Use A Bogey

In a crunch? Use a bogey

We recently discussed the “Krunch” tactic, where we negotiate by asking the seller to “do better” on price. The Bogey tactic is in some ways, a variation of the “Krunch.” It goes like this: You are negotiating to buy bathroom tiles, and the seller offers a truckload at $5,000. You say you have only $4,200, which is what your budget allowed and can write a check in that amount right now. The key is that, you, the buyer must make the offer (and the constraints) believable. You are appealing to the seller’s desire to work with you, to help you meet your budget.

What the bogey tactic does is start the search for a better deal. The bogey gives sellers a chance of showing what they know about their products, and what is included beyond the price offered. It may result in a better price or perhaps just a better understanding of what you are getting.

Dr. Chester Karrass says that the bogey should always be considered when purchasing complex products or services. The seller is motivated to help the buyer to resolve the problem, so the negotiation becomes cooperative instead of competitive.

Karrass advises salespeople to be prepared for a buyer’s bogey:

1) Have alternate packages available before entering the negotiation.
2) Make sure you know who makes the final decision and who is actually paying the bills.
3) Stand firm.

Bogeys can be used by both sides of a negotiation.

Salespeople use what is called a seller’s bogey, where they say: “I’d love to close this sale, but we need to resolve a few issues first,” and then proceed to add some terms and conditions such as full payment upfront, minimum order amount, delivery time, etc. In the end, a seller’s bogey, may help increase the size of an order, close a sale, eliminate competition or mine information about what the buyer really wants.

Have you successfully used a bogey tactic?

Negotiator or Poker Player?

Negotiations are like a game of poker.

In an interview with USA Today, poker pro Annie Duke compares poker and business. She draws some interesting business lessons from the game. Duke won $2 million in World Series of Poker Tournament of Champions in 2004 and was recently a contestant on the TV show Celebrity Apprentice.

Here’s an excerpt, where Duke discusses negotiations:

Q: What poker tools do apply to business?


A: In poker, you look for patterns from your opponents, how they behave in certain situations. How do they behave when they're comfortable or uncomfortable? How do they play when they're drawing for a hand? How do they play when they have a made hand? Gather data on your opponents so you can predict what they actually have. Understand how they perceive you. It's an extremely important tool in business negotiations. Poker is really just a negotiation. If I know people are perceiving me to be too conservative, then I'm going to play in an unconservative manner until they readjust their perception of me.

Read the entire interview for some fascinating business insight.
http://www.usatoday.com/money/companies/management/advice/2009-07-19-annie-duke-advice-from-the-top_N.htm

Follow up on Boston Globe negotiations

After many months of labor and contract negotiations, the Boston Newspaper Guild, the Boston Globe’s largest union, has agreed to $10 million in concessions on pay and benefits. They hope this will make the newspaper more appealing to potential buyers. Read an article from WBUR here:
http://www.wbur.org/2009/07/21/globe-outcome

Familiar with the Krunch Negotiating tactic?

You’ve got to do better than that!

It is perhaps one of the oldest tactics in the negotiating world. Most everybody uses it at one time or another, from our everyday interaction at a store to the most high-level negotiation. At Karrass we call it the “krunch” tactic, and we think it works well, although we advise buyers not to overuse this technique.

How the “krunch” tactic works is simple: you put the burden on the other party to change the price in order to get your business. We state: you’ve got to do better than that (with the subtext “if you want to do business with me”).

There are several reasons this tactic works on sellers, and most of them are psychological. The salesperson probably thinks one or more of the following:

The buyer must have a lower price
The buyer wants to do business with me
The buyer must know something I don’t
The buyer is giving me another chance

There is also a systemic reason the “krunch” works well in negotiations: companies generally build in some wiggle room on their pricing. In fact, when buyers overuse the tactic, sellers will start building a ten percent addition to the price, which they can later remove in order to get the business.

Salespeople do not have to fall for the “krunch” negotiation tactic. They should first ask what the problem is: are other sellers offering the same product and the same service at a better price? Salespeople (and buyers) should recognize that there is more to price than just dollars. A price involves service, quality, delivery, reliability and other “soft” factors.

As Dr. Chester Karrass points out in his book Give and Take: “Handled right, it is possible to make an opportunity out of a krunch. A salesperson should not go into a negotiation without asking himself or herself, ‘What will I do if the buyer says ‘You’ve got to better than that?’’.”

Have you used the “krunch” tactic successfully? Have you refused the “krunch” tactic successfully? Let us know your experiences.

Negotiations in the Spotlight: AT&T and CWA

AT&T and Communications Workers of America

After five months of negotiations, AT&T and the Communications Workers of America (CWA) have reached a tentative three-year agreement on a new labor contract. The deal affects about 18,500 “core wire-line” (those who work in AT&T’s wired phone division) in the Midwest. The deal is pending ratification by the union membership.

Negotiators for the union were focused on three issues:

1) Maintaining and improving employees' standard of living,
2) Protecting retirees,
3) Enhancing employment security.

The newly negotiated contract terms include annual pay raises, pension increases, and provisions for cost-of-living adjustments. Workers also get more opportunities to switch jobs within AT&T.

A sticking point in the negotiations was the issue of healthcare benefits. The deal that was hammered out will include fully funded preventive care and company-funded health reimbursement accounts that can be used towards eligible health-care expenses.

Commenting on the negotiations, AT&T CEO Randall Stephenson said: “These were tough negotiations in difficult economic times and amidst major changes in our wireline business.”

According to the Indianapolis Star, AT&T's wired business has been losing revenue as more people switch to cell phones and Web-based communications.

Negotiations are still ongoing to discuss contracts covering more than 100,000 workers.

This negotiation between a corporation and its union illustrates the effect of the tough economy. The corporation (AT&T) making the case it is losing business and the union making the case for better job security and benefits in an environment of rising employee uncertainty.

Information for this article came from Reuters http://www.reuters.com/article/rbssTechMediaTelecomNews/idUSN1535675120090715 and the
the Indianapolis Star: http://www.indystar.com/article/20090716/BUSINESS/907160373/CWA++AT&T+agree+on+tentative+contract

Negotiating Changes

Negotiations involve change: price increase, scope of work modification, request for discount, union demands, reduction in volume, change supplier, design change, people changes.


Recession = Change = Pressure


During recessionary times negotiating change is more difficult. Both sides have more pressures and this adds to the intensity of the negotiation. TIP: Follow two important KARRASS negotiating principals. Preconditioning and Acceptance Time. When you do, you will find your 'change negotiations' will be more productive, and you'll be better able to preserve the relationship you've established with the other side.


Preconditioning -- No One Likes Surprises!


As you prepare for your 'change negotiation' start making the other side aware of your thought process and the conditions that are causing the change. Keep the other side aware of changing market conditions impacting this decision. Preconditioning makes it easier for the other side to accept your position. They understand what is driving it and understand that you have taken time to analyze a variety of options.


Acceptance time -- Allow time for preconditioning to do its work.


Allow some time between when your preconditioning messages are sent to the other side and the time you need to sit down to negotiate. If the other side hears about the need for change (price increase, downsizing, cancel a project) on the day of the negotiation, there is going to be increased resentment and resistance. You may trigger a 'knee-jerk' reaction that could damage both sides.

The changes you are proposing probably will impact others. The other side needs time to do their own internal preconditioning. During the process of negotiating changes, use every conversation and every meeting as an opportunity to reinforce the importance of mutual interests in your relationship.


Bragging Rights


You've probably been told not to brag. But in preconditioning bragging is important. Consider implementing an on-going preconditioning process. This really helps when you enter a difficult negotiation. You do this by documenting.

Document any time you do something extra that benefits the other side. Such as: provide extra help when they need it; perform beyond what was called for in the Agreement; bail them out when they make a mistake or something breaks; provide extra ordinary service; give them additional goods or services at no extra cost; lend them some extra people to help out on a project. Brag a little about these things that you do for them. Document it in a short note or email. "Glad I could help!"

Maintain your list of these 'extras' you have provided them and don't be afraid to use it during your negotiation. Their acknowledgement of your extra effort helps.

Testing Your Assumptions

What are your assumptions and can you trust them?

Assumptions are educated guesses or guesstimates about what the other person is doing, thinking and/or planning. In business negotiations, we work to assess the other person and part of that assessment is to make assumptions. We assume what their bottom price might be or what concessions he or she might be willing to make

Stephen Covey, the author of The Seven Habits of Highly Effective People, once said: “We simply assume that the way we see things is the way they really are or the way they should be. And our attitudes and behaviors grow out of these assumptions.”


It is human nature to assume things based on our experiences. Perhaps someone who looks a lot like the person you are negotiating with once lied to you and now you assume this person across the table looks like a liar. The point is that assumptions can be faulty and you should not trust them entirely.

However, we make assumptions each day about a whole slew of things: which line at the bank will move faster, which item at the store is better than another, etc. We often base our decisions on those assumptions regardless if they are correct. In decision-making theory, this is called bounded rationality (when people make decisions without all the information necessary).

Dr. Chester Karrass tells us that the “ideal negotiator should have ... the open-mindedness to test his or her own assumption and the other person’s intentions.” If, as a negotiator, you do not test your assumptions, you may become a victim of bounded rationality, which in turn could lead to costly mistakes as you negotiate.

Don Miguel Ruiz, in his bestselling book The Four Agreements: A Practical Guide to Personal Freedom says: “The way to keep yourself from making assumptions is to ask questions.”

In negotiations, always question your assumptions.

Negotiations in the Spotlight: NFL vs. NFLPA

The NFL and NFL Players Association Negotiations

Soon, the National Football League (NFL) will be entering negotiations with the NFL Players Association (NFLPA). This will be a high-stakes negotiation, as football is the most popular and most profitable sport in the United States, making about $8 billion each year.

This will be the first negotiation between new NFLPA Executive Director DeMaurice Smith (read an interview with Smith in the Seattle Times here: http://blog.seattletimes.nwsource.com/seahawks/2009/06/08/the_business_en.html

and NFL Commissioner Roger Goodell.

Several items are on the table:


1. Collective bargaining agreement expires in 2009 and negotiations on extending the agreement began on June 1.
2. Players are seeking a larger portion of the league’s revenue streams.
3. Players’ salary cap is due to be removed in 2010.
4. NFLPA wants access to NFL financial accounting. Read full story on ESPN.com: http://sports.espn.go.com/nfl/news/story?id=4181186
5. Expanding the playing season (more games translates to more revenue).

The sour economy is playing a big role in this negotiation. Sponsorships have slowed and ticket sales are down. Players want to make more but team owners are claiming they are getting less revenue.

In a June 9 Forbes Magazine article, Tom Van Riper reports that these negotiations could escalate to a strike or lockout because each side is looking to establish its power
(Read full article here:

http://www.forbes.com/2009/06/09/nfl-players-union-business-sports-football.html In the article, Riper writes: “Goodell's biggest weapon for averting a strike: Convincing the players that it is the worst possible time for a stoppage given the recession. The last thing anyone wants is to antagonize an already stressed-out fan base by haggling over too many details.”

It seems that the recession could work in the NFL’s favor. It will be interesting to watch these negotiations unfold, and see how they affect other sports negotiations.

One Time Negotiation? or Long-Term Relationship?

One time or long term: does it matter?

When you negotiate with sellers or suppliers, does it matter if you are going to be using their services or products for the long term or the short term? The answer probably has to do with your goals and motivations.

If your goal is to craft the best deal for yourself, regardless of your relationship, then the one-time or long-term question does not matter. Say you need to get your supplier to sell the widgets at $0.05 per piece, because that is all you can afford. You are motivated by price, so you are either going to deal with whoever can give you the best deal whether you are planning to buy from them again or not or you will negotiate aggressively to get the price you want.

On the seller’s side, it matters whether they are seeking a quick deal for some fast income or whether they want to work with you over a longer term.

Say that your goal is to find one supplier for your widgets that is dependable and has a great distribution system. Your budget has a bit of room. You are motivated to work with a company that offers good service, and so you are going to negotiate on more than price. You are going to negotiate on many other issues and you may want to do so with provider that can serve you over the long term.

A long term relationship will have to outlast the current negotiation, which may mean that you may have to make more concessions or be less aggressive in order to allow the relationship to move forward. When you have a long term business relationship with a supplier you have joint goals and you seek mutually beneficial outcomes.

In a one-time deal, you negotiate on a specific set of priorities and you may do so quite aggressively, not looking to how you are perceived or what this negotiation bodes for the future.

Do you negotiate more aggressively if you know this is a one-time deal? Or, if you always negotiate aggressively, do you find it impairs your long-term relationships?

Will negotiations repair the U.S.--Russia relationship?

President Barack Obama has traveled to Russia to hold a summit with Russian President Dmitry Medvedev. The two had met in April in London, and had decided to continue negotiations on a replacement for START 1, a nuclear arms treaty drawn in 1991 and which expires on December 5 of this year. They will also discuss the war in Afghanistan, Iran, and terrorism.

The Associated Press is reporting that: “More broadly, the U.S. wants to use the summit to overhaul the U.S.-Russian relationship.” (Read full AP article here: http://www.google.com/hostednews/ap/article/ALeqM5hNIxj5X1YKnv5oMTXWK_qnkplCMAD998KG9G0 )

The United States and Russia are negotiating new arms reductions. A point of contention, however, is Russian opposition to the planned U.S. missile defense shield in Eastern Europe. The AP reports that the Russians have already allowed one concession: “...they will agree to allow the United States to use their territory and air space to move munitions and arms to U.S. and NATO forces fighting Taliban Islamic extremists in Afghanistan.”

CNN is reporting that Russian and U.S. nuclear negotiators will issue a joint statement on the framework for a new arms control agreement that would replace the START I agreement. (http://www.cnn.com/2009/POLITICS/07/06/obama.russia/index.html). The statement is not legally binding, but instructs that negotiations continue to create a formal agreement.

Beside the disagreement over the missile defense shield, the U.S. has another issue to contend with: the power issue. Although Medvedev is the president of Russia, Vladimir Putin is the prime minister and appears to wield significant power. Obama will also meet with Putin.

It remains to be seen if these negotiations help reset the U.S. relationship with Russia, something the Obama administration is seeking to accomplish.

Great Negotiating Stuff On The Web

There’s a lot of useful and interesting information about business and political negotiations the World Wide Web. We’ve found a few articles to share with you that are well worth a read.

How to negotiate with a carrier
If you are a shipper, have you ever tried to negotiate with a carrier? Well, if you haven’t, you probably should. According to this article by Rob Martinez in Multichannel Merchant, there’s always room for negotiation:

http://multichannelmerchant.com/opsandfulfillment/0701-reallife-carrier-negotiations/

Will financial sanctions bring North Korea to the negotiation table?

We’ve discussed before how North Korea seems unwilling to talk and instead focuses on threats. In this article from the Wall Street Journal Asia, Christian Whiton discusses how financial sanctions may reveal pressure points in the regime’s hard stance:

http://online.wsj.com/article/SB124655655032187281.html

Are you paying too much rent for your office or commercial space?

Small business owners have to be very aware of their bottom line, and a huge chunk of that can come from rent paid on their office or commercial space. Here’s an article from Gary O’Brien, an expert on commercial leases, about how to negotiate the rent:

http://www.nuwireinvestor.com/articles/negotiating-lower-rent-for-your-business-53207.aspx

Basketball player contract negotiation

For L.A. Lakers fans out there, here’s an article from the an Los Angeles Times blog regarding Trevor Ariza’s negotiations with the team regarding his contract:

http://lakersblog.latimes.com/lakersblog/2009/07/trevor-arizas-negotiations-a-quick-thought.html

We are always interested in great articles and information on business negotiations. Feel free to forward us links to websites and blogs that you have found to be useful and interesting.