Negotiation is becoming a lost art. If you mostly shop online these days, there is very little opportunity for negotiation. The price is what it is - there is little or no wiggle room. You either accept it or shop somewhere else. But, in the past, negotiation between parties was a way of life and lots of people got to practice it every day. It is still alive on certain web sites like Ebay or Craigslist, but the average person gets scant opportunity to practice and become proficient in negotiation tools in her or his daily life.
This primer will help you grow and use your negotiation skills in your personal life and especially in business. It is a summary of things I have learned from personal experience, from working with others and observing master negotiators and tips and points I have picked up from books and articles.
In any negotiation between two parties, there are three possible outcomes:
While nobody wants a lose-lose outcome, it is surprising how often that is exactly what happens! It is tempting to go for the win-lose but this is a bad idea. It leaves one party as the loser and probably in a position to sulk and seek revenge or retribution (I'll get even with that so and so who took advantage of me! Arrghh...) Obviously, the only outcome of a truly successful negotiation is to have both parties feel like they are walking away winners.
Splitting the Difference vs. True Negotiation
Most of us, if we have any negotiation skills at all, will try to use a technique called splitting the difference. If you think what you are selling is worth $10,000 and I think it is worth $9,000, we could split the difference and agree on a final price of $9,500. While this might seem to be a good compromise, it is actually an example of a lose-lose outcome. You got $500 less than you wanted, and I paid $500 more than I thought it was worth. It seems fair because we both lost by the same amount, but neither of us walks away feeling like a winner.
In a true win-win outcome, we both walk away from the deal with a good feeling and wanting to do business together again - we want to continue the relationship and even build on it next time.
The first foundation of getting to a win-win outcome is pricing what you are selling correctly. To do this, you need to determine its value.
Determine Value Accurately
In determining value, ask yourself these questions:
- How unique is it? Can it be bought for less from my competitor? Are there any real qualitative advantages to my product?
- Can I sell it for more to someone else?
- Will it decline in value if I have to hold onto it for awhile (sitting out in the sun and elements, depreciation, etc.)
- How badly or how quickly do they need it?
- What would it cost to replace it?
- Are there any precedents that can help me set the value?
- Is there a "passion factor"? Did they fall in love with it and have to have it at any price?
- Are there any competing offers?
- Is this a one time deal or is there a future in the relationship?
When you have a good idea of the real value, don't be afraid to name your price. In fact, this is one of the few instances being the first to throw out a number can work to your advantage. But if value is guesswork, try to protect yourself in other ways in the event of a sale.
Strategies for Win-Win Outcomes
There are any number of timing opportunities that can fall in your lap. Your job is to notice them when they happen.
- Extend or renew a contract when the client is happiest, not when the term is about to expire. If you just did an exceptional solid for a client, ask him about extending your contract. Mood alone can turn a yes into a no or vice versa.
- Leverage the bad timing of others. Is your potential client angry about something your competition just did? Good sales timing is right now.
- Weigh present against the future. Do you have information about some future event that could change the value of what you are selling? Use this to plan your sales strategy.
- Use a beautiful sunset. Ever notice how things look better in the setting sun? Photographers call this the "sweet light". Lots of big ticket items (boats, cars, horses, houses) look better in the late afternoon. Things look worse in the bright mid-day sun when harsh shadows are cast and all flaws are exposed. Late afternoon or early evening is a great time to invite a buyer over for a drink to discuss it.
- Full bellies make happy negotiators. Plan you negotiation meeting accordingly.
- Calendar dates are what turn timing into concrete advantages. Election cycles, sports calendars, fiscal years - all can be powerful negotiation tools in the right hands.
- A newly arrived executive or one who is on his way out can offer a timing advantage. A new person in a new position is anxious to do something, to make a mark. One leaving a post may not care what he leaves around for someone else to deal with. Either way, this can be a good time to suggest a new idea.
- Be considerate with your timing and let the other party know you are doing so. Avoid Monday morning and Friday afternoon sales meetings. Avoid burdening someone with yet another decision when they are swamped with deadlines.
- Speaking of deadlines, don't give them unless you have to. Deadlines can force negative decisions leaving you with no recourse. A no today may turn into a yes next month if you just allow the process to run its course.
- Respect time and attention spans. Get to the point of the negotiation in the time allotted and avoid boring your subject at all costs. The last thing you want is a decision maker who resents you for wasting their time. In fact, giving the gift of time can work in your favor. If you allotted an hour and can finish up in half an hour, by all means do so.
People often underestimate the importance of a conducive sales atmosphere. There is usually a right or best place to do a negotiation. The buyer's office is perhaps the worst place. He or she is in their comfort zone. It can't compare to a more neutral place such as over lunch, after a sports match, during a golf game or anyplace where receptivity is up and guard is down.
- Precondition the sale. Get into your buyers place of business (or her head) and find out what they are looking for.
- Get some No's out of the way. People love to say no. It makes them feel in control. Keep a few ringers (throw away requests) and get them out of the way early on. Let the buyer tell you you're wrong about something so they feel smarter than you. A few well placed no's can often lead to a yes on the critical sale points.
- Sell defensively. Find out who your buyer hates. That knowledge can help push them toward your deal.
- Expose rather than sell. Let the buyer handle the product in a positive environment. The buyer's mind runs rampant with possibilities and benefits and in his own mind he sells the product for you.
- Collect your buyers opinions on the deal and allow these to shape your ideas and presentation. If you can, make the buyer think your ideas are actually their ideas. There is a strong propensity to self-reinforce one's own ideas.
- Use the power of absence. If you have to check with someone not present to sign off on a deal, that gives you a negotiating edge. This allows you to keep your options open and gives breathing room to the deal.
- Show up. If someone wants to meet with you, the quicker you see them and the farther you have to travel the more impressive it is.
- 80/20 Rule. 80% of your sales will come from 20% of your top clients. Focus on knowing them and understanding how to sell to them and how to negotiate with them.
- Know your buyer's organization. Knowledge about your buyer's culture can help determine your overall approach. One of the best sources of key information is someone who has successfully negotiated with them in the recent past.
- Get to the right person. You need to be talking and negotiating with the actual decision maker. Titles alone don't mean much. Sometimes decisions seem to be made by some mysterious process of consensus or by someone with obscure authority.
- If you don't know, ask. Try to learn about your buyers problems, priorities, strengths and weaknesses, squabbles, power struggles, etc. These can all help you with your negotiating position.
- Kia or Mercedes? Italian restaurant or fast food? Is your item a commodity or luxury item? Are you selling high turnover or a branded, extravagant experience? What do your buyers think you are? Position yourself at your market level, not above or below it.
- Weigh the facts and emphasize accordingly. A good salesman can take 10 facts about a product and by stressing some and minimizing others create 10 different impressions.
- Create impressions or imagery. Transcend the facts by associating your product or service with positive desirable attributes that have nothing to do with what you are selling itself.
- Divide and conquer. Suggest the same idea to two different executives in the same company, then, after you've gotten them to agree separately, get them together. They will reinforce each other's thoughts and ideas on the deal and a sale will likely result.
- Sell one to one. It is always better to be alone with the decision maker. Presenting to a team makes it that much harder to read reactions and tailor your approach without offending someone.
- Present only one solution. Giving a buyer a list of choices from which to chose introduces a new layer into the decision making process. Present one solution - the best one - and leave out everything else.
- Be a winner. People want to do business with winners.
- Be careful with visual aids. A bad idea is never sold because of great visual aid and a great idea is never unsold because of lack of visual aids. But, visual aids can be distracting, and if you aren't careful, you'll find people forming opinions about the quality of the visuals instead of your actual product, and they will be distracted playing with them and discussing them during your presentation.
There comes a point in nearly every negotiation when the other person should be doing the talking and there is a time when no one should be talking. It's pretty hard to get to that point if you don't know when to close your own mouth.
- Make the other party talk. Ask them to explain in their own words their understanding of the key sticking points. Listen to their answer.
- State the positives, omit irrelevant negatives. Be ethical and moral but be aware of the joys of silence.
- Use the pregnant pause. Once you ask for a negotiation commitment, don't speak again until the other person has replied in some fashion. Don't restate your case, don't lobby or tell them you know it's a tough decision. Don't help him out. If he asks a question, answer monosyllabically. Even if the silence is deafening, just let it sit there.
- If the answer is negative, re-summarize your understanding of their points and ask if you have summarized correctly. Again ask for the sale and then don't talk again until you get an answer.
- Once you've sold at your price, stop talking about the sale. Move on to niceties, family, friends, etc. Anything else you say about the deal at this point can only work against you. Get out of there as quickly as politely possible. You can always work out the fine points of the deal on paper or summarize it at a later date.
- Do confirm the deal later in writing with contracts or sales agreements as appropriate.
Now that we've covered some pre-negotiation strategies, let's get to the actual nuts and bolts of negotiating.
During the course of a negotiation, the 6 key "journalism questions" should be answered: Who, What, When, Where, How Exclusive and How Much.
- Who is involved. Who will be doing what to satisfy the terms of the contract?
- What exactly are your selling? It may always come down to one or two things like your team's time, profit potential or the prestige of owning something special.
- When can mean the duration of the contract or the delivery date.
- Where can be any place domestically or internationally - a territory, a national boarder or time zone or regions bound by a common language or monetary unit.
- How exclusive? Are you shutting out competitors, giving a head start to one group or any number of interesting things that can be linked to other aspects of the negotiation.
- How much? It can mean money, other types of equity or time or any cherished commodity.
Don't get hung up on the How Much. Don't deal with numbers in isolation. Negotiation is more subtle than that and numbers are just one piece of the pie.
Here are some examples of ways to move things along.
- Let the other party go first. Of course, they may be thinking the same thing. When possible, letting the other side take first crack at terms and numbers gives you insight into what they are thinking. If they are reluctant to start, you may be able to draw them out by asking open-ended hypothetical questions. "If we were to do this and you were to do that, how much could that be worth?" "Suppose we were to throw in this and that?" "Could we put a dollar figure on that?"
- Mention past deals. We recently sold X to Y and received $Z's.
- Don't deal in round numbers - they beg to be discussed and negotiated. Odd numbers and decimal places sound harder, firmer, less negotiable.
- Deal in psychological currencies. Try to offer the other side something that is exactly what they want while getting yourself something with hidden value they are not likely to understand. This may sound obscure but it is the basis behind some of the largest internet companies around today. Who can resist the pull of that free app or social media site? It's so convenient and its FREE! But only a few understand that their private data and sales and marketing insight and information is the true product these companies are selling to the highest bidder!
- Avoid showdowns. The point of negotiation is to reach agreement, not strut your ego out in front of everyone. Don't use phrases like "deal breaker", "take it or leave it", or "that's non-negotiable". If the other side uses these terms, see it for what it really is. Remember: everything is negotiable! Don't raise controversial issues or history or relationships having nothing to do with the deal at hand.
- Negotiate backward. Try to imagine in advance where the other person would like to end up. Then, don't push him to the wall but stop at a comfortable point for both of you. Ask indirectly what they would be willing to do by getting a sales or value estimate from them. If we do X, how many additional units of Y can you sell? How much profit does that equal? Even if their numbers are inflated, now you can back up your key negotiating points with their logic.
- Trade places. This is another way to arrive at the magic point of agreement. What would you do if you were in their shoes?
- Acknowledge the other person's feelings. Once you let them know you understand their position, modify your statement with a "but" or "however" and restate your point.
- Deflect with a question. If you don't like where things are going, ask a question. It may get the other side to reflect or restate their position giving you more options. At the least it keeps them talking and you listening.
- Question but don't ignore. It is very frustrating to be in a conversation with someone who ignores what you say. Don't be that person. You can question facts, figures, ideas or just about anything in the deal, but don't ignore the answers.
- Sweeten with self interest. Try to find things which aren't important to you or your company but which may be good sweeteners to them. If you have access to box seats, celebrities, can do a favor for someone's kids, add a career feather to someone's cap, by all means bring it up.
- Don't overlook barter or payment options. Sometimes trading goods or services can be a win -win. Offering extended payment options or attractive financing options can encourage success. Be willing to accept payment in whatever currency or form your customer is familiar and comfortable with.
- Keep your time frame to yourself. Knowing their deadlines is one of the most valuable pieces of information you can have. Don't give them the advantage of knowing yours. Anxiety and the desire to get a deal done breeds kinetic behavior and rushes the deal. If possible, delay the deal to give you time to regroup and allow the other side's deadlines to put natural pressure on them to get the deal done.
- Don't press every point to make a deal. Contracts can stipulate certain points are resolved in the future. If you have basic agreement on key points, write it up!
Emotion is a powerful motivator in human interaction. Negotiations are often informal, and the people involved all have differing emotions about the topic at hand. In fact, almost any business dispute can be seen as the beginning of a negotiation.
- Step back and relax. Go emotionally limp if someone attacks you. Tell them you'll think about it and get back to them. Don't be the first to ramp up the rhetoric and bravado and don't respond in kind if someone else does. Keep your ego in check and come at the problem later when tempers have cooled.
- Outbursts are opportunities. If someone vents on you and you sit there and take it, that person is now in your debt. It is very likely an apology will be forthcoming in the near future, and you can then choose to let the debt ride, forgive it, or seek immediate repayment with something you've secretly been wanting.
- Use anger as a calculated act, not an out of control reaction. Anger can be a powerful negotiation tool if used carefully. If you can work up some strong emotions on cue this can make you look like someone not to be messed around with.
- Deflect emotion to side issues. If you are dealing with an emotional negotiator, try to get them to focus that emotion on side issues while you stay internally focused on taking home the big prize.
- Use candor effectively. A simple phrase like "Look, I really want this to go through" can work wonders if things are at an impasse. Similarly, revealing some insignificant but well hidden truth about yourself or your company can disarm the other side.
Strength or Weakness of Position
Here is where real showmanship comes into play. Of course, you should realistically evaluate your own position and decide if you are coming from a strong or weak position. Try to determine how hard you can push, if the other person really wants the deal to happen, and what the other party perceives about your position.
Now you have to learn to swoop and dart to keep the other party from getting a clear fix on your real strengths and weaknesses. Legitimate strength and weakness can be much less important than perceptions of it. You have to learn to play the game - to say and do things which puncture perceptions that come too close to reality while encouraging perceptions farthest from the truth. There are dangers in either being too strong or too weak.
If the other party knows you are in the strongest position, they will try very hard to knock you off your pedestal. They know they will have to fold on certain points so they fight extra hard on the ones they think they can win. Coming from strength, it is also tempting just to get the deal done without focusing on all the little details that can make an average deal into a real winner.
If you are coming from a position of weakness, you can try to bluff your way though, but that can easily backfire. It may actually be better to concede your position to pave the way for honestly figuring out what can really get done. After all, the other party wouldn't be in the room with you if there wasn't something they wanted. If you think you can successfully bluff your way into strength, don't go "all in" in case the other side calls your bluff.
The best negotiations like the best sports matches come from equally matched sides both with a strong motivation to play the game with good sportsmanship. Not every deal has to be made, but there's no excuse for not making a deal once both parties agree they can both benefit from agreement.
As you can see, being a good negotiator is truly an art form. Becoming a master negotiator takes time and practice, but it pays big dividends in your career and pads your pocketbook. It is well worth your time to work on the skills and techniques to become known as a good negotiator who works to achieve win-win solutions.
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