implementation of an agreement, it can drift on indefinitely without ever being applied.

 

Dr Brian Monger is Executive Director of MAANZ International and an internationally known consultant with over 45 years of experience assisting both large and small companies with their projects.  He is also a highly effective and experienced trainer and educator

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These articles are usually taken from notes from a MAANZ course.  If you are interested in obtaining the full set of notes (and a PowerPoint presentation) please contact us – info@marketing.org.au

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MAANZ International website http://www.marketing.org.au

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2 thoughts on “Consulting: Understanding Negotiation

  1. Hi Dr Brian

    This article are just what i’ve been looking for. I’ll share it to my team right away.

    One tactics i like to use when negotiating a hard terms is going to the table with someone who is usually in a higher ranking than me and i’ll be the one bringing the “firm” term and the other will give in a lower term when the other party seek to find the middle ground.

    Cheers

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