Negotiating with confidence
Achieve the outcomes that you desire
Dr Nic Peeling
Objectives
- To be confident in setting yourself a challenging target for a negotiation and knowing how to get to a conclusion that is close to that target.
- To be able to use negotiations to make significantly more profit for your organisation by negotiating much more attractive deals.
- To use all the correct stages in a negotiation: preparing and researching properly; knowing how to approach different types of negotiation; developing a relationship that allows you to be the dominant player in the negotiation; using all the tactics available in bargaining and haggling to get a much better deal than your opponent; and finally closing and getting commitment for the deal.
Overview
Your work life will be full of things you want to achieve:
- agreeing a price and contract with a potential customer;
- agreeing a price and specification for a product or service your team needs;
- getting more office space for your team to expand into;
- getting approval for a new business venture;
- agreeing your team’s budget for next year.
The list is endless, and your success will be vital to how successful you are at work. Nothing you want is likely to be handed to you on a plate – you will have to negotiate to get as much as possible of what you want. It is hard to overstate how important it is that you negotiate so that you get what you want and without causing unnecessary upset to the person you are negotiating with. The objective of this module is to equip you to become a great negotiator.
You will learn:
- how to select the right negotiation strategy for different situations;
- what to do (and what not to do) in the distinct phases of a negotiation:
- preparing for the negotiation;
- ‘The Sharing’, where you build a relationship with your opponent;
- the haggling or bargaining phase;
- closing the deal and gaining commitment to the deal;
- reviewing and learning from the negotiation;
- how to get started on being a better negotiator.
Context
Almost every role you perform as part of your work will involve you in having to persuade others to give you things, or perform actions, that they would prefer not to. You will seldom have the power to make them do what you want them to do – in most cases you need to persuade them. The art of such persuasion is called negotiation.
Challenge
At the heart of any negotiation is conflict, because you are pitting yourself against someone who doesn’t want to do what you want them to. Most people find conflict difficult – but knowing the rules of the game will take away most of the fear.
Many people think good negotiators are born with the ability. Negotiating is a skill in which many people lack self-confidence. It is, however, a skill that is easy to learn and you will soon find that your negotiating outcomes improve dramatically. You may even end up enjoying the thrill of a good negotiation.
Select the right negotiating strategy
There is a whole range of negotiating strategies and it is obviously important to select an appropriate one for the situation you face. Here is a list of the main strategies to choose from:
- The auction: for example, if you have to choose between multiple suppliers of a product or service you might produce a specification and invite competing bids. You might then play off one supplier’s offer against another’s.
- The sticker price: if you have a strong position you can make it clear that you make an offer and it is not negotiable – you can take it or leave it.
- The sticker price plus or minus a little bit: for example, if you are dealing with a repeat customer, you may make it clear you have made a very good offer but there is a little leeway to adjust what is on offer, and some modest discounts might apply.
- Haggling: you don’t need a long-term relationship with your opponent, or if you have a much more powerful negotiating position than your opponent (e.g. you are dealing with a supplier who has to compete with other suppliers), you will try to get the possible deal, even if they suffer a bit.
- Bargaining: if you want a long-term relationship with your opponent, you will try to get the best possible deal, but you need to ensure that even when you get the best of the deal your opponent isn’t unhappy.
ASSESS YOURSELF
Were you aware of all the different strategies? Are there strategies you might have chosen differently in past negotiations? Will you consider the full range of strategies in future situations?
The first two strategies (auction and sticker price) do not involve a negotiations process, but all other strategies need all the different phases of the negotiations process. So, let’s start at the beginning, with preparation.
Preparation
POTENTIAL PITFALL
Probably the most common of all mistakes that negotiators make is skimping on proper preparation for the negotiation, or not realising that there are some issues in the preparation phase that must be addressed.
Success or failure in any venture is dependent on you being properly prepared. For example, a tennis match is heavily influenced by what has happened before either player steps onto the court. The same is most certainly true for a negotiator.
What is the best deal possible?
Would you go to buy a new car from a dealership not knowing what you would pay from an internet broker? You may find it considerably harder to answer this question than for a car purchase, but you must come up with an answer. Techniques that can be used include the following:
- If you are a selling a product or service, how would you assess how much you can charge relative to your competitors?
- If you were buying, what is the maximum you would pay?
- If you are involved in a dispute, what is the relevant case law?
- You hopefully have a good network of contacts within and outside your organisation. Are any of them worth asking?
- Ask your boss what they think. If your boss doesn’t know, keep them sighted on your research.
- The internet is your friend – there are few questions that really skilful use of a search engine cannot answer.
- Hopefully you are reading relevant trade journals.
- Often you can pay expert consultants to advise you – as a last resort this may be worth the cost.
Assess your leverage
Leverage is the word used to describe how much power you have in the negotiation process. This has very little to do with how much power your employer has. The main way of assessing your leverage is to consider the walk-away scenarios for both yourself and your opponent. What will you do if you cannot close the deal? What do you think your opponent will do if they cannot agree a deal? The person with the most attractive walk-away scenario has the most leverage.
TIP
If you think you have little leverage, the chances are you are being too pessimistic. If you think you have very good leverage, it is easy to lose the deal by not following the rules of the negotiating game properly – for example, many people will walk away from a deal rather than lose face.
What precisely is being negotiated?
The negotiator must take the time to fully understand what is being bought, sold, disputed, etc. This is especially true when an ‘outsider’ is doing the negotiations. For example, it is not uncommon to use someone who is selling something else to a common customer to also negotiate a sale of your offering.
POTENTIAL PITFALL
It is surprising how common it is for there to be a misunderstanding as to the precise specification of the subject of the negotiation, whether it be a product, service, dispute, etc.
TIP
Negotiations are a great opportunity to ‘up-sell’ – to offer additional features at extra cost. Before your next negotiation situation, prepare, and price, any obvious up-selling opportunities before the negotiation starts.
Involve all key stakeholders
At the very least, before you start the negotiation you need to talk to any person who can veto your deal. Nobody who thinks they should have a say likes to be presented with a deal that they have been unsighted on. Time and again in Business Express you will see that a cardinal rule is: no surprises.
POTENTIAL PITFALL
There are few worse situations than negotiating a deal which is then vetoed by your boss, the finance department, your business development department, your contracts department … the completion of this list is left as an exercise for the reader.
Identify your bottom line
The key technique to avoid the last potential pitfall is to agree with your organisation what is your bottom line, which you will not breach without explicit authority to do so. A related issue is described in the next section.
POTENTIAL PITFALL
Arguably, the worst mistake a negotiator can make is to negotiate a deal that subsequently loses their organisation a lot of money, or damages the organisation’s reputation. No negotiator wants to admit failure, but it is better to walk away than do a bad deal.
Identify your deal breakers
One of the main reasons for talking to your stakeholders is to identify your deal breakers, which you must never breach. As an example, government bodies will seldom agree to unlimited indemnities, so government negotiators will always have to agree limits on indemnities as part of any negotiation. Another example might be that your boss insists that you never agree a delivery time that you aren’t sure the organisation can safely meet.
TIP
This section finishes with a few useful practical tips:
- Before the negotiation starts, find out how much authority the organisation is giving you to negotiate the deal – it will seldom be absolute.
- Who is going to be in the negotiation team? An ideal team is often a lead negotiator, with a second to support them, who will take notes and make suggestions but will never make offers. Your second may be the person who will produce a legal contract, or will provide detailed notes to the contract writer.
- If you have the time, it is useful to research your opponent’s organisation – the old cliché ‘knowledge is power’ is very true and is another common theme that runs throughout Business Express.
We will now move on to face-to-face negotiations. However, before you start haggling or bargaining you need to build a relationship with your opponent and agree issues such as how the negotiations will proceed, how decisions will be recorded, who will prepare a contract or written agreement (if needed), and the like.
ASSESS YOURSELF
Think back to a few of your last negotiations: did you prepare properly for them? Were you aware of all the issues that needed to be part of your preparation? Can you see the value of good preparation? Will you prepare better in future negotiations?
The Sharing
Business Express modules are divided into 30-minute learning chunks, so there are obviously areas where learning material has to be abbreviated. This section on The Sharing has been reduced to headline issues to allow more time on other, more crucial, aspects that a good negotiator needs to know.
Before you start making offers and receiving counter-offers it is important to agree various issues, exchange relevant information, ask important questions, which will all serve to build a relationship with your opponent. The Sharing can last anywhere from minutes to days, depending on the importance of the deal being negotiated.
Some key issues to be raised in The Sharing include:
- What is being offered and what is wanted?
- How is the negotiation going to be organised? How often will you meet face to face, how much will be done by email, how will you record agreements, who will write out the details of the final agreement?
- What time pressures are there? For example, ‘Our price list changes on the first of April’ or ‘We need to arrange everything two weeks before the end of our financial year’ or ‘Our special offers change at the end of the month’. It is definitely worth agreeing the final date by which you both agree that the negotiations must be finished.
- Both reveal any deal breakers up front (remember the rule about no surprises).
- Ask your opponent what authority they have to conclude a deal.
- Offer up any issues you value that the other side could offer, such as payment terms, guarantees, acting as a customer reference, etc.
TIP
Try to reduce your opponent’s expectations of the deal they can achieve. Examples might be ‘The quality of product and after-sales service we offer will obviously mean we are not the cheapest option’ or ‘We have a limited budget and we are evaluating a number of ways to achieve the best value for money from our investment’.
Another key theme in Business Express is the need to listen at least as much as you talk. You cannot pick up information if you don’t listen. Ask lots of open questions (questions that cannot be answered by a simple yes or no) – for example, ‘Are there any things that you would want us to offer you in the negotiation?’
Don’t try to make friends with your opponent – you seldom get the best deals from your friends. You want a polite, positive business relationship, where you are the stronger partner.
POTENTIAL PITFALL
If you are a buyer, never reveal your budget up front because a skilled negotiator will make sure that is the least they get out of you.
ASSESS YOURSELF
Were you aware that a sharing phase is useful? Have you used The Sharing in past negotiations? Do you see the value in The Sharing? Will you use The Sharing in future?
Let the offers and counter-offers begin!
Haggling / Bargaining
To save the reader’s time we will deal with haggling and bargaining in a single section. The difference between haggling and bargaining can be best illustrated by what I call the myth of the ‘win–win’ negotiation. In a haggling situation you want to win big and if your opponent has to lose – then tough! In a bargaining situation you want to win as big as possible, but without making your opponent unhappy.
This leads on to the golden rule of negotiations: set yourself a challenging target. There is ample research that the more ambitious your target, the better the deal you will get. You need to be bold, brave and tough. Remember that if someone says about you ‘they are a really tough negotiator’, they will be complimenting, not criticising, you. The world admires tough negotiators.
POTENTIAL PITFALL
You may be thinking that a tough negotiator has to be aggressive. This is 100% wrong. You need to be tough but polite, courteous and, if possible, charming. It is much easier to give in to someone who asks for things nicely. This is equally true for haggling as it is for bargaining. There is never a need to be aggressive or impolite.
The importance of getting a good deal is often underestimated. If you are bargaining over price, every pound extra you win goes straight on the bottom line. Many organisations work on a profit margin of 10%, so an extra £1,000 is the equivalent of winning £10,000 of new business.
ASSESS YOURSELF
Do you think you have set yourself sufficiently ambitious targets in previous negotiations?
The opening offer
Should you make the opening offer? A lot of people agonise over this particular issue. In practice it makes little difference. If you make the opening offer correctly (see below), you have set the tone for the negotiation. If your opponent opens, they may make a mistake you can exploit.
TIP
If you do not know the value of the object being negotiated I would recommend trying to persuade your opponent to make the opening offer.
If you make the opening offer, what should it be?
TIP
When you are buying, I have recommended never disclosing your budget. However, when selling, the reverse is true. Try to find out during The Sharing what your opponent’s budget is. Make sure that your opening offer uses up their entire budget.
If you are selling, ask for the highest credible price; when buying, offer the lowest credible price. Don’t be afraid of pushing credibility to the absolute limit.
TIP
Before we start thinking about all the different bargaining tactics at your disposal, it is worth a practical tip for those who just don’t feel they can ever be good negotiators. Try treating the negotiation as a game, where you are pitting your wits against your opponent. Try not to think about how important the negotiation is or you will freeze. You can see this problem when people buy and sell houses – there is so much money involved they frequently panic and lose the deal for silly reasons. If you really cannot handle the pressure then bring in a professional negotiator, or a friend/colleague, to do it for you. Being blunt, if you cannot play the game you will pay a terrible price (literally and metaphorically).
Try practising in your home life. When buying something of value, ask, ‘What is your best price?’, then say, ‘We are not far apart, can you do a little better?’ This will work for almost anything with a non-trivial ticket price – at an antiques market/shop, or a jeweller, or when buying a kitchen or bathroom, a car, etc. Just try it and see what you can save by politely asking for a better deal.
Negotiating tactics
The basic offer
Starting at the very beginning, never offer something without getting anything in return. The basic form of an offer should be: ‘If you give me X, I would consider offering you Y.’ Obviously the skilled negotiator will offer something they value less than what they are getting in return.
In a later section we will discuss how to close a deal. It is important to prepare for closing a deal by making smaller and smaller concessions as the negotiation progresses.
Offer things your opponent values highly and that cost you little
A classic example of this tactic might be when you are buying from a small or relatively new supplier. They will almost certainly value customer references and you can offer such references – if they do a good job (and it virtually ensures they will do a good job).
Another example is that if your opponent has cash flow problems, you can offer some money up front, staged payments, and prompt settlement of the final bill.
Try to get things you value highly, but that cost your opponent little, as cheaply as possible.
TIP
Exploit time issues to your advantage. At the end of an organisation’s financial year they tend to be very busy, but at the start of the next year, work is often hard to find. Negotiating for work at the start of their financial year often puts you in a strong position. Some organisations have cycles when they get bonuses for business they have won – you can take advantage of these. If an organisation has a slack period, you can often get a good deal and force a quick closure of the deal on terms that are very advantageous to you.
Bluffing
Negotiations must be one of the only aspects of business life where lying is regarded by everyone as ‘part of the game’. Bluffs that cannot be detected are obviously the safest, but if you ever get caught out, just look totally unembarrassed and say something like, ‘I think I may have embellished the facts.’
Never lie about something that could get you sued. For example, never overstate the capabilities of a product or service, or lie about its performance in past situations.
POTENTIAL PITFALL
Never be so keen to do a deal that you get your organisation into a position where it loses money or reputation. A classic example of this would be to offer a delivery time your organisation cannot meet, or to offer a change to the standard specification without checking that this is both feasible and cost effective.
A useful bluffing tactic is the ‘third-party mandate’.
The third party mandate
It can be useful to call upon a, possibly mythical, third party as the reason why you cannot do something, or why you must do something else:
- My boss would never agree to …
- My boss will insist that you …
- I have been told we must get at least …
- Our legal department would never agree to …
- Etc.
The power of silence
A clever way to put your opponent under pressure is to let a silence build. It is amazing how often your opponent will end the silence with a concession.
POTENTIAL PITFALL
Overusing any tactic, such as the power of silence, will irritate your opponent.
Listen for cues
I cannot illustrate the importance of listening for cues from your opponent better than by quoting an example from the TV series The Apprentice. The teams were tasked to approach celebrities to get offers from them for a charity auction. One team had prepared a list of offers they wished to get from each of their celebrities. In one negotiation the celebrity said: ‘I want to be the celebrity that raises the most for the charity.’ Did the budding apprentice who led the negotiation deviate from his plan? No!
I will give just one further example of a cue. Your opponent says: ‘Our previous supplier let us down badly.’ This probably means that your opponent is more interested in the quality of your service than the lowest price.
Listening for cues does of course imply that you need to shut up long enough for your opponent to chat about their issues. It also means that after The Sharing you need to continue asking open questions.
ASSESS YOURSELF
Do you have a tendency to talk too much? Did you know about the power of silence? Are you good at asking open questions?
Don’t hurry, but maintain momentum
Experienced negotiators sometimes get frustrated because they know quite quickly how the deal will turn out. You just have to let the negotiation run its natural course – if you try to cut too quickly to the end point you will pay for it.
It is important to not let the pace of the negotiation drag. Always push for follow-up meetings and insist that your opponent responds to issues quickly.
TIP
Email is an excellent way to maintain momentum. It is also very good for maintaining a written record of issues that have already been agreed. It can also be used to continue making offers and counter-offers.
Don’t get angry and don’t be unreasonable
Anger and unreasonable behaviour are very likely to generate an emotional response from your opponent, and this is seldom productive.
POTENTIAL PITFALL
Don’t let this section’s advice encourage you to become an appeaser. If your opponent gets angry, makes accusations, is unreasonable, or issues frequent ultimatums, do not give in – you must unemotionally oppose such tactics.
Don’t do anything to make your opponent lose face – you want to get the better end of the deal, but you do not want to leave your opponent feeling unhappy.
Use rational arguments and facts to support your position
During haggling especially you do not have to be rational, but in both haggling and bargaining, rational arguments are often very powerful. As an example, if your opponent is putting you under pressure to shorten a delivery time, you can explain that this may lead to mistakes being made, or to increased expense, which ultimately your opponent must pay for.
During your preparation phase you need to have researched facts that you can use during the negotiation. For example, if you make it clear you know the features and prices of competitive products or services then your opponent will know they must make an attractive offer to you.
Use reciprocity when it favours your position
In many cases, if your opponent demands something, you can demand a reciprocal offer from them. As an example, if your opponent demands penalty clauses for late delivery, you can demand reciprocal clauses if your opponent’s organisation changes the specification of what is to be delivered. There are many areas where reciprocity isn’t reasonable, however, so use it when it favours you and reject it when it is not applicable and puts you at a disadvantage.
Offer your opponent alternatives
It is worth highlighting alternatives as a particularly useful form of open questions. They can help expose your opponent’s priorities and also make them face conflicting choices. An example would be:
‘Are you willing to change your current processes to use an off-the-shelf solution, or do you prefer to pay to have our product customised to suit your current way of working?’
Recovering from a mistake – the strategic apology
Everyone makes mistakes and so it is likely you will upset your opponent at some stage. A clear, unambiguous apology can quickly clear the air.
Good cop/bad cop
Everyone is familiar with the approach where two negotiators work together, with one playing it hard and the other being far friendlier. The main problem with this approach is that two negotiators are one too many. A better tactic is to make the bad cop an absent third party (see ‘the third-party mandate’).
Cross-sell as well as up-sell
In the section on preparation, I advised that you prepare up-selling opportunities. During the negotiation you may also get the opportunity to cross-sell other offerings from your organisation. The best way in such cases is to say: ‘Is it alright if I get one of our people to call you tomorrow?’ Don’t just provide contact details to your opponent.
If money is the main issue, bring in other issues such as reducing risks to your opponent’s organisation
Some examples might be:
- money-back offer if not satisfied
- break-points in contracts
- guarantees – possibly insurance backed
- offer of replacement rather than repair
- staged payments
- try before you buy
- warranties
- indemnities
- penalty clauses.
ASSESS YOURSELF
Have you learned a number of new tactics to use in negotiations? Will you use some of them in future?
Recognise your opponent’s tactics
There is a double benefit from knowing all the common negotiating tactics – not only can you use them, you can also spot when they are being used on you. Not reacting as your opponent expects can be both effective and great fun.
Handling deadlock
When a negotiation deadlocks it can be pretty scary. There are, however, many techniques to break the deadlock:
- Time out: agreeing to break off the negotiation to discuss the issues with your own organisation, and then reconvening with new suggestions after a rest, can be effective.
- A walk-out: this is a more extreme version of the time out where you put your opponent under pressure – best used when you have more leverage than your opponent. If you do not have a good walk-away scenario, this is pretty risky.
- Capitulation: if you really need the deal and giving in is better than losing it, don’t let pride make you lose the deal.
- Toss you for it: a spin of a coin has settled many a deadlock.
- One of us divides and the other chooses.
- Arbitration: bringing in an outsider can help to break the deadlock.
- Issuing an ultimatum: this is obviously risky – best if you have the greater leverage.
- Agree that one of you or your opponent will make a best and final offer.
- Meet you in the middle: this is not a tactic I would normally recommend, but it is useful in a deadlock situation.
- Throw out lots of options: it is a great time to think out of the box. To get your opponent to also think creatively, ask lots of open questions.
Closing the deal and gaining commitment
If you have been making smaller and smaller concessions throughout the negotiation, then closing the deal may be as simple as saying, ‘I have reached my limit, are you also ready to do the deal?’ A variant of the simple approach is to say, ‘If I make this last concession, will you do the deal?’
If you cannot close the deal, then you have a deadlock, so all the options to break the deadlock, outlined above, are available to you.
You can issue a threat, such as ‘Unless you can knock £10,000 off your price then I will try your competitor’, or ‘Surely you don’t want to lose the deal for £5,000?’
The classic closing techniques are to ration some commodity – usually time:
- My boss says I have till the end of the week to complete the deal.
- Our special offers change at the end of the month so this deal will probably not be available next week.
- I have put together an amazing team to do the work, but I cannot keep that team standing ready to go for more than another two days.
- Our financial year ends on April 1st, so I must do the deal by the end of this week.
- I am away for two weeks starting next week, so we need to complete the deal by then.
- The job offer is only open for two weeks, after which we will offer the job to our second-choice candidate.
If I had a pound for every closed deal that never got executed, I would be a rich man. You need a commitment to the deal, such as:
- getting your bosses to confirm the deal;
- a signature on a contract;
- money changes hands;
- a press release is issued;
- agreeing a kick-off meeting;
- setting a date for work to start.
Review your performance
You must assess yourself after each negotiation. What worked? What didn’t work? What could you have done better? How near did you get to your negotiating target?
Once the object of the deal is finished, review whether your organisation benefited from the deal you negotiated. What are the chances of follow-on relationships with your opponent’s organisation?
ASSESS YOURSELF
If you had a second in the negotiation, ask them for constructive criticism.
Success
How to get started on being a better negotiator
There are a number of ways to start your journey to becoming a great negotiator:
- Reading this document should be a good start.
- Use every opportunity to practise in your home life.
- Act as a second to a great negotiator.
- Try to start with negotiations on items of modest importance.
- For your first important negotiation, try to get an experienced negotiator to act as your second.
- Remember to review your performance after each negotiation in your professional and home lives.
You should see that you are setting yourself tougher targets and keep track of how much your deals improve with time.
Prepare a list of things you intend to do in your next negotiation that you haven’t done previously. Review the first negotiation after reading this document, and review whether your negotiation went better as a result.
Try selecting some of the tactics you haven’t used before and see if they work for you in your next negotiation.
ASSESS YOURSELF
During your next negotiation, can you spot the tactics your opponent is using on you?
Checklist
Select the right negotiating strategy
- Are you aware of all the different strategies? Click here to review.
- Are there strategies you might have chosen differently in past negotiations? Click here to review.
- Will you consider the full range of strategies in future situations? Click here to review.
Preparation
- Are you aware of all the issues that need to be part of your preparation for a negotiation? Click here to review.
- Can you see the value of good preparation? Click here to review.
- Will you prepare better in future negotiations? Click here to review.
The Sharing
- Do you see the value in The Sharing and do you understand how to apply the correct techniques? Click here to review.
- Do you feel prepared to use The Sharing in future? Click here to review.
Haggling/Bargaining
- Have you learned a number of new tactics to use in negotiations? Click here to review.
- Do you understand how to make an effective opening offer? Click here to review.
- Have you grasped how and when to use techniques such as bluffing, third-party mandate and strategic silences? Click here to review.
- Do you feel confident recovering from a mistake and about how to handle a deadlocked negotiation? Click here to review.
Closing the deal and gaining commitment
- Do you feel confident that you have mastered the techniques for closing the deal? Click here to review.