Tag archive: negotiating-concessions
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.
Read more »
Update: Chrysler Reaches Agreement
Last Friday, we talked about whether a deadline would help Chrysler reach an agreement. Today, we have an answer.
It seems that on Sunday, Chrysler was able to resolve some issues with labor, reaching a concession agreement with the UAW. Here’s the story:
http://news.yahoo.com/s/ap/us_chrysler_labor.
Negotiations are still ongoing with Fiat and Chrysler’s debtors, but things are looking up for the automaker, which may be able to avoid bankruptcy after all.
As a Deadline to a negotiation approaches concessions and the magnitude of concessions often increase. If the Deadline is real -- as this one appears to be -- participants will often start making riskier decisions.
At a Deadline one negotiating option is to simply halt the talks and walk away. It appears that this option probably is not available to Chrysler or its unions.
Read more »
Strategies for Recession Negotiations
Today’s global 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.
Read more »
Time Outs in Negotiations
In the USA we just held our annual “Super-Bowl” football game.
If time-outs are so critical to a football coach, they ought to be even more important during a negotiation. The stakes are far higher!
When and how a time-out, or caucus, is called can affect the final outcome. Diplomatic negotiations are usually 10 percent conference and 90 percent time-out. Most business deals reverse this time relationship. I am in favor of lots of time-outs. They make more sense than long talks and short breaks.
I have found time-outs useful for a wide variety of purposes:
* To review what was heard or learned – new information may impact your strategy, targets, or tactics.
* To think of questions
* To develop new arguments and defenses
* To explore possible alternatives before you present them
* To develop better proof statements
* To discuss possible concessions and what will be asked for in return
* To determine the best way to react to new demands
* To determine if you should make additional demands
* To consult with experts
* To check on rules or regulations
* To analyze changes in price, specifications, costs, time or terms
* To just buy you some time
A time-out gives you time to think, to make a point more effectively, to check your facts, or to show your resolve. It provides you an opportunity to get others to help you work on an issue.
Research indicates when negotiating pressures increase, tension can be reduced before a crisis develops by having short sessions and long time-outs.
Remember, never negotiate an issue unless you are prepared for it. Something unforeseen always seems to come up in most negotiations. When it does—a time-out is called for. It might just be a caucus with yourself (i.e. Please excuse me I need to use the restroom), or a meeting among your own people to discuss the new issue. Don’t “shoot-from-the-hip” and plunge into negotiating an issue you are not prepared to negotiate.
Read more »
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!
Read more »
- 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.
- 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.
- 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!
- 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.
- 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.
- 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.
- 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.
- 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.
Building a Dossier to Negotiate Better Next Time
When learning to negotiate with another party, it is important to discover their personal negotiating characteristics. At the same time the knowledgeable negotiator on the other side of the table is learning how to deal with us.
Even though we try to do business only with cooperative business partners, the old military admonition, "Know thy enemy." Certainly applies.
Here are a few characteristics that will be useful to understand your other party's approach to negotiation:
Read more »
- What range to negotiate do they leave themselves? In other words, historically, is there a consistent pattern from where they open to where they close?
- Concession valuation: It was interesting to learn that not everyone values concessions the same way. Some count consessions, while others look at the total value of the concession.
- People who count concessions are bargainers who are very comfortable with the tit-for-tat approach. Dr. Karrass reminds us that if we must give a concession in return, make sure it is less costly than the one gained.
- How does the other party respond to deadlines?
- Can we believe their deadline?
- How good is their planning?
- How is their team synergy?
- Do they use ploys like Good Guy-Bad Guy?
- Does the boss come in at the eleventh hour as the bad-guy?
- How much emotional content do they use in the negotiation process?
- Do they have non-verbals that signal a willingness to close?
- Is there someone on their team who talks too much?
- How well do they honor agreements once they have been made?
Negotiation Assumptions You Make
When in a negotiation, never trust your assumptions. They are likely to be as wrong as right.
If you are negotiating to sell something, be careful with your assumptions. Don't make assumptions like:
"She'll never pay that much"
"There's a lot of competition"
"He doesn't have enough money"
"They don't want to do business with us after the last mess-up"
"I'm sure we're not the low bidder."
Such assumptions can defeat you before you start negotiating; these assumptions lower your expectations; influence the outcome of the negotiation; and may, in fact, be dead wrong.
If you are buying something, your assumptions can:
* Cause you to make high offers when low ones are called for.
* Influence you to make low demands and quick concessions when opposite actions are warranted.
* Seduce you into believing deadlines when patience is by far the better course.
* Create potential hurdles that can move you in the wrong direction.
Don't fall in love with your assumptions. You need to check them out in the interchange of information that comes out of the process of negotiating. Your assumptions are neither right nor wrong until proven so.
Read more »
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!
Read more »