All of us have negotiated at one time or another in our lives, whether to buy a car, a house, or negotiate the salary and perks for a new job.  Many of us hate negotiation.  Why?  We view it as a conflict where one party wins and other loses.  Because we hate negotiation we may rush to reach an agreement that is not very beneficial just to reach an agreement.  We need to look upon negotiation as both sides wanting to reach an agreement that is good for both and not a Win/Lose.

Before getting into the strategy and tactics of negotiation we need to determine if negotiating is even worth the time and effort.

When we go to mail, we don’t negotiate.  We either the pay the price or go elsewhere.  The closest we come to negotiation is checking Amazon’s price and asking the store to match the price.

We need to figure in the time and effort to research price, compare and negotiate with the chosen seller and the time and effort may not be worth it.  Always remember, your time in valuable and there is a cost to investing in negotiation.

But once decide to negotiate, how do we know if we negotiated a good deal?

 

Know the Must Haves

Know what you need to achieve from the deal.  What are the must haves for there to be an agreement reached?  Too many times during deal discussion, our emotions get involved and we either rush to reach an agreement to get it over with; walk away because of frustration or the discussions have transformed into arguments (divorce) that we must “win” at all costs.  None of these situations are ideal and often the agreement reached is a poor one.

 

Determine your Like to Haves

There may be items that are nice to have, but not crucial (e.g. certain color of a car).  Determine your like to haves in the deal.  In complex negotiations there could be variety of items that would be on you’re like to have list.  These must be listed out and a priority given to them.  The lower the priority of an item, the less important it is to you.  The like to have can be a bargaining chip for the next section.

 

Determine what you are Willing to Give Up

Next, figure out what you are willing to give up.  What are the negotiable items?  In other words, determine what items you can give on that the other party may really want.  For example, if you are selling a house and the buyer is relocating from a different city, a move in date may be very important to them, but not as important to you.  The buyer may want a close date of 3 weeks, which may be doable for you, but still would require you to find another place to live very quickly.  Don’t readily agree to that date. Assign a dollar value to each day and use the move-in date as a negotiation term.  The shorter the close date, the higher the price of the house. You may assign a dollar amount to move in date.  A 45-day close date has a house price of $500.000.  Each day earlier for close is $1000.  If the buyer wants to close in 21-days, the house price if $544,000.

In any agreement, it is important to create value for each party, says Margaret Neale in Getting More of What you Want, “Good agreements are ones that make you better off”.  It means creating value for both sides and capturing as much of that value as possible.    If a company negotiates a very low price from a supplier, the supplier may be making minimal money on the contract and place a lower priority on prompt delivery of their product.

 

An absolute must in Negotiations

Discipline yourself in negotiations and keep emotions to a minimum.  If you decide the deal is not a good one, then walk away.  Do not go back to the negotiating table.  Don’t let your emotions get in the way of making a good financial decision.

 

Preparation

Below are the preparation steps for successful negotiation.

1. Knowing the must haves of the deal. Items that must be met.  Determine what needs to be achieved in the negotiations?
2. What are the issues you will be discussing? What outcome do you want from each issue?  Rank their priority in importance. If possible, assign a value to each issue.  Above we assigned a value to each day of the house close.
3. Knowing what are your “like to have” and prioritizing them.
4. Understanding what you are willing to give up. There may be items or conditions of little importance to you, but of big importance to the other side.   In discussion, feel out the other side to determine what is important to them.  Giving up something small to you could provide leverage on the items that are important to you.
5. Know your reserve price. Know what is your bottom line dollar amount.  But at the same time, assign dollars amounts to other important items.
6. What are your counterpart’s goals in the negotiation? What are their issues?  What is their priority on each issue?  While it is not easy to tell their priorities, it may be possible through discussion to get a good idea.  Just be careful not to reveal tool much on your priorities.
7. After developing a good draft of the plan, examine it for any holes; areas that don’t have a strategy.

 

Never Give Up your Reserve Price

There are times in negotiation that one party is just tired of the negotiation and wants to reach an agreement.  The temptation by that party (Party 1) will be to offer their reserve price as a final offer.  It doesn’t work.  The reason is the other party won’t believe it is the reserve price (final offer).  They wouldn’t give up their Reserve price so they don’t believe Party 1 has given up theirs.  So, they will ask for a lower price or more concessions from Party 1.  Party 1 refuses and walks away.

 

Let’s hear Insights from a Negotiating Professional

I thought it would be good to hear from a professional who negotiations million-dollar contracts on a regular basis.  Below are insights from Wendy Wilson, who has had successful career in negotiation, through her work for Fortune 500 companies.

Alan:  What do you think is the most important task or item when starting a negotiation?

Wendy:  It is very important to have a game plan or strategy?  What does that mean?  Need to know the terms.  Need to have the must haves, like to have and what are you willing to give up.

 

Alan:  Is your approach different with a new vendor versus one that you have been working with for a few years?

Wendy:  Yes.  The basic approach is the same, but with the new vendor you need to get to know them and understand their operation and how they work.  That is important so you know what they can and can’t do.  An example would be, rebates.  Company policy may be to pay in credits and not cash.

 

Alan:  What is the biggest lesson that you have learned from negotiation?

Wendy:  Keep asking until you get a no, so you don’t leave anything on the table.  With that being said, I don’t grind down a vendor for every last dime.  I want them to deliver a quality product.  But I find that by asking until they say no, means there is room for a lower price or provide better terms.

 

Alan:  Is your approach different with large vendors versus small vendors?

Wendy:  If the vendor is larger than your company, they are usually less flexible.  Smaller companies are more flexible and are more eager to work with you on putting together a good deal.

 

Alan:  What would you say has been your biggest achievement in a negation?

Wendy:  With one of my companies I was able negotiate $1 million in saving on a Learning Management System (LMS) by going with a new vendor, but it had similar features to the old system.

 

Alan:  What is the biggest lesson that you have learned in negotiation?

Wendy:  Sometimes negotiation is like a poker game and you must be prepared if you bluff and the vendor calls your bluff.   For example, I was negotiating with a bank and our S&P rating had been downgraded (during the Great Recession) and I threatened to take the business out for bid instead of renewing the existing contract.  I was trying to get a reduction in credit card fees, but I didn’t have a good bargaining position.  The vendor called my bluff and said, “take it out to bid”.  I had to settle for less than I wanted with that vendor.

 

Alan:  Thanks for the insights.