Negotiation Space

“Time is free, but it’s priceless. You can’t own it, but you can use it. You can’t keep it, but you can spend it. Once you’ve lost it you can never get it back.”—Harvey MacKay

“The only reason for time is so that everything doesn’t happen at once.” –Albert Einstein

Time—how long or when—is a major factor in all negotiations. Some negotiators will say they did not have enough time to reach an agreement and some will say there was too much time.

How time is perceived may have to do with cultural background, and can affect a negotiation. In an article discussing time perceptions in Middle East peace negotiations, the following is worth noting:

“An article by Ilai Alon of Tel Aviv University and Jeanne Brett of Northwestern, however, cautions that good intentions alone may not bridge cultural differences. Specifically, they note that conflicting conceptions of time can thwart successful negotiation.”

According to Dr. Chester L. Karrass, time has power in a negotiation. Whichever party is constrained by time provides the other party with a source of strength.

Timing and schedules are crucial during a negotiation.  If you are on a tight schedule, or an internal deadline is looming, time can be a source of urgency. There are times of the year that are more beneficial to buyers than sellers (and vice versa). For instance, if it is the end of the month and a salesperson needs to meet a quota, he or she may be more willing to negotiate on price.

Dr. Karrass asserts that the timing of a final offer impacts its credibility—if you do it to early the other party may think you are bluffing.

“Time talks. It is the hidden language of negotiation.”—Chester L. Karrass

How does time affect your negotiations?

For both buyers and sellers, understanding pricing is crucial. Buyers want to know as much as possible about the price whereas sellers usually want to keep the details to themselves. How does a negotiator get around the secretive nature of pricing?

For buyers:

Are you a buyer trying to understand the seller’s pricing structure? It is important to get your exact cost breakdowns—in many cases so you can compare pricing with other vendors. Often, sellers will resist giving you this information, unless you can convince them that cost breakdowns will help their long-range interests.

There are several ways to convince the seller to provide you with the price breakdown:

1. Make the case that—due to policy and legal regulations–you cannot deal with sellers who don’t provide breakdowns.
2. Delay giving your order until you get the price breakdown.
3. Tie this purchase to future sales.
4. Leverage the competition: tell the seller they are providing the breakdowns.
5. If all else fails, protest to a higher authority.

For sellers:

Pricing is something most sellers try to keep close to the vest. Revealing too much could be troublesome and create a loss of negotiating power. If you are a seller trying to avoid providing a price breakdown, following are few tactics you could use:

1. Your company policy prohibits it
2. Detailed information is not available
3. Providing breakdowns is a large expense, due to the detailed nature of the work
4. Cost breakdowns involve proprietary information
5. If all else fails, keep saying no.

How do you deal with pricing issues? Please share your tactics (both as a seller and as a buyer) in the comments.

Looking to make a sale before the end of the year? Time is running out! If you are a seller during this busy time (or any time of the year) you must strategize and plan for negotiations.

First, you want to have some bargaining leverage.  To obtain the leverage you need, you need to learn how the buyer feels about the product or service you are selling. The more insight and knowledge you have about the buyer, the better position you will be in.

Prior to entering the negotiation, Dr. Chester L. Karrass recommends that sellers probe for the answers to six essential questions. These are:

1. What are the buyer’s specific objections to the product or service?
2. What does or doesn’t the buyer like about the seller’s competition?
3. Which benefits of the seller’s product/service are the most important to the buyer?
4. Does the buyer believe the seller’s product statements?
5. What is the buyer’s attitude or feeling about the seller and his product or service?
6. Are there indications that buyer wants to close?

Second, as a seller you must understand that you have an important source of power in the negotiation: your extensive power of knowledge about your product/service. The buyer will likely never have the inside information that you have.

Third, sellers should know their competition. A thorough knowledge of the market and its key players is important to remain competitive. If someone is offering the same product for less, you need to know why and you should have a reason to offer the buyer for why your price is different.

What do you do to prepare for a sale?

The terms “sellers market” or “buyers market” may mean that one party has a power advantage over the other. Does this mean that if the market is in your favor you have all the negotiating power or vice versa? Not entirely. You can always negotiate because business negotiations involve many factors, including your specific situation.

One issue to consider is the length of the relationship you expect to have with the other party. If this is strictly a one-time deal, perhaps hardening your position makes sense. If, however, you are involved in a long-term relationship with the other party, you will need to be flexible.

In the article “Flexibility key in business negotiations” in the Winona Daily News, a sales manager at a local car dealership says: “The long-term relationships have been critical to doing well in this down environment… It’s more important than ever to have a relationship with buyers.”

In other words, if you are a seller in a buyers market and want to have long term relationships in a buyers market, you will settle for less money to give the buyer a deal.

Negotiators must consider the big picture. In the Winona Daily News article another factor comes into play: knowledge. Both parties should research specifics.

“Business owners in both real estate and auto sales stressed the importance of knowing the market in negotiations.

“Knowledge is power, so, as a Realtor, you need to have data and research and know your market,” said Nancy Gerrard, co-owner of Gerrard-Hoeschler Realtors, based in La Crosse, Wisconsin.

The Coulee Region housing market is not seeing the extreme decrease in home values happening in other parts of the country, she said. It’s important for her to know that when buyers come in with a very low purchase offer on a home based on national news headlines.”

Perhaps you are a strong seller in a buyers market—you offer services that other sellers do not, for instance. In this case, you have an advantage that can help you at the negotiating table. It is also good to consider the issues on the table other than price. These could be delivery date, contract length, payment terms, and others, all of which may be negotiable.

How do you deal when the market seems to be against you?

In the Facebook world, status is what you are doing right now. In negotiations, status is your position or rank in relation to the other party. Many times your job title confers your status: are you the vice president or a director? An account executive or an account manager?

People tend to separate themselves according to status. An entry-level person in the company may shy away from talking to the company’s president because a higher status can be intimidating.

In business negotiations you need to remember that status is not equivalent to power. A vice president may indeed sit across the table from an account manager and have no clear power advantage.

The problem with uneven status is with the feelings that are engendered in the people involved. Because in business hierarchy matters, people with a lower status FEEL uncomfortable with someone of higher status.

Dr. Chester L. Karrass writes about status in his book Give and Take:

“Status differences affect the way people act and make decisions. Status is part of the process that makes the deal and part of the deal itself.”

“My advice to those who face people of higher status is to take them on….The better you prepare, the more knowledgeable you are, the less status matters. Don’t be intimidated. Just work harder.”

Status is real and some people are higher on the feeding chain than others, but that does not mean they have more power in a negotiation. A higher status does not mean the other party will automatically get his or her goals accomplished in a negotiation. Both sides will have to work it out, regardless of who has a better title.

Lao Tzu, the philosopher and founder of Taoism, said about status:

“Pride attaches undue importance to the superiority of one’s status in the eyes of others; And shame is fear of humiliation at one’s inferior status in the estimation of others. When one sets his heart on being highly esteemed, and achieves such rating, then he is automatically involved in fear of losing his status.”

How do you deal with status differences? Are you intimidated when the person across the table has a better title than yours?

Let’s start with a definition. Full authority means that you have the sole responsibility for making decisions while limited authority means you have to consult with others.

“From a strategic standpoint, you are better off with limited or no authority rather than full authority,” writes Dr. Chester L. Karrass in his book, In Business As In Life, You Don’t Get What You Deserve-You Get What You Negotiate. This point seems counter intuitive, because we think that authority equals power, and having more power generally favors your side in a negotiation. But having full authority is NOT the same as having more power.

When you have full authority, you do not have an “out.” The decision to proceed is yours alone, and may place you at a disadvantage. When you have full authority you also tend to pressure yourself to make a quick decision.

Limited authority is a source of strength, according to Dr. Karrass, because you can indicate to the other party that there are external forces that don’t allow you to reach agreement right now. You will be able to get more time if you need it, because you need to consult with others. The following limits affect your authority level:

• Organizational
• Structural
• Financial
• Government regulations and/or legal requirements

In sum, if you have the full authority, build in ways to think and do not pressure yourself to reach agreement quickly. If you have limited authority, find the strength in your position so that you are able to gain concessions from the other party.

How do you prefer to negotiate—with full or with limited authority?

We hear the term “sunk costs” often when it comes to projects, but how does it relate to business negotiations?

BusinessDictionary.com gives the following definition of sunk cost:

Money already spent and permanently lost. Sunk costs are past opportunity costs that are partially (as salvage, if any) or totally irretrievable and, therefore, should be considered irrelevant to future decision making. This term is from the oil industry where the decision to abandon or operate an oil well is made on the basis of its expected cash flows and not on how much money was spent in drilling it. Also called embedded cost, prior year cost, stranded cost, or sunk capital.

In negotiations, the sunk cost may be better defined as the effort (rather than money) that has already been expended, and which, obviously, cannot be retrieved.  There may also be monetary costs—travel and the negotiating team’s time (which may have been better spent elsewhere).

Dr. Chester L. Karrass might disagree with the part that says that sunk costs are irrelevant to future decision making. He believes in the “sunk cost principle,” which is: “the more effort a party puts into reaching agreement, the more they will want to close.”  In other words, the higher the sunk cost of effort in a negotiation, the higher the motivation to reach an agreement will be.

The “sunk cost principle” boils down to human psychology. We all want to see our efforts pay off, and the more effort we have expended, the more we want to see results. If not, we are going to feel bad that our efforts were for naught. It comes also from the belief that if we work hard for something, there should be some sort of reward.

Dr. Karrass says that “the more energy they put into getting the deal, the more their egos become part of the price.”

Have you ever closed a deal because you put so much effort into it rather than because it was the best deal for you?

Personal power may help you attain leadership positions, and propel your career forward. Bargaining power will help your cause during a negotiation. Although they are both different types of power with different applications, there is some intersection. We could argue that the more personally powerful you are, the more bargaining power you are likely to have.

In his book, In Business As In Life—You Don’t Get What You Deserve, You Get What You Negotiate, Dr. Chester L. Karrass provides a list of ten simple things you can do to increase your bargaining power. Some of these things are:

1. Set the stage for a “yes” answer
2. Take notes about what is said and agreed to
3. To be successful, learn to dress two or three levels higher than you are
4. Don’t go into the negotiation alone
5. Rehearse
6. Search for second choice options prior to the talks
7. Be ready to walk away from the negotiation

It seems that bargaining power not only derives from preparation, but also from creating the appearance of power. The more powerful you appear to be (notice you should dress as if you are powerful), the more power the other party will assume you have. Obviously, if you build you actual personal power, the less you will have to work at appearing to be powerful.

How do you build personal power? According to Rosabeth Moss Kanter, a leadership expert, writing in the Harvard Business Review blog, there are six actions you can take to help build your power.  This is Kanter’s list:

• Be a good colleague
• Help others to the top (be a connector)
• Be a giver of resources (especially unexpected resources)
• Identify and try to resolve new and upcoming issues
• Show strong commitment
• Be active in external efforts like nonprofit boards

Going out of your way and showing others what you are capable of creates a powerful impression.

How do you build your power? How has a powerful position helped you at the negotiating table?

You’ve heard the real estate motto: location, location, location.

Think back to your last negotiation. How did it go? What influenced the outcome? Chances are good that location had some impact. Did you negotiate at home or away?

There is no doubt that negotiating away from your home base can affect your performance. You may have to get used to a new time zone. You are in unfamiliar surroundings, and perhaps you couldn’t get your usual breakfast of champions. At home, you are more comfortable. There are fewer surprises and detours en route to your destination.

In sports, we’ve all heard of the home court advantage—where the team plays better and wins more games at home. There are many reasons for this–a team has more fans on its home court and it is on familiar ground. The same holds true for business negotiations.

Imagine if you had negotiated with the car dealer at your kitchen table. The car dealer would have to be more polite to you, a little more flexible. However, you didn’t negotiate with the car dealer at home, you did it at the dealership. Were you at a slight disadvantage?

In a business negotiation, the host has the advantage. In order to cancel the “home court advantage,” choose a neutral spot. Scout your location, making sure you will have what you need (AV equipment, coffee, food, telephones, etc.). Make sure the location itself is not distracting: ocean views are great for vacation but not for a negotiation.

If you have to travel to negotiate, make sure you have enough time to learn the lay of the land and to feel comfortable.

Are you able to choose the location for your negotiation? If so, what do you look for?

Power in negotiations
When we talk about power in a negotiation, what do we mean? Dr. Chester L. Karrass defines power in a negotiation as the ability of a negotiator to influence the behavior of the other party. He also lists eight principles about power:

1. Power is relative.
2. Power can be real or apparent.
3. Power can be exerted without action if the other party believes that an action can take place.
4. Power is always limited.
5. Power exists to the extent that it is accepted.
6. Power does not separate the ends from the means.
7. Power entails cost and risk.
8. Power relationships change over time.

Dr. Karrass states that these eight power principles are applicable to most if not all negotiating situations, from the diplomatic to the simple sales transaction.

But apart from the principles of power, you may want to determine the sources of power. Power can be drawn from various situations.

• Legitimacy: We give power to those who have genuine authority through ownership, tradition, and laws.
• Knowledge: The control of information gives power. The more you know about your product, your market and the other party, the better your power situation.
• Commitment: The degree of loyalty and commitment to an organization or a situation determines how much power you have. For instance, if you are non-committal about your job, you may not get promoted.
• Negotiation skill: Your negotiating skills can be developed and honed. The better your negotiation skill set, the higher your power.

What we can take away from all this is that power can be increased or decreased—it is not stable, plus, it depends largely on perception.

Perhaps Alice Walker put it best: “The most common way people give up their power is by thinking they don’t have any.”