New Year's Negotiating Resolution

One New Year’s resolution that will improve your negotiations

New Year’s has always been a time for resolutions. At year’s end, we have the perspective to look back and evaluate what worked best and what didn’t work so well. With a new year, we have a chance to correct course and improve our results.

A great business resolution for 2010 is to work to further improve your negotiation skills.

Your number one resolution in terms of business negotiations should be to improve your negotiation planning.

Even though negotiation planning helps achieve the best outcomes, many negotiators do not spend the time and effort to plan. Planning gives you a roadmap. A roadmap always lets you get to your objective more efficiently and more quickly.

Dr. Chester Karrass outlines the steps necessary to make your negotiation planning more effective in his book, The Negotiating Game.

Here are the top five steps to improve your negotiation planning:

1) Ask probing questions about objectives, aspiration level and power
2) Improve your information gathering processes
3) Differentiate between negotiation strategy and tactics
4) Increase your understanding on how negotiations work
5) Organize your team and resources to have maximum impact

You can learn more about negotiation planning by reading Dr. Karrass’ books. Consider attending a KARRASS course during the coming year and network with others who negotiate. You will probably meet some of your customers or suppliers.

Karrass wishes all of our readers a very happy and productive New Year 2010!

Negotiating with Santa...or what to do when asked for more hand you can handle.

Santa gets lots of requests: bikes, toys, cars, computers, you name it. Sometimes Santa gives you exactly what you ask for and sometimes, he doesn’t. The negotiation with Santa takes place before he brings your gifts: have you been naughty or nice? Santa goes all out for nice people, even throwing some extras, but if you’ve been naughty, well, there goes half your list.

As far as negotiations go, negotiating with Santa is straightforward. You only negotiate with Santa once a year. You come up with a written agenda listing your requests (or demands). Santa checks out your requests and then he checks out your background. If you are deemed to be “nice” he concedes on the items on your agenda. In return, Santa asks that you provide cookies and milk upon delivery.

If only all business negotiations were that simple!

If you are seller, unlike Santa, you are dealing with prices. You are not giving things away. And often, your customer asks you for a better price. Since you aren’t Santa, you can’t refuse to negotiate just because the customer hasn’t been that nice. But, sellers who are being asked to concede on price do have options.

There is a great article from the Tool Kit column in the New York Times: “Dealing with a Customer who Wants a Better Price” by Paul B. Brown. Brown gives advice to those who are being asked to lower their prices. He provides several pointers on how to best deal with this scenario:
1) Negotiate on the whole package, not just one piece at a time
2) Don’t lower you price, instead offer additional value (extra services, etc.)
3) Don’t give a concession without asking for one in return
4) Don’t let the other side’s problems become your own
5) Maintain and flex your sense of humor

Since you aren’t Santa, you aren’t likely to get cookies and milk after your negotiation, but you may still be able to please the buyer while maintaining your bottom line.

Karrass wishes our readers successful negotiations and happy holidays and a very Merry Christmas!

Don't Be Afraid To Negotiate

Never fear to negotiate, no matter how great the differences are. It is impossible for both parties to recognize where and how an agreement can be made without undertaking the process of negotiating. The final outcome only becomes apparent after extended discussions.


Fear Impacts Your Performance


Fear can create enormous pressure on you and impact your negotiating success. Never get panicked into a final agreement by a time deadline. It is easy to fall into the time trap. Be skeptical about deadlines. Most of them are negotiable.

What if you make a mistake?


If you make an error in coming to an agreement, don't be afraid to admit it. Maybe it is an error in judgment or a mistake on some fact or statistic. Whatever it is, it can impact your final agreement. Deal with negotiating mistakes promptly. Admitting such mistakes takes courage, but immediate corrections are essential to arrive at a satisfying agreement.

Negotiation Is Not A Contest


Remember not to approach negotiation as a contest between you and the other party. Don't shy away from negotiating just because you are afraid of making a mistake or doing poorly. With a little effort, and good negotiating skills, a better agreement can be found for both parties at the same time. Use the tools you learned at the Karrass Effective Negotiating seminar. They will help you gain a better understanding of the entire negotiating process, what to look for, what to watch out for and how to take control of the negotiation. These tools will help reduce fear and make you feel more comfortable in all of your negotiations.

Should someone else represent you in a negotiation?

Would you hire someone else to represent your business in a negotiation? The short answer is yes. You probably do it all the time. Most small businesses have lawyers, who represent them in legal and contractual proceedings. Some small businesses rely on their CPAs to represent them in any tax disputes.

Some businesses have made it their business to negotiate in your stead. For instance, there are companies who are in the tenant representation business—they represent small businesses in commercial real estate transactions.

Tenant representatives negotiate leases and other commercial real estate matters. They focus on real estate and can offer specialized knowledge. In an article on Fox Small Business, Howard Ecker, who was one of the first people to offer tenant representation, shared his insights about the recession and how it affects small business’ real estate transaction. Among his thoughts:

“Smaller tenants usually have a disadvantage compared to larger tenants when it comes to renegotiating their leases since they take up less space. But given the economic downfall, even small businesses have unprecedented leverage in negotiating lease terms as building owners and managers contend with high vacancy rates, the looming risk of insolvency among existing tenants and the slow thaw occurring in the credit markets making deals increasingly difficult to fund and close.”

Read the whole article here: http://www.foxsmallbusinesscenter.com/strategy/2009/12/15/post-recession-landscape-small-business-landlord-relations/

The point here is that people who are specialists have insider knowledge that can benefit you in a negotiation. So, in cases where you need knowledge and expertise that you don’t have on your team, you should consider hiring a specialist to negotiate on your behalf.

What are your thoughts about using specialized negotiators?

A must-have asset for negotiation success.

Although there are many skills you can learn in order to be a successful negotiator, there is an asset that will make you a stand-out: confidence.

In fact, confidence is a key ingredient in all type of business success. In an article about business development for the FindLaw website, Sara Holtz writes the following:

“I've just finished reading Rosabeth Moss Kanter's book, Confidence. The basic premise of the book boils down to: Winning begets winning, and losing begets losing, because of their respective impact on confidence.

For me, this drove home the importance of developing confidence in your business development acumen in order to have business development success.”

Read full article here:
http://practice.findlaw.com/law-practice-management-articles/01180/000058.html

Without a humble but reasonable confidence in your own powers you cannot be successful or happy. ~Norman Vincent Peale

Confidence at the negotiating table gives you power. Lack of confidence will result in the other party doubting your commitment and/or your knowledge. Furthermore, when you are confident, you have conviction and conviction is extremely persuasive. Clearly, in a negotiation, persuading the other party to agree to your views is your principal goal.

The good news is that you can increase your confidence level. Confidence results from your thoughts and actions. One way to increase your confidence level is to focus on positive thoughts. Nothing kills confidence like negativity. You can find other tips for increasing your confidence level here: http://www.icbs.com/Kb/inspiration/kb_the-top-ten-keys-to-self-confidence.htm

Do you have any confidence-building tips to share? Please let us know in the comments.

It's all about the planning

“He who fails to plan, plans to fail.” ~ Proverbs

There is no doubt that planning helps you to succeed in life, and it is no different in business negotiations. “Winging it” or hoping for the best during a negotiation is not going to give you the results you want or need. Planning may take time and effort, but will pay off in better strategies and results.

Planning takes time. Sometimes, time is at a premium, but because planning is so important, Chester L. Karrass gives us several tips for a “quick planning kit.”

1) Choose the time and place to meet
2) Write down your wants in order of priority
3) Separate must-haves from would-likes
4) Figure out your opening offer and your target for each issue to be discussed
5) Determine what you will say after the other party says no
6) Make a list of things you want in return for any concessions
7) Brainstorm a few win-win deals
8) Have some defenses to avoid premature concessions
9) Prepare information to support your position
10) Make a list of things you should ask for before the deal is closed


We all know that plans sometimes do not work out. Things come up that we did not anticipate. To learn more, Dr. Karrass provides an in-depth approach to planning, and to anticipating the unexpected in his book “In Business As In Life—You Don’t Get What You Deserve, You Get What You Negotiate.”

Have you ever succeeded at a negotiation because of your pre-planning? Have you seen the other party not achieve good results because of lack of planning? Please share your stories in the comments.

Team Negotiations Lead to Better Results

When conducting business negotiations there are very few instances where it is better to do it individually rather than as a team.

There are many advantages to team negotiating:

Broad base of knowledge
Teams are more creative than individuals
Teams are involved in better planning and better thinking
Teams set higher targets for negotiations
Team members reinforce each other’s strengths

According to an article (http://www.leighthompson.com/media/are_two_heads_better_than_one.htm) extracted from the Harvard Business Review:

“Team negotiations are generally more accurate than solo negotiations in discerning the other party’s interests and, as a result, they are better able to find common interests and create the win-win situations that benefit both parties.”

Whenever you are negotiating in a team you must have a good team leader. Team leaders are tactful and flexible. They know how to manage a diverse group of folks to achieve one end result. Team leaders must be able to control the content and flow of the discussion.

Having the right team will make the difference. Chester L. Karrass advises that you should never negotiate with a second-rate team. Take the time to recruit the best members for your negotiating team, and this will pay off in a more favorable negotiation.

Team negotiations take some planning. As this article by Tom Wood on AllBusiness.com points out (http://www.allbusiness.com/human-resources/819060-1.html) to negotiate as a team you need to follow certain steps:
1) Build the team
2) Prepare for the team negotiation by practicing and planning
3) Prepare the timing

Wood concludes by saying:
“....when complex multi-million dollar deals are at stake, effective team negotiating is critical. Who represents the team, when and how they speak and the role each team member plays can make or break a highly profitable deal.”

Do you participate in team negotiations? How does your company or organization select its teams?

It's all about people

In the end, all business is conducted between people. As much as the world has become computerized and automated, we still shake hands with a person to seal a deal.

Who you do business with is important. Choose your partners carefully. The right partners can help close a deal, while the wrong partners can make things go south quickly.

As Chester L. Karrass says in his book, Give and Take:

“Long term relationships based on integrity are essential to negotiation and to the day-to-day administration of agreements that follow.”

You may need to disassociate yourself from anyone that the other side may not like, who may have a bad reputation or who may act suspiciously. Obviously, shady characters (con men, deadbeats) are very bad partners—stay far away!

The right partners, on the other hand, are people with personality traits such as: trustworthy, have integrity and who show goodwill. Dr. Karrass calls these people “reliable nice people.” Being reliable and being pleasant are two key characteristics of someone with whom you want to do business.

According to former Secretary of State James Baker III, the traits of a good business negotiator are:
1) Someone who catches on quickly
2) Someone who is likeable
3) Being team player
4) Understands/penetrates the issues
5) Resourcefulness
6) Being knowledgeable
7) Being persuasive

Notice that being likeable is near the top of the list.

To do good business, do business with good people!

Clarity is a virtue

Sometimes you think you are communicating well but you are not. The conversation isn’t going where you want and you are not reaching any kind of agreement. That is because to truly communicate, the other party must understand both what you are saying and what you mean. Sounds simple, but it often is very complicated.

In business negotiations, the ability to communicate ranks near the top of needed skills for a negotiator. And most important in the spectrum of communications skills is verbal clarity.

Speaking clearly and plainly goes a long way to make communication easy to understand.

There are two issues in communication. One has to do with the physical aspect of communication and the other has to with content.

The physical side:

To communicate clearly, you must speak clearly: Avoid mumbling and slurring your words. Enunciate, and be mindful of accents (some people have difficulty understanding different accents).

The content side:

Language choice: Are you using too much jargon? Are you using regional idioms? Are you using difficult words when simpler words are available (i.e. utilize instead of use)?
Complexity: Are you expressing yourself plainly? Or are you needlessly complicating what you are trying to say?
Style and grammar: Are you using proper grammar? Are you using overlong sentences or the passive voice instead of active voice?

Communicating clearly takes thought and practice. It involves your physical speech and the words you choose to express yourself.

In his book, In Business as in Life – You Don’t Get What You Deserve, You Get What You Negotiate, Chester L. Karrass quotes the following from Confucius:

“Therefore, a wise and good man can always specify whatever he names; whatever he can specify, he can carry out. A wise and good man makes it a point to always be exact in the words he uses.”

Off the record?

We’ve all heard the following scenario: the politician tells the journalist that he will only talk off the record. The journalist agrees, the politician gives up some juicy information, and the next day, the whole story is told in the daily newspaper, citing an unnamed source, which it turns out can ONLY be the politician. Politician gets angry at the journalist, and trouble ensues.

But, for the record, there is a legitimate need for off-the-record talks when you are conducting business negotiations.

Off-the-record talks are any informal communication between the negotiating parties. The talks can be held in an elevator, in restaurant or wherever the negotiation is NOT taking place.

In an informal setting, people discuss their personal problems and gripes, and generally, the stuff of everyday life. These informal discussions make it safe to let out steam. Because there is no structure, and what is being discussed does not have to be agreed to, both parties can test assumptions.

Being off the record allows the parties to say what is on their minds, and give a more real sense of the issues and problems.

According to Chester L Karrass, off-the-record talks “are mandatory when official positions have hardened and deadlock is imminent. While it may be difficult to say anything conciliatory at the table, a few well-chosen words after dinner can indicate unofficial willingness to compromise.”

Because off-the-record talks tend to be more social in nature, people are easier on each other. It allows common ground to appear.

As Karrass punctuates: “Not everything that must be said can be said at the negotiating table. A good negotiator knows that.”

How often do you go off the record? Have you found that it has moved a negotiation to reach a deal?

Wise Negotiations

Sales perspective:

Today’s economy makes deals harder to close and margins tighter. Buyers are tough today. It is never easy to make a sale, but now it is harder than any time in recent years. Now you really have to negotiate.


Buyer’s perspective:


Procurement and supply chain managers are under tremendous demands to reduce costs. A recent study by Purchasing Magazine indicates purchasing professionals today are more focused on cost-reduction strategies than on other issues such as supplier capacity, finances or consolidation of suppliers.


Results show 48% of buyers polled said negotiating lower prices for products and services with their suppliers is their biggest priority right now. Other supplier-facing priorities ranked in order of importance included supplier consolidations (15%), ensuring the financial health of suppliers (14%), getting suppliers more involved with product development (12%) and, lastly, ensuring suppliers have the capacity to ramp up production when the economy recovers (11%).


Cost Savings Example:

Consider this example which illustrates the true business impact of negotiating better pricing from suppliers.

In 2008 ABC Inc. sold $987.4 Million and made a net profit of $81.4 Million, That’s about 8.2% net margin. This means, if an ABC Buyer can save $100,000 by being a better negotiator, this contributes just as much profit as if ABC could increase their total sales revenue by $1,219,512. And in today’s markets most companies are finding it rather difficult to increase sales.

So for ABC Inc. $100,000 in cost savings has the same impact as a $1,219,512 increase in sales.

Negotiating the Deal:

At the same time more organizations are pushing buyers to reduced costs, other organizations are pushing salespeople to increase sales—at higher margins. All this makes for some really tough negotiating.

So, what should salespeople do when negotiating prices with buyers that are on a price cutting mission?

Buyer’s must remain aware, and sometimes need to be reminded, that the cheapest per unit cost can often end up being the most expensive ‘total cost’ decision.

Switch from ‘Price’ to ‘Total-Cost’

Sellers must get buyers engaged in a ‘total-cost’ analysis. And it is in the buyer’s own best interest to do exactly that. This is really the only way a buyer is going to be able to discover, document, and get credit for ‘real cost savings.’ The blending of a buyer’s expertise on what they need, with a seller’s expertise on what is possible, provides a route to true cost savings. Best of all, during this discovery and analysis process, relationships are built which lays the groundwork for future business.

Satisfaction

The outcome of your negotiations must be a mutually agreed upon result that creates a Both-Win atmosphere rather than a one-win atmosphere. Satisfaction of both parties is key, and determines future business opportunities between the parties.

Are you being Lowballed?

We’ve all heard this one before: if it sounds to be good to be true, it probably is.
Keep that truism in mind when a seller offers you a price that sounds too low. Most likely, the seller is trying desperately to get you into a deal. What will happen later is that you will end up having to pay for “extras” or for any changes to the deal.

Anyone who is working with a tight budget could fall prey to a lowball offer. After all, you are being motivated by the bottom line. Buyers who don’t know the market well enough or who are not clear with what they really want can also fall victim to a lowball deal.

Lowballing is not limited to sellers. Buyers can also be lowballers. Today’s real estate market is being flooded with lowball deals. Candace Taylor reports in The Real Deal (http://therealdeal.com/newyork/articles/lowballing-turns-predatory) that:

“Potential buyers are now putting very low offers — often 20 to 40 percent less than the asking price — on multiple properties at the same time, a strategy that was virtually unheard of only a few months ago. Sellers, increasingly desperate to unload their property, are countering offers they once would have considered insulting. And as lowball offers become the norm, this back-and-forth seems to be accelerating the downward slide in prices.”

The best thing to do is to stay away from lowball deals. How? First you need to recognize you are being lowballed. Do your research. Be sure you know what the market price is for the product or service you want.

Here are a few suggestions from Dr. Chester Karrass to avoid getting stuck in a lowball deal:

1.) Know what you want
2.) Don’t get hung up on price
3.) Get full price breakdowns: be sure you know what will be extra and what it will cost
4.) Before doing any deal, negotiate your change procedures
5.) Don’t be greedy—someone always pays for lunch!

Have you been victim to a lowball deal? What happened? How would you have done things differently?

Negotiating Tactics: Techniques

In our last post, we discussed negotiating maneuvers. This post is dedicated to negotiation techniques. Techniques are mechanisms that help you reach your goals. It is important to remember that neither maneuvers nor techniques are strategies. They are tactics to support your strategies. When well conceived and used appropriately, techniques will bring you added power in your negotiation.

Below is a table from The Negotiating Game, by Chester L. Karrass that lists a number of techniques:

1. Agenda
2. Secrecy Measures
3. Questions
4. Nonverbal Behaviors and Communication
5. Statements
6. Media Choices
7. Concessions
8. Listening
9. Commitments
10. Caucus
11. Moves
12. Formal and Informal Memorandum
13. Threats
14. Informal Discussion
15. Promises
16. Trial balloons and leaking information
17. Recess
18. Hostility Relievers
19. Delays
20. Temporary Intermediaries
21. Deadlock
22. Location of Negotiation
23. Focal Points
24. Technique of time
25. Standards

Because of the quantity of techniques available, we will only discuss the first one: agenda.

Agendas are more commonly associated with diplomatic negotiations than with business negotiations. Agendas help to shape the negotiation, listing specifically what issues will be covered and their relative importance. Using agendas can keep negotiations on track.

Obviously, at the heart of using an agenda as a technique is the selection and placement of issues. You may have to bargain with the other side about which problems to introduce into the agenda, and what priority to assign to them. Dr. Karrass says this: “Because problem-solving depends on open discussion and value-sharing, the agenda should also consider whether problems should be solved at a different place and time...”

As you can see, using an agenda allows you to bargain about and prioritize your negotiation issues. It is a valuable tool to define and thus accomplish your goals.

Which technique do you favor? Tell us in the comments.

Iceberg Concept of Negotiating

We all know the power of the iceberg—after all it was an iceberg that brought down the fabled Titanic. An iceberg is so powerful because it only seems small on the surface, but underneath and hidden from view is a tremendous mass.

In business negotiations, we usually know right off the top (pun intended) what we are looking at. The other person or group generally needs money, goods and/or services. Those are the issues we are trying to resolve in the negotiation. But what the iceberg theory contends is that the hidden and unspoken issues under the surface can derail a negotiation. Both parties have hidden issues, and you will have more power in a negotiation if you can uncover, and fulfill, some of them.

According to Dr. Chester L. Karrass, writing in “In Business as in Life—You Don’t Get What You Deserve, You Get What You Negotiate,” you should be aware of several hidden issues or wants. These include:

Want to be liked
Want to be perceived as component
Want to be listened
Want to keep their jobs
Want to be treated with dignity
Want tangible recognition
Want to avoid trouble
Want to minimize risk
Want to keep what they already have

These wants are common to most people, but they are not easily fulfilled with material goods. If you do recognize these unspoken needs, you can work to satisfy them.

Have you ever been derailed by an iceberg? Share your story in the comments.

Problem Solving = Negotiating

What is a negotiation if not a discussion to find a solution to a problem? Your problem may be contractual (you need to reach an agreement to sell your house at a certain price) or you may have a purchasing situation (you need to buy a 1000 widgets and have them delivered tomorrow). In any case, you negotiate with the other party so that you both arrive to a satisfactory resolution.

Dr. Chester L. Karrass writes the following in The Negotiating Game:

In every negotiation it is possible for both parties to help each other at no expense to themselves. If each understands the problems of the other and openly tries to solve these problems, both can benefit. In negotiation we call this the problem-solving process.” (p. 129)

Dr. Karrass goes on to say:

“Opportunities to solve mutual problems between a buyer and a seller exist in every contracting situation.”

How do you problem-solve?

Before you start problem-solving, you must have the willingness and motivation to reach a mutually agreeable solution. You will have to be cooperate with the other party and believe that both can benefit from resolving the situation at hand.

Once you have agreed to work together:
1) Define the problem to understand the situation and parameters
2) Brainstorm a list of viable options
3) Do a cost-benefit analysis of options
4) Choose the option that best solves the problem for both parties

To succeed in problem-solving is to succeed at negotiating.

Questions

As you know, successful business negotiations require a good amount of listening and learning. There is no better way to listen and learn than to ask good questions of the other party. We’ve compiled a list of all purpose questions that you can use the next time you need to learn a bit more about the other party's position.

Directive questions—These specific questions work best when a buyer seems uninterested or apathetic.

What price have you been paying?
What price must I meet?
Have you seen the report on our product?
What specifically makes you unhappy with the product?

Non-directive questions—General questions to gather broad answers, giving the other person a chance to express him or herself:

How do you usually determine the price?
Please explain the manufacturing process.
What do you look for in a good warranty?
How do you feel about our company?

Questions that get specific information:

Will you show me how you got to that figure?
What objections do you have to our product?
Will you explain that to me?

Questions to stimulate thought:
Would you consider a this deal (specify something like two-year contract, etc.)
What if we ordered twice as many?

Questions to cause decisions to be made:
Did you know we are increasing the price next week?
Are you ready to order now for a 10% percent reduction in the price?
Are you interested in the product? Why not?

These and many other kinds of questions are discussed in Chester L. Karrass’ book: Give and Take.

What questions work best for you?

Patience in Negotiations

Patience really is a virtue

“All you need is a little patience.” We’ve heard that for years, in church sermons, from our teachers, our parents, even from pop songs. As it turns out, patience is all you need if you want to win at negotiation. Patience might be the number one attribute of an effective negotiator.

Patience equals time, and more time may mean better negotiation outcomes. Patience is the supertactic of negotiations precisely because it gives you the power of time. You need time to understand what exactly is being offered and what the risks are. With more time, you can discover strengths and weaknesses. The bottom line is that patience brings more information to the table.

Patience (and its cousins persistence and determination) make up for inadequate resources. These are some things that patience accomplishes:

1. Provides more information
2. Allows you to discover other’s party needs and wants
3. Lowers other party’s expectations
4. Leads to concession
5. Forces realistic assessments
6. Lets problems rise to the surface
7. May change leadership or people involved in the negotiation

With patience, parties will resolve their differences. It’s like John Quincy Adams said: “Patience and perseverance have a magical effect before which difficulties disappear and obstacles vanish.”

Patience may be hard to come by in today’s fast-paced world. You may have to work at being patient, not just in negotiation but in life. Some tips to achieve patience include: figuring out why your triggers are, reminding yourself that things take time, and remembering what matters. For more tips on how to achieve patience, read this article in WikiHow. http://www.wikihow.com/Be-Patient

Have you ever lost a deal because you were impatient? Let us know in the comments.

Using Memorandums in Negotiations

Memorandum of Agreement

After you conclude a negotiation, it is good practice to draw up a memorandum of agreement. Why? Simply to make sure that what you discussed is what you are shaking hands on. It keeps both parties in check and makes it difficult to change your mind. By having a written summary of the agreement, both parties are committing to the result of the negotiation.

A memorandum of agreement should cover all essential issues discussed during the negotiation. Since they can become the basis of a formal contract, memos of agreement should be detailed, covering all the specifics such as terms and conditions. A memo of agreement should also communicate the intent of the negotiation.

Here are some tips for writing the memo of agreement:


1. Take copious notes during the negotiation
2. Record all agreements and disagreements
3. Be straightforward and plain spoken—avoid legalese and jargon
4. Avoid omissions by having the whole team review the memo
5. Do not sign the memo unless it reflects your understanding of the agreement
6. Compare your final contract to the memo of agreement
7. Remember: the party that writes the memo has the advantage!

Some negotiators actually draw up a memo of agreement prior to the negotiation. The advantage to this is that it provides a very good framework for the discussion and will lead to the results you want.

Do you regularly draw up a memorandum of agreement? If not, why not?

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.

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?

Tense Recession Negotiations

Recessions create pressures which translate into tensions at the negotiating table. Sales are harder to close and margins are evaporating. Procurement and supply chain managers are under tremendous demands to reduce costs. Internal negotiations face increased competition for reduced resources.

Today your negotiating skills are critical—they might have become your survival skills! You are going to have to work harder – and smarter – to negotiate successful agreements.

The key issue today is how to negotiate a Both-Win outcome where both you and the other party benefit.

Don’t underestimate your negotiating power. So often we fail to examine the limits on the other party’s power. In a recession there may be more limitations on the other party. Only start a negotiation with full understanding of your strengths and a full examination of the potential pressures on the other side.

Slow down!

The longer a negotiation takes, the more you discover about yourself and the other party. This is the framework for a better agreement. A quick deal generally is a dumb deal. Not always but often. And a quick deal may fail if it leaves out what may be the most important part of a negotiation, which is making a better deal for both parties.

The cure for tense negotiations is to quickly transition into a search for a Both-Win outcome. This helps dissolve the tension. As soon as the other party senses what you are doing, their comfort level with you will soar. Suppose a salesperson says to a buyer: “Let’s stop talking about whether the price should be $1.00 or .95 cents. Let’s talk instead about ways to make this deal better for both of us. Do you need financing? How about staging shipments or just-in-time deliveries? What if I change the design like this? Can this specification be modified; it could save both of us some costs. Are there any ways we can increase the size of the project? When a salesperson does this, the potential for mutual satisfaction soars.

Examine Total Cost

The total cost approach is a powerful negotiating tool for any negotiation that is focused on prices. Direct the negotiation towards total cost instead of price. The price of what is being sold is only one component in the total cost of ownership. The process of identifying all of the components that go into ‘Total Cost’ provides a fertile environment for relationships to build between the negotiators and for each side to uncover potential Both-Win opportunities that are not focused on the single issue of price.

Many salespeople will have a tendency to convince themselves that if only they had lower prices they could bring in more business. They will increasingly discount their company and product advantages because buyers will be telling them that those ‘value added’ aspects don’t mean a thing today. Sure prices are important, but often price is not the crucial aspect of a negotiation. There can be many reasons to win or lose business besides price. The buyer who returns to their organization with the best price and nothing else is not considered a winner. The successful buyer is one who looks at the full picture, from quality to delivery to product specifications to support services and yes price. A buyer who gets what they need on the other issues can give a little on price. Will they? That’s going to be determined by negotiating skills.

Concessions and Satisfaction

The recession is going to condition everyone to ask for more and more concessions. How you make concessions is critical to success in negotiations. Make sure you do leave yourself room to negotiate, to come down. Why? You want to leave the other party with a degree of satisfaction. They want to leave the negotiation feeling that they have won some concessions, so make certain you allow for that. And don’t make large concessions. Large concessions leave the other party wondering what else they can get out of you. The same goes for making concessions too quickly. So go slow and small. Whenever you make a concession, learn to ask for something in return.

In a successful negotiation, in the final analysis what you are doing is creating satisfaction for the other party. In fact, all the advice above relates to that. These are ways to create satisfaction. If you happen to be in sales, do this and, even if you don’t land this deal, you will get a chance to negotiate on the next deal. You will have established a relationship, and that’s really how you will succeed in business. Recession or not.

Negotiations in the Spotlight: GM - UAW

If you have ever thought that there is little public interest in business negotiations, then you have not been following the recent news regarding negotiations between troubled automakers Chrysler and General Motors (GM) and their unions. These high-stakes negotiations have received lots of publicity precisely because they are determining the future of the auto industry in the United States.

We know how Chrysler’s negotiations turned out, and the car maker is headed for a partnership with Fiat.

This week, GM announced that it is terminating franchising agreements with hundreds of GM dealers nationwide. But that is only part of the GM restructuring push. GM is also negotiating with the United Auto Workers (UAW). The automaker faces a June 1 deadline to complete its restructuring, or it will face bankruptcy.

The issues that are creating most heat between GM and the UAW are:

• UAW opposes GM’s plan to import vehicles
• UAW opposes GM’s proposed plans to shut down 16 U.S. factories

The Associated Press (AP) reports that “Industry analysts say GM needs to import small cars from countries with lower labor costs to remain competitive.” Meanwhile, the UAW is worried about the loss of 21,000 jobs in the United Sates. (Read AP report here:

http://www.google.com/hostednews/ap/article/ALeqM5ipWue5E-KwNeeucTEHBCCFsyzvUQD988QBQ80

The UAW has increased its pressure on GM by lobbying Congress. The negotiations are also complicated by the many parties involved, including the US government, GM’s management, bondholders and secured lenders, dealers, part suppliers and other parties. (Read the Detroit Free Press report here:

http://www.freep.com/article/20090519/BUSINESS01/905190324/1285

According to the AP report, there is an incentive for the UAW to reach an agreement, because if GM goes into bankruptcy, judges in the case have the power to reverse or dismiss contracts.

It will be interesting to see where these negotiations end up.

Do you think that Chrysler negotiations have created a precedent for GM to follow?

Did IBM or SUN Really Want the Deal?

How much do you really want the deal?

In any business negotiation, knowledge is power. One thing you know that the other party does not know is how much you really want the deal or not. This knowledge is one of your most valuable assets, and you should hold it close to your chest.

This past Monday, a big deal went down in the tech world. Oracle www.oracle.com acquired Sun Microsystems www.sun.com after Sun’s negotiations with IBM www.ibm.com failed. See CNN article: http://money.cnn.com/2009/04/20/technology/sun_oracle_ibm/?postversion=2009042013)

Oracle paid $7.4 billion for Sun Microsystems, while IBM had offered $7 billion. Sun had negotiated with IBM for weeks, and IBM had been very interested in acquiring Sun’s Java platform.

Now, IBM has not issued any public statement but analysts have speculated that it did not really want the deal, and that it is not threatened by an Oracle-Sun merger. Furthermore, it seems Sun has a server division which is in trouble, and fixing that division may be a challenge for Oracle.

It is possible that IBM knew all along that Oracle would want Sun, and further, that Oracle would be put at a disadvantage because of the server business. And perhaps IBM knew throughout the negotiations that it didn’t want to acquire Sun. Nobody but IBM negotiators knows how much they wanted the deal or why exactly they chose to let this one go.

In this case, negotiation may have been a tactic for IBM to achieve business goals other than to acquire Sun Microsystems. Perhaps IBM wanted to learn more about Sun or wanted to see if Oracle would want Sun. We don’t know. But we can surmise that IBM did not really push for a deal.

Negotiating Your Viewpoint

Ideas are like possessions; people don't like to part with them.
An exchange of viewpoints can be a very tough negotiation.

Remember these nine important items when you are negotiating your viewpoint. You will find yourself more successful in assuring your viewpoint prevails.

1. Talk less, listen more. The other person wants to be heard. Encourage them to talk freely about their viewpoint. This will provide you insights into why they feel they way they do. Chances are the other person will reciprocate and be more attentive when you speak.

2. Don't interrupt. Interruptions make people angry and block communication.

3. Don't be belligerent. While it might be more difficult to be soft spoken than harsh, a soft-spoken approach encourages the same treatment from the other person. An argumentative negotiating attitude is rarely successful in changing another person's opinion.

4. Don't be in a rush to bring up your own points. As a rule it is best to hear the other person's full viewpoint before expressing your own. Ensure they are satisfied that they have stated their full case.

5. Restate the other person's viewpoint and objectives as soon as you understand them. People like to know they are being heard and understood. This is an inexpensive concession you can make. It forces you to listen better and helps you to frame your viewpoint in the other person's terms.

6. Identify the key discussion points you are interested in and focus on them. Cover one point at a time and avoid trying to overwhelm with arguments. Use evidence to support your viewpoint (e.g. knowledge, legitimacy, time and effort).

7. Don't digress. Try to keep the other person from digressing. It helps to agree on nonessential issues temporarily. Agree to postpone a seemingly difficult issue until later so you can focus on areas where you are more likely to gain agreement.

8. Be for a point of view -- not against one.

9. Instill satisfaction in the other party--satisfaction that you have heard and understand their viewpoint. This way if your viewpoint is the one that ultimately prevails, you will have strengthened your personal relationship with them. And set the stage for future discussions when your viewpoints again differ.

Acceptance Time in Negotiations

The idea of acceptance time is so simple that it is often overlooked when negotiating. Yet, when understood, it has the power to make each of us more effective.

People need time to accept ideas that are new or different. Both parties walk into a negotiating session with somewhat unrealistic goals. They start with all kinds of misconceptions and assumptions. Being human, they hope that their goals will be easily met. The process of negotiating is usually a rude awaking. The low price hoped for by a buyer begins to look impossible. The easy sale that a seller longs for eludes him or her. The need for new production tools, engineering equipment, or software is confronted by an inflexible budget or competing demands for corporate resources.

Reality is resisted—resulting in deadlock or an unrealistic agreement that soon falls apart.

Can we expect a buyer, seller, engineer, or manager to adjust to new and undesired realities immediately? Of course not. Resistance to change is universal. It takes time to get used to ideas that are foreign or unpleasant. We can even get used to the reality of death given a long enough period to do so.

Acceptance time is as important in negotiation as it is in life. By giving the other party acceptance time, reinforcing your own ideas with more information, and being open to the new ideas of the other party, you stand a greater chance of reaching a better understanding and a longer lasting agreement.

This tactic will REALLY freak them out...

These are different times. People are losing work. Those who are keeping it are taking cuts. (How about this – management using the threat of closing a business to force labor concessions? Isn't that a little through the looking glass?)

So...
It's not business as usual, but as usual it's a good time to stay conscious. Are you doing what you've always done in an environment that calls for fresh thinking and new behavior? Are you tightening your purse strings when you know some are going to make great gains by investing advantageously?

It's an economic axiom that you're not going to get ahead of the crowd by being the crowd. I'm not arguing for sloppiness or out-of control economic behavior. I'm saying the person next to you is probably responding to their fear by becoming completely risk-averse, and close-fisted. The time to do that was last year.

If all of business is slowing down, why not take some of that extra time and find ways to build your business and your partners' business. Remember all the times you thought it might be great to do a little something extra for a customer or a vendor?

Here's your chance. See what it gets you in a current negotiation and see how you're remembered when we come out of this Depression. Remember what things are worth.

I see people slowing and down and being a little kinder to each other. Maybe that's just my perception, but if we could do this in business as well, we might all come out of this mess a little better, a little sooner.

Until next time...think about it.

(If you've got some creative ideas about how to invest in your partner's business,
I'd love to hear about them. email me at consideredresponse@gmail.com...Thanks.)

Strategies for Recession Negotiations

Today’s ghttp://www.blogger.com/img/blank.giflobal recession is causing a lot of negotiations. Many of you are having to re-negotiate agreements you thought were settled.

Now is the time to review these negotiating strategies. If you have attended the Karrass Effective Negotiating Seminar, refer to your seminar workbook, the text books and the CDs.

1.Leave yourself room to negotiate --but don't be ridiculous. Always give a reason for your position.

2. Be stingy with your concessions. Always consider your concessions as a "message" or information you are sending the other side.

3. Always tie a string to your concession and ask for something in return. This communicates to the other party that you don't have a lot of room to move; it communicates good will and your willingness to cooperate; and it introduces a talking point that might gain you additional information regarding their position. This new information could lead to a totally new solution. A solution you might have not considered before.

4. Patterns or rates of concessions are important. Always use declining numbers; don't always use whole numbers/percentages; don't match the other person's concessions-----instead say: "I can't afford to match that, because . . ." (If you attended the Karrass Effective Negotiating Seminar, review the Atlantic City real estate negotiation -- remember the video?)

5. Always provide reasons for the positions you take. This communication to the other party can encourage them to introduce new information that could create better paths to agreement and a better solution.

6. If you can, always get the other side to state their position first/make the first concession/or put out the first number. You may be surprised to find that the situation is better than what you anticipated. This information permits you to modify your response and change your negotiating strategy.

7. Consider the pressures 'Deadlines' can cause. Can you relieve your pressure by changing the Deadline? Can you cause pressure on the other side by enforcing a deadline?

8. It is generally wise to "Say NO once more" before coming to agreement. There usually is a way to make the deal a little bit better---for both sides.

9. When the opportunity presents itself, use the Considered Response, Limited Authority, Power of Legitimacy, the Bogey and the Flinch. They really do work and will provide you more negotiating power and create the opportunity for you to learn new information.

10. Remember "Catch Twenty-Two." Being real smart in the negotiation can be kind of dumb. Being a little dumb can be very smart. Don't know everything. Ask the other side to help you 'understand.' This conversation may open up avenues to agreement that you had not considered before.

Negotiating During A Recession

Tips for Recession Negotiations

Regardless of what other business skills you possess, economic times like this demand fine tuned negotiating skills. Today! Right Now! Review the negotiating tools you learned at your Karrass seminar.

OK, so the economy is terrible. Don't panic! You've been trained to negotiate. Review the eight negotiating tips below. Don't wait and simply become a victim.

Are you being asked to reduce costs? Close more sales? Get a difficult project back on track? These are all negotiations.

Both you and your organization are facing challenges. Today's negotiations directly and immediately impact your business and perhaps your career. Negotiate your way through this temporary negative business climate.

Negotiating skills are critical to surviving this recession and emerging in a stronger and more competitive position. Use your negotiating skills to protect both yourself and your organization's interests.

What factors are critical to your business success? What can you negotiate to enhance these factors? What needs to be re-negotiated right now?

Karrass has been teaching negotiating for over 40 years. We've seen tough recessions before, and so have our clients. Now is the time to apply what you learned from Karrass.

Start by reviewing these key Karrass negotiating principals:

1. Don't be afraid to negotiate. Remember to set your targets high--everyone has pressures.

2. Take time to learn about the other side. Understand their needs, time limits, constraints and willingness to compromise or concede. Their business environment has changed just like yours.

3. Do the planning necessary to produce a successful outcome (use the Karrass planning guide in your seminar book).

4. Use the 'Devil's Advocate Procedure' -- your discovery process will help you anticipate the other side's arguments and tactics.

5. Negotiate 'In Depth' -- understand the organizational and personal elements involved--on both sides of the negotiation. Identify all the players.

6. Be skeptical about the facts, statistics, averages, and other data submitted by the other side to support their position. Don't be intimidated by this data--there is a reason they are presenting it in this format to you. It supports their position, not yours!

7. Don't be intimidated by status or authority. Do your homework and be confident in your abilities to support your positions.

8. Remember you really do have more power than you think you do. Analyze the limits to the other side's power--they can't use all the strength they might have. Current circumstances have altered their power. Can they really use your competition or competitive ideas? Focus on their pressures--not your pressures.Your Karrass negotiating skills can serve you well in these tough economic times.

NEGOTIATE WISELY!

Negotiating During Economic Turbulence

During times of economic turbulence (LIKE NOW!) most negotiations get tougher. Don't reduce your bargaining power by making mistakes. Now is not the time!

Here are eight common negotiating missteps people make. Despite their good intentions "not to do that again," mistakes like these happen over and over. Don't fall into these negotiating traps!

1. Do not underestimate your negotiating power. Most people tend to have more power than they think. Make a systematic analysis of your power -- understand your strengths. Your negotiating power rests on a foundation of more than just competition or financial matters. Your commitment, knowledge, risk taking, hard work, and your negotiating skill are also real sources of power. Don't assume the other party knows your weaknesses. On the contrary, assume they do not, and test that assumption. You probably have more power than you think.

2. Don't be intimidated by status. We all become so accustomed to showing deference to titles and positions that we carry these attitudes into the negotiation. Remember that some experts are superficial; some people with PHD's quite learning years ago; some people in authority are incompetent; a specialist may be excellent in their field but without skill in other areas; learned people, despite high positions of power and authority, sometimes lack the courage to pursue their convictions, or sometimes don't even have a strong conviction on the issue being negotiated.

3. Remember not to be intimidated by statistics, precedents, principles or regulations. This is 2008 and economic times have changed. Some of today's decisions are being made on the basis of premises or principles long dead or irrelevant. Be skeptical. Many premises or principles may not apply today -- or do not apply for your specific situation. When necessary, challenge them!

4. Do not forget that the other party is negotiating with you because they believe there is something they can gain by being there. You may discover that this negotiation, no matter how small, is part of a larger framework in the other party's objectives. This fact alone may provide you greater negotiating power that is apparent from the situation. Be positive in your approach. Assume the other party wants an agreement as much as you do. If it appears they do not -- find out why.

5. Don't focus on your own problems or your possible losses if a deadlock occurs. In all likelihood, there are consequences for the other party as severe as your own. Concentrate on their problems and issues. These will reveal opportunities for possible ways to agree.

6. Most negotiations require some concession making. Don't set your initial demands too close to your final objective. There is sufficient evidence to conclude that it pays to start high. Don't be shy about asking for everything you might want and more. Many times your demands are too modest, or too easy to achieve. The other party may not know what they want, or may have a set of values quite different from your own. Remember never to give a concession without obtaining on in return. Don't give concessions away free -- or at least without a thought provoking discussion with the other party about what they are getting. A concession granted too easily does not contribute to the other party's satisfaction as much as one that they struggle to obtain.

7. It is a mistake to assume you know what the other party wants. It is far more prudent to assume you do not know, and then proceed to discover the realities of the situation by patient testing and discussion. If you proceed to negotiate a deal on the basis of your own untested estimates, you are making a serious mistake.

8. Never accept the first offer (even if you like it). Many people do. There are two good reasons not to: First, the other party is probably willing to make some concessions. Second, if you do accept the first offer, there is a distinct chance the other party will feel that their offer was foolish and they should have asked for more. Immediately their satisfaction with the agreement will be reduced, and they may find ways to spoil the agreement later. In either case, the negotiator who takes the first offer too fast makes a mistake.

Are You Looking For Your 2%?

I've found most business negotiations can produce, at a minimum, a 2-3% swing in the resulting outcome. This doesn't sound like much does it? Only a 2% difference in the sales price. Only a 2% difference in the cost of materials. Only a 2% difference in the the amount of time. Only a 2% difference in the engineering specifications, or quality, or . . . . .

When you are negotiating an agreement, pause for a moment, and quantify what a 2% difference would make. When you do I think you are in for a big surprise.

Of course every organization is different, but let's look at a few real examples of the impact this little 2% can make. I will use information from public corporations since their financial statements are readily available as pubic information.

First let's look at Hewlett Packard. What would be the impact of a 2% reduction in cost of goods sold (think of all the procurement/manufacturing/engineering negotiations)? The 2% would result in a 21.7% increase in net profits for Hewlett Packard. What would be the impact of a 2% increase in sales prices (margins negotiated by sales/marketing)? This 2% would result in a 28.7% increase in net profits for Hewlett Packard. The total potential opportunity --- a 50.4% increase in Hewlett Packard's net profits!

What about the Boeing Corporation? What would be the impact of a 2% reduction in cost of goods sold (procurement/manufacturing/engineering negotiations)? The 2% would result in a 26.3% increase in net profits for Boeing. What would be the impact of a 2% increase in sales prices (margins negotiated by sales/marketing)? This 2% would result in a 32.7% increase in net profits for Boeing. The total potential opportunity --- a 59% increase in net profits for the Boeing Corporation!

Look at Caterpillar. What would be the impact of a 2% reduction in cost of goods sold (procurement/manufacturing/engineering negotiations)? The 2% would result in an 18.4% increase in net profits for Caterpillar. What would be the impact of a 2% increase in sales prices (margins negotiated by sales/marketing)? This 2% would result in a 25.4% increase in net profits for Caterpillar. The total potential opportunity --- a 43.8% increase in net profits for Caterpillar!

--------------------------------------------------------------------------------

As you can see, 2% makes a big difference! What about your negotiations? What about your company?

The next time you enter a negotiation, think about what that little 2% could do for your organization. What would be the impact on net profit? Make sure you understand what you might be giving away, or leaving on the negotiating table.

Once you approach your negotiations with a goal of searching for this little 2%, you will find you become more engaged with the other party; both of you will gain more information; and you will find opportunities that neither of you may have thought about before. There may be ways to create significantly more than the 2%. That's one of the secrets of true "BOTH-WIN" negotiating. But it all starts with the search for that little 2%.

Your Negotiation Challenges

Negotiation is one of the most difficult jobs a person can do. It requires a combination of diverse traits and skills. The process of negotiating demands good business judgment and a keen understanding of human nature. There is no other area in business where the alchemy of power, persuasion, economics, motivation, and organizational pressures come together in so concentrated a fashion and so narrow a time frame. But – nowhere is the return on investment potential so high!

Today economic pressures around the world are causing organizations to put more pressure on their negotiators. In other words—you!

Buyers and supply management professionals are being asked to cut costs and increase efficiencies. Sellers and marketing professionals are being asked to increase volumes and increase margins. Engineering, system analysts, IT professionals, manufacturing managers, and HR managers are being asked to do more with less. There is a lot of negotiating going on!

Graduates of the Karrass Effective Negotiating seminar have a distinct advantage over any untrained negotiator. If, in your negotiations, you happen to encounter another Karrass trained negotiator – great! Both of you are now in an ideal position to create real value using the “Both-Win” negotiating techniques you learned at the seminar.

Here are some of the key attributes good negotiators exhibit:

1. An ability to negotiate effectively with members of their own organization and win their confidence.
2. A willingness and commitment to plan carefully; know the product/project, the rules and the alternatives; and the courage to probe and verify information.
3. Good business judgment; an ability to discern the real bottom-line issues.
4. The ability to tolerate conflict and ambiguity—it comes with the negotiating process.
5. The courage to commit oneself to higher targets and to take the risks that go along with it.
6. The wisdom to be patient—to wait for the story to unfold.
7. A willingness to get involved with the other party and their organization— to understand all the various personal and business issues.
8. A commitment to integrity and mutual satisfaction.
9. An ability to listen with an open-mind.
10. The insight to view the negotiation from a personal standpoint—discover the hidden personal issues that could affect the outcome.
11. Self-confidence based on your knowledge and your planning.
12. A willingness to use experts and an understanding of how a team might be valuable in the negotiation.
13. A stable person; one who has learned to negotiate with oneself and to laugh a little; one who doesn’t have too strong a need to be liked so they can feel free to disagree when the need arises.

Research shows us that skilled negotiators create better agreements. But we are not born with these skills, it takes training, practice and persistence. Use what you learned at the Karrass Effective Negotiating Seminar. Be confident in your ability to negotiate. You have the tools and skills to create good, long-lasting agreements that will satisfy all parties.

Price Negotiations

An independent study by the McKinsey Consulting Group indicates "the fastest and most effective way to enhance corporate earnings is to raise prices."

There are a variety of ways to increase earnings. Obviously a company can raise prices or reduce costs. A company can also often enhance earnings by increasing their volume of business – provided there are no additional costs – this is referred to as "business efficiency." What is surprising about this McKinsey study is the huge impact just a small price increase has on corporate earnings – as compared to the impact for the same amount of cost savings.

McKinsey says that "for a typical S&P 1500 corporation, a 1 percent increase lifts operating profits by 8 percent. This impact is nearly 50 percent greater than what would occur with a 1 percent reduction in variable costs (such as direct labor) and more than three times greater than the impact of a 1 percent increase in sales volume."

So anyone negotiating a sale needs to remember what just 1 or 2 percent can do for the company’s bottom line. Be careful with your concessions. If you are forced to provide a price concession, don't forget to ask for something in return. During your discovery process, search for "Both-Win" ways to help your customer while at the same time enhance the price you are going to get.

And don't give it away! The impact of a few percentage points in price goes both ways. From McKinsey: "A decrease of 1 percent in average prices has the opposite effect, bringing down operating profits by that same 8 percent if other factors remain steady. Managers may hope that higher volumes will compensate for revenues lost from lower prices and thereby raise profits, but this rarely happens; to continue our examination of typical S&P 1500 economics, volumes would have to rise by 18.7 percent just to offset the profit impact of a 5 percent price cut. Such demand sensitivity to price cuts is extremely rare. A strategy based on cutting prices to increase volumes and, as a result, to raise profits is generally doomed to failure in almost every market and industry."

In the course of a business transaction, there are many negotiations taking place where price erosion can occur. There are often a variety of discounts, incentives, promotions and other giveaways that help close a deal. After an order is placed there may also be cash discounts, prompt payment discounts, extended payment terms (i.e. 60-90-120 days to pay), volume discounts or even rebates. Some negotiations even deal with 'performance penalties' that provide customers discounts if for some reason delivery schedules are not met or orders are not filled according to plan. Each one of these elements, if not negotiated appropriately, allows profits to "leak away."

Prices are impacted by hundreds, sometimes thousands, of individual negotiations each day. Standard and discretionary discounts allow percentage points of revenue to drip off the table one transaction at a time. At the end of the day, you have to look at what really the company is really putting into its pocket. With all of these negotiations happening, there are ways to find and capture an additional 1 or 2 percent. It pays to use your negotiating skills!

Note from the Author . . .

We are very pleased with the readership of this site, but we would like to ask a favor.

If you don't have a comment on a particular article, how about a question regarding negotiation?

Perhaps you would share with the readership a difficult negotiating problem you have or are encountering.

We would like to hear from you. Is there a topic you would like us to discuss?

Jim Sauerwein