Negotiation Strategy Development

Business-winning negotiators understand the importance of reaching a win-win negotiation: When both sides are satisfied with their agreement, the odds of a long-lasting and successful business partnership are much higher.

Introduction

Concrete strategies for generating a win-win negotiation contract often seem elusive. Negotiation involves the ability to work toward win-win outcomes. The Opportunity/Capture Manager should work with Sales and Senior Managers to plan negotiation techniques to influence the customer’s thinking to prefer your solution throughout the opportunity/capture process. What the customer accepts during the pre-competition phase, and where there are still differences, should be the basis of the final negotiation strategy after the RRFP has been submitted.

The negotiating process is continual, not an individual event. Good negotiating outcomes are a result of good relationships, and relationships must be developed over time. Because of that, good negotiators are constantly looking for opportunities to enhance the relationship and strengthen their position.

Information is crucial for negotiation, so during the opportunity/capture process, it’s important to begin to research the history, past problems, or any sensitive points of the customer. The more knowledge you have about your customer’s situation and negotiators, the better position you’ll be in to negotiate.

Best Practices

1. Understand the negotiation situation.

Each negotiation is different, no matter how often you’ve addressed similar situations. You’ll always be negotiating with people within your customer organization who have different styles, goals, and objectives; who are coming from different circumstances; and who have different standards. So, always take stock and gauge which negotiation skills each negotiation will demand from you and your team.

Most business negotiations are likely to be with new or existing customers, where you’re seeking new or repeat work for your company’s products and or services, or you’re seeking a long-term, negotiated agreement such as a joint venture, where you’ll be mutually entwined over a long period of time. The reason for entering into a negotiation will affect your approach, your negotiation strategy, and your relative negotiating power in comparison to your counterpart or competition.

2. Understand the four stages of the negotiation process: prepare and plan, open, bargain, and close.

The negotiation process has certain characteristics. There are at minimum two parties present in any negotiation. Both parties have pre-determined goals that they wish to achieve, and these goals clash—that is, some of the pre-determined goals aren’t shared by both parties. There is an expectation of outcome by both parties in any negotiation. Both parties believe the outcome of the negotiation to be satisfactory. Both parties are willing to compromise—that is, to modify their position—but the incompatibility of goals may make this difficult.

Negotiation can be classified into a four-stage process:

  • Prepare and plan
  • Open
  • Bargain
  • Close

Reviewing the negotiation outcomes is an important part of the negotiation process. It teaches lessons on how to achieve a better outcome. Therefore, conduct a Lessons-Learned Review after each negotiation or each negotiation stage. Take the time to review each element and find out what went well and what needs to be improved. Document the lessons learned so that they may be used as a reference point for the next negotiation, with the next customer.

Stage 1: Prepare and plan

Preparation is instrumental to the success of the negotiation process. Being well-prepared generates confidence and gives the negotiator an edge.

Preparation involves the following activities:

  • Gather information. You need to learn as much as you can about your own and the other party’s likely negotiating parameters and any perceived conflict areas as early as possible. You also need to understand clearly the issues involved.
  • Leverage. Evaluation of possible leverage on both sides at the outset is important because there may be a number of things you can do to improve your leverage or diminish the other side’s leverage.
  • Understand the people involved. It’s important to know the people with whom the negotiation is to take place. An understanding of their individual objectives, roles, and issues will facilitate better handling of the negotiation process.
  • Type of negotiation. Anticipate the type of negotiation you can expect. That is, ascertain whether it will be highly competitive, cooperative, or something unusual. Also determine whether the negotiation will be face to face, through a mediator, or in some other manner.
  • Rapport. It’s helpful to establish rapport with the customer during the early stages, before formal competition rules may apply and before the bargaining process begins, because this can determine how cooperative the customer is going to be.
  • Know your objectives. Clarify where you want or need the customer to move to and what you will and won’t be able to accept.

Part of planning the negotiation strategy should be to analyze whether an agreement is absolutely essential and whether you have options should the negotiations collapse. This will affect your strategy.

Or, if the negotiated agreement isn’t essential because you have a strong option and can walk away with confidence, this also influences your approach to strategy.

You need to have the authority to negotiate, and if the negotiation strategy is documented, senior stakeholders will find it easier to approve the parameters of the negotiation.

    It’s a good idea to identify areas that can be negotiated and those that can’t. A golden rule to follow is “never give without getting.”

Therefore, identify the concessions that you want to achieve from the negotiation and whether they’re of high value or low value to your organization. These are useful prompts to take into any negotiation because the outcome of the negotiations can be recorded. Use a template similar to the one in Figure 1:

Your priority Get

Value

Give Their priority (projected)
No Way 1

2

3

4

Figure 1. Decide in Advance of the Negotiation How Much You’re Willing to Concede and What Your Priorities Are. Anticipating what the other party will want and the priority they’re likely to place on each item helps to keep the negotiation moving forward and provides a reminder of what can’t be negotiated.

In addition to planning the things that can be given away during negotiation and the concessions you want the other party to make, it’s a great idea to record the non-negotiable points. This will remind you during the negotiation and serve as a guide to “walk-away points.” If you’re not ready to walk away, you’re not ready to negotiate.

Stage 2: Open

When you begin to negotiate face to face with the customer, both of you will try to make an impression and influence the other’s thinking at the first opportunity. Psychologically, this phase is important because it largely sets the tone for the negotiation. It involves both negotiating parties presenting their case to each other.

Typically, this phase of negotiation starts with one party offering an exchange—the opening position. This usually takes two forms: exchange proposal (“I’ll give you this for that”) or exchange request (“What do you want for that?” or “What will you give me for this?”).

The essence of the opening phase is that both sides make offers that may be accepted or rejected, or may trigger a counter-offer. If the initial offer is accepted, the deal is swiftly concluded. Otherwise, there may be significant bargaining (stage 3) activity.

The secret of a good opening is to establish authority on both sides to negotiate. There’s no point trying to negotiate with someone who hasn’t been empowered to make a decision, so confirm that both you and your customer counterparts are empowered to negotiate.

Establish credibility. Your first offer should be tough but credible. Your aim is to alter the other party’s perception using the negotiation strategy you’ve developed and had agreed on. So, your offer needs to be realistic, but this doesn’t mean it should be low if you’re selling or high if you’re buying. It means that a good opening offer lies at the extreme end of what may be acceptable parameters for the other party and leads them to consider that they may be able to reach agreement.

Demonstrate confidence in your position. A confident negotiator is one who has planned well, understands the negotiation strategy, and has been empowered to negotiate.

Demonstrate trust in them. Enter the negotiation meeting with an open mind and seek win-win outcomes. Believe that the other party will negotiate fairly because it’s in their best interest to do so.

Stage 3: Bargain

The bargaining phase involves coming closer to the objective you intended to achieve when you started the negotiation. In this stage, the basic strategy is to convince the customer of the appropriateness of your requests and then persuade them to concede to those requests. For this, you need to be logical in your approach and frame clearly thought-out and planned arguments.

The heart of many negotiations is in bargaining, or adjusting what’s being traded until you and your customer are satisfied with the arrangement. This is the activity that many view as being what negotiation is all about, although you can gain a much better result by paying attention to other stages as well.

An important part of bargaining is trading, where parties effectively say “If you give me that, then I will give you this.” Trading may be about individual items or the whole package. It may also include nonmaterial aspects such as the support to be given and when things will be delivered.

Whether or not bargaining is successful depends on the approach taken and the outcome sought, as shown in Figure 2:

Figure 2. Bargaining Can Become Heated and Competitive if Either Party Has a Competitive Win-Lose Attitude.
Figure 2. Bargaining Can Become Heated and Competitive if Either Party Has a Competitive Win-Lose Attitude. In more collaborative negotiations, parties show more concern for one another while vigorously, but carefully, seeking an equitable outcome.

In negotiation, you may encounter or use many tactics. They can be fair, foul, or something in between, depending on the competitive or collaborative style of the people involved and the seriousness of the outcomes. Some well-known negotiation tactics include:

  • Saying “Do that and I’ll give you this”
  • Asking “why” to find out what’s driving the customer to an entrenched position and reframing the purpose
  • Controlling the agenda—and, therefore, what’s discussed
  • Using financial games, percentages, and increments in financial negotiations
  • Connecting value and benefits to continually remind the other party of the business outcomes that they’ll achieve
  • Conceding on low-priority items
  • Taking a break—stepping out and changing the flow
  • Walking away from the negotiation if an impasse is reached on a critical issue for you
  • Aiming for understanding, not agreement, and saying “I understand but I don’t agree”

There are four key bargaining principles:

    i. Don’t give without getting
    ii. Be aware of the other party’s deadlines
    iii. Be prepared to settle for what’s fair
    iv. Be prepared to walk away

During the bargaining phase, be explicit about each offer that you make or agree to. Be willing to make small concessions and offer concessions in reverse priority order. This is easy when what you want to get and what you’re prepared to give have been documented and prioritized. Behave as if every concession is important to you and the customer. Recognize when you’re losing and move on.

Stage 4: Close

The closing phase of a negotiation represents the opportunity to capitalize on all of the work done in the earlier phases. The research that has been done in the preparation phase, combined with all of the information that has been gained, is useful in the closing phase. It also involves sealing the agreement by formalizing what has been agreed in a written contract or letter of intent.

Negotiators often fail to recognize the closing signs made by the other party. Look for the closing signals, as illustrated in Figure 3.

Figure 3. Close the Deal in the Right Way.
Figure 3. Close the Deal in the Right Way. Stay calm and professional, sign the deal, stay quiet, and walk away. Negotiation is about seeking the best possible deal, not any deal at any price. A good negotiator will recognize if and when a deal can’t be achieved and will be prepared to walk away.

3. Deal with conflict.

There are typically two types of conflict situations that may occur in a negotiation.

Conflicts can present themselves singularly or as a mixture of both types. It’s vital that the negotiator carefully analyze the conflict issues, both individually and collectively, to fully appreciate the unique challenges they present.

The first form of conflict might simply be called agreement conflict, where one person’s views or position are in conflict with another’s. This is a situation that takes into account conflicting views relating to opinions, beliefs, values, and ideology.

For example:

  • Two executives may have different views about whether a strategic initiative should be prioritized
  • A trade dispute between two countries may entail ideological or religious-based differences
  • The conservative viewpoints of management might conflict with the more left-wing approach of union leaders

The second form of conflict entails the allocation of resources like money, quantity, production, or—simply put—things. Any physical commodity will fall into this category of conflict. Other issues might entail the allocation of resources as a separate segment of the trade dispute. However, resource issues are more tangible because they comprise knowable items or particular products.

By analyzing the types of conflict into categories, you’ll have a better understanding of the real measure of the disputes and will be able to frame or focus strategies more effectively.

4. Choose an effective negotiation style.

Effective negotiation skills are very important for managers, executives, and leaders in the business world. The dynamic nature of business means that people must negotiate and renegotiate with their customers, and often in their own organizations.

Most excellent negotiators are not self-made. The myth of naturally gifted negotiators is based on selective memory—that is, people remember their successes and forget their mistakes. In reality, effective negotiation requires practice and feedback.

Experience improves negotiation skills and is a great teacher—to a point. Naive experience is largely ineffective in improving negotiating skills. To understand why, remember that in the absence of feedback, it’s nearly impossible to improve performance. So, without feedback, one fails to learn from experience.

People have selective memories of their experiences; they tend to remember their successes and not their mistakes or shortcomings. Selective memory may help boost self-confidence, but it does little to improve performance. Lastly, experience doesn’t improve the accuracy of negotiations. People with more experience grow more confident, but the accuracy of their judgment and the effectiveness of their behavior don’t increase in a commensurate fashion.

Tough negotiation tactics like using ultimatums, threats, and bluffs are rarely effective. Saying “This is my final offer; take it or leave it” is risky. More often than not, such hardball tactics will alienate the other party and might toughen their stand, making it impossible to negotiate. Many seasoned negotiators believe that their negotiation style involves a lot of “gut feeling” or intuitive responses. Such feelings represent a reactive response rather than a deliberate plan. Effective negotiation involves deliberate thought and systematic preparation.

5. Consider the wider negotiation strategy picture.

Consider whether the results of the negotiation you’re conducting will affect other negotiations or agreements later. Many companies today have international interests. An agreement with a company in one country may affect how talks will be impacted or influenced in negotiations with other countries. It’s vital that negotiators consider the impact or consequences of an agreement when developing their strategy.

Negotiations skills are required for, and should take account of, cultural differences. The prevailing customer culture should take precedence over the bidding organization’s culture. The challenge here is to develop a negotiation skill set that’s general enough to be used across different contexts, groups, and continents, but specialized enough to provide meaningful behavioral strategies in any given situation.

Time has an impact on the course of negotiations from two perspectives. First, there are deadlines that might be imposed to either make or break an agreement. Offers with expiry dates may be tendered. Time can be both a tactical weapon (who does it hurt more to delay?) and a strategic imperative (who risks missing the boat to competitors?). Lastly, we all know that time is money. Negotiations consume our time, and if a factory or production line is shut down while the negotiation clock is ticking, then this is costing money. The point to remember is that the longer the negotiations drag out, the more this will negatively affect the bottom line.

6. Be mindful of cultural differences when negotiating in diverse environments.

Business is increasingly competitive. In today’s economy, a few large firms have emerged as dominant players in the biggest markets. The losers are often left with little in the way of a market. Managers have to function as advocates of their products and services and must also recognize that competition is inevitable between companies, and in some cases, between units within a given company. Understanding how to navigate this competitive environment is essential for successful negotiation.

International negotiation may require a third party to have a role in developing a corporate negotiation strategy. They may act as agents, intermediaries, translators, consultants, or other specialists who have expertise that one or both parties require. Cultural awareness is imperative when negotiating in an international arena, and detailed knowledge of how the customer will conduct the negotiation process is required because there are significant differences in some countries.

Don’t forget to do your homework about your customer’s culture. Through reading and conversations with those familiar with the country, you can certainly learn a lot. Don’t overlook your suppliers as sources of information about their culture. They will usually welcome your interest and help the research process.

Show respect for cultural differences. Inexperienced negotiators tend to belittle unfamiliar cultural practices. It’s far better to seek to understand the value system at work and to construct a problem-solving conversation about any difficulties that unfamiliar customs pose. Respect for cultural differences will get you a lot farther than ignorance, so it’s important to do your research when entering into negotiations with unfamiliar counterparts.

Be aware of how others may perceive your culture. You are as influenced by your culture as your counterparts are by theirs. Try to see how your behavior, attitudes, norms, and values appear to your foreign supplier. When you enter into negotiations, it helps to know how they see you from a cultural standpoint. You can adjust your approach during negotiations to get a better outcome if any of these perspectives are negative.

Find ways to bridge the culture gap. Cultural differences can create a divide between you and your suppliers. Constantly search for ways to bridge that culture gap. The first step in bridge building requires you and your suppliers to find something in common, such as a shared experience, interest, or goal.

Common Pitfalls and Misconceptions

A lose-lose outcome, win-lose outcome, or walking away from the table raises the question of why people aren’t more effective at bargaining if negotiation is indeed critical for business success. The reason isn’t due to a lack of motivation or intelligence on the negotiators’ part. Many managers fail because they fall victim to the major sins of negotiation: absence of feedback, satisficing, and self-reinforcement. The absence of feedback results in the problems listed in Figure 4:

Problem Definition

outcome

Confirmation bias is the tendency to see what you want to see when appraising your own performance.

Confirmation bias leads to selectively seeking information that confirms the belief of what is true.

This results in a myopic view of reality and hinders learning.

Egocentrism is the tendency to view experiences in a way that is flattering or fulfilling for yourself.

Egocentrism may increase self-esteem, but in the long run, it prevents learning from experience.

Satisficing is the opposite of optimizing. It is settling for something less than could have been achieved.

Satisficing can do a disservice because possible gains have been given away.

Self-reinforcement is the reluctance to try out something new or change certain behavior because of the risks associated with experimentation.

Fear of losing prevents them from negotiating effectively.

Figure 4. Most People Have Little Opportunity to Learn How to Negotiate Effectively. The problem is due to lack of timely and accurate feedback. Even those people who have daily experience in negotiation receive very little feedback on their negotiating effectiveness.

Summary

Negotiation strategies need to be developed by considering a whole host of factors that can have a powerful impact on business-winning success. It’s also wise to remember that our strategy has to be flexible and will need to be adjusted as the “game” plays out.

We can’t know everything before we go into our first meeting, so we need to prepare to adjust our strategy and tactics as the situation warps and changes shape. Flexibility is vital, but good preparation is essential.

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