Business Negotiation January 7, 2014

Intimidation by Raising the Stakes

Negotiating in an environment where the stakes keep rising has all the tension of a high stakes poker game. A good bluff can make the other player drop out. But if your opponent had the cards you can lose your shirt.

A friend of mine was involved in a divorce action. He and his wife had already settled on a number of issues. The major issue remaining was the amount of alimony and the length of time it would be paid. His wife insisted on $5000 a month for eight years. My friend was willing to pay $3500 a month for five years. Neither would budge from that position. Talks broke down.

At that point his wife decided to raise the stakes. She backed away from previous agreements and increased her demands in every area. She demanded a certified audit of all their assets. Her lawyer initiated actions to tie up major business assets so they could not be sold, transferred or borrowed against.

Suddenly my friend was faced with a difficult choice. If he continued to hold out for the $3500 which he felt fair and affordable, he faced potentially disastrous consequences. His business would be tied up for years. Legal costs would soar. If the case went to a judge, there was even some chance that alimony payments might be more than $5000 a month and continue permanently. The stakes were high. My friend settled for $4700 a month for eight years.

Industrial buyers sometimes raise the stakes when dealing with distributors. One negotiation I recall involved an electrical distributor who had serviced our Los Angeles division for four years. Because the economy was depressed, we were anxious to reduce costs. We decided to open distributor bidding on our total California requirement. This represented a dollar volume four times greater than the Los Angeles account. Low bidder take all. The stakes were high.

For the Los Angeles distributor, this was a difficult choice. He could hold the price and risk losing his position in Los Angeles, or he could bid low and win the much larger contract covering California. The distributor chose to bid low, but not low enough. Another distributor reacted to the high stakes by dropping prices almost 20 percent.