There are a number of dilemmas we face as negotiators. Should actually negotiate or not? How do we negotiate in regard to the value of the relationship? Do we make the first proposal or respond? Do we bluff or not? And how do we define a good deal?
To Negotiate or Not
To negotiate or not is the obvious first dilemma and contrary to popular belief not everything is negotiable. Negotiating is one way of resolving conflict, but it is not the only way. An essential characteristic of negotiating is the flexibility provided by trading behaviour. We are often asked to give advice about conflict at work where a team member is clearly not performing and are often the result of poor communication or workplace discipline. In these situations, the best solution is to enforce the established workplace standards and processes rather than treat these matters as potentially negotiable.
Similarly, an examination of your alternatives may reveal better options than negotiating and then making concessions. Why would you need to provide a discount demanded by a customer when others are happy to pay your list price? This is a happy situation faced by Apple when demand outstrips available supply of their products. Before deciding to negotiate, you must examine the alternatives you have to negotiating. This will depend on the state of the economy and structure of your industry.
If you are selling trees in a forest, you always have the alternative of not selling this year and allowing them to grow for another year and become more valuable. Alternatively, if your product is fragile like an airline seat, a hotel room or a table at a restaurant, then if it is not sold today than the sale is lost forever. In these circumstances, you are far more likely to flexible in your pricing. This explains the abundance of flight and hotel deals available that are on offer. Curiously restaurants do not offer the same flexibility that explains their average occupancy of 36% versus 90% for hotels and flights.
Transaction or Relationship
A major customer requests an immediate 15% price reduction to assist them in difficult trading conditions. Your response to such a request will depend on whether your focus is on the transaction or the whole relationship. On the transactional level, it may result in trading losses if you agree. On that basis, it would be relatively easy to decline the request.
If you examine the whole relationship with the customer, there may be other reasons to support a price reduction. The relationship may underwrite the expenses of regional offices that profitably service a range of other customers in the region. The relationship may support a volume of purchasing which allows for significant discounts with your suppliers. If this volume is lost, other customers will face price increases. In these circumstances, the relationship is more important than the current transaction.
Good negotiators have a clear understanding of both the importance of the current transaction and the overall relationship and craft their responses accordingly.
Propose or Respond
This is a source of much debate among negotiators. There is a view that those who hesitate longest, win. Making the first proposal is seen as a sign of weakness. While this may be true in some isolated situations, there is a general view supported by academic research that making the first proposal provides a number of distinct advantages. Making the first proposal allows you to set the agenda for the negotiation. It also allows you to effectively anchor the negotiation at your most favoured price point within the bargaining arena. So, forget the image of the Mississippi riverboat gamblers waiting for the other party to break first and seize the initiative in the negotiation by making the first proposal.
Bluff or Facts
All negotiations take place in the context of a relationship. In one-off transactions, there is little investment in the relationship and therefore your guide is, the law and your personal ethical framework. Typical transactions in this category are the sale of a motor vehicle and real estate. However, the majority of negotiations take place in the context of a wider relationship. In such relationships trust is important. It is essential to make relationships work. Anything you can do to build trust is good.
It is therefore important to resist the temptation to be loose with the truth in order to gain a short-term advantage. The best advice is to be honest but not naive. The test about whether to disclose information or not is whether such disclosure will move the other party towards your position or away from it.
Good versus Gold
It was Voltaire who first identified that the "excellent was the enemy of the good." Effective negotiators have a clear understanding of their objectives in a negotiation. They know when they have achieved an outcome that meets those objectives and where it is appropriate to agree. This does not mean that they immediately drop to their minimum acceptable position and are satisfied with that.
What it does mean is that in the prevailing market conditions they have done the best deal consistent with the other party being happy to implement that deal. They have not attempted to gain every last advantage at the expense of the implementation and the relationship. The law of diminishing returns applies here with additional time spent negotiating returning fewer benefits and potentially damaging the relationship. A common example is using aggressive negotiating to get a builder to agree to the cheapest possible price to build a house and then arguing constantly about quality and variations to the contract.
If you can successfully resolve these five dilemmas your negotiations should be more time efficient, more effective in their outcomes and provide the basis for deals that work and relationships that endure.
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