CHAPTER 8

Closing Business Negotiations

In closing, timing is everything.

—Anonymous

Bringing business negotiations to a close requires special skills and techniques. As no two negotiations are alike, no single approach to closing is better than another. Negotiators must use their own judgment in selecting the most appropriate method to close the negotiations.

Methods of Closing Negotiations

A wide range of methods exists for closing the negotiations.¹ Choice of the appropriate method depends on the existing relationship between the parties, the objectives of the negotiation, the cultural environment, the negotiating styles of the participants, the state of the discussions, and whether the talks concern new business opportunities or the extension of existing contracts. The following are common methods of closing.

Alternative

Also known as the either-or technique, in this approach, one party makes a final offer consisting of a choice for the other side. For example, one party is willing to lower his or her commission rate if the other agrees to deliver the goods to the warehouse at its own cost.

Assumption

With this method, the negotiator assumes the other side is ready to agree and to proceed with detailed discussions of delivery dates, payment schedules, and so on. Sellers use this method frequently to rush buyers into agreement. It is a useful approach when the initiating party has more than one option to offer the other side.

Concession

This method is characterized by the negotiator keeping a few concessions in reserve until the end of the discussions to encourage the other party to come to an agreement. It is particularly effective in situations in which concessions are expected as a sign of goodwill before the agreement is finalized. These last-minute concessions should not be overly generous; they should, however, be significant enough to encourage the other party to finalize the discussions.

Incremental

Another approach is for the negotiator to propose agreement on a particular issue and then proceed to settle other issues until accord is reached on all pending matters. This method is used when the negotiation process follows an orderly sequence of settling one issue after another.

Linkage

This approach links a requested concession to another concession in return. Linkage is usually most effective when both sides have already agreed on the outstanding issues and need to settle remaining non-essential ones prior to reaching a consensus.

Prompting

Prompting is used to obtain immediate agreement by making a final offer with special benefits if the offer is accepted immediately. The purpose of prompting is to overcome all objections by offering special incentives such as free installation and maintenance, no price increase for next year’s deliveries, and free training, if the other party agrees to conclude the transaction on the spot.

Summarizing

This method requires one negotiator to summarize all of the issues being discussed, to emphasize the concessions made, and to highlight the benefits the other party gains by agreeing to the proposal. As the discussions near the deadline and consensus is reached on all outstanding issues, one party summarizes the points and asks the other party to approve them. The summaries should be short and should accurately reflect what has been discussed. This approach can be applied in any cultural environment or business situation.

Splitting the Difference

A useful closing method is splitting the difference, in which both parties are close to agreement and the remaining difference is minimal. At this point, it may be preferable to split the difference rather than continue endless discussion on minor issues that may be secondary to the overall negotiation objectives and possibly jeopardize the relationship.² Splitting the difference supposes that both sides started with realistic offers; otherwise, this method would give an unfair advantage to the party with an extremely low offer (from the buyer) or a very high offer (from the seller). This is a common method that can expedite closure, but negotiators must ensure that it does not result in an unbalanced agreement.

Trial

Trial is a method used to test how close the other side is to agreement. In a trial offer, one party makes a proposal, giving the other party an opportunity to express reservations. Objections to the trial offer indicate the areas requiring further discussion. By making a trial offer, the initiating party is not committing itself, and the other party is not obligated to accept. Generally, a trial offer results in a constructive discussion on remaining issues while maintaining a fruitful dialogue between the parties until a consensus is reached.³ This technique is useful to determine what remaining matters need to be clarified.

Ultimatum/or Else

Another method is to force the other party to make a decision on the last offer. If the other party fails to respond or accept the offer, the initiating party walks away from the negotiation. The or else method, also known as an ultimatum, is generally not recommended for negotiations in which trust and goodwill are required to execute the agreement.

Choosing a Closing Method

The closing method should be selected during the pre-negotiation phase. Once chosen, it must be carefully understood to ensure its mastery. The method selected should fit the environment in which the discussions take place and should match the overall objectives of the negotiations. With experience, negotiators can shift from one method to another or combine one or more as part of their negotiation strategy.⁴

Overall, experienced negotiators prefer either the concession, the summarizing, or splitting the difference method, although the other methods (assumption, prompting, linkage, and trial closings) are effective in certain types of negotiations and cultures.

Time to Close

As nearly every negotiation is different, the time to bring the discussion to a close varies greatly from one situation to another. Timing is also influenced by the cultural background of the negotiators, the complexity of the deal, the existing relationships, and the degree of trust between the parties. For example, when two companies have been doing business for years and are discussing repeat orders, they are likely to arrive at a settlement rather rapidly. Discussions concerning the setting up of a joint venture, however, may take months or years to finalize.

When making a final offer, a negotiator must ensure that the other party has the authority to decide; otherwise, the party may need additional time to discuss the offer within his or her organization. In some countries, where decisions are made by consensus, closing is time consuming, as negotiators are required to consult other members of the organization for approval. These additional discussions can result in delays as well as further demands for last-minute concessions. To counter such demands, the initiating party must clearly state when making the final offer that any further changes requested will call for a review of all issues on which agreement has been reached.⁵

Clues

A few clues can help experienced negotiators detect when it is time to close the talks. The most obvious one is when the concessions by one party become less important and less frequent, and are given more reluctantly. Generally, this is a sign that no further compromises are possible. Any demand for concessions beyond that point may lead to a breakdown of the negotiations.

In nearly all negotiations, a time comes when both parties have met most of their objectives and are ready to concede on some lesser issues to reach agreement. Up to this point, both sides exchange views to determine their respective needs, validate their assumptions, and estimate the negotiating range and type of concessions required. Most concessions are traded toward the end of the discussions, particularly as the deadline approaches. As much as 80 percent of all concessions are exchanged in the closing phase of the talks. By this stage, the parties have become familiar with each other’s interests, tend to take a creative problem-solving attitude, and usually consider making concessions to reach agreement.

Another clue that it is time to close the discussions is when one party decides he or she has reached a maximum outcome and makes a final offer. This final offer must be made with conviction and must be followed by a request for a firm commitment from the other party. It is sometimes difficult to determine whether the party making the final offer is trustworthy or is simply employing a closing tactic to arrive at a settlement in his or her favor.

Again, a great deal depends on the relationship and trust between the two parties, as well as the cultural environment in which the negotiation is taking place. In some countries, a final offer is considered final, while in others, it conveys a willingness to reach agreement. When making a final offer, the party initiating the proposal must be willing to terminate negotiations if the other side refuses to accept. To avoid breaking the negotiation process, however, the party making the final offer can introduce a deadline for the other side to consider the final offer. This gives the receiving side more time to reexamine the proposal and/or to obtain additional facts to make the continuation of the negotiation possible.

In some countries, such as France, negotiators begin the discussions with general principles followed by more specific issues.⁶ The party shifting to specific issues is usually expressing its interest in bringing the discussions to a close. In the United States, however, negotiators begin to compromise on specific issues one by one until all outstanding matters have been agreed to. These different approaches illustrate the influence cultural background has on business negotiations and the need for executives to be flexible in concluding international negotiations.

It is widely accepted that negotiators, before agreeing to a final offer, ask for last-minute concessions. Such requests are expected and are part of the negotiating process. To be prepared to respond to last-minute requests, negotiators should keep a few concessions in reserve to maintain the momentum and to encourage the other party to close. These concessions should be valued and appreciated by the requesting party, yet not be too costly to provide. For this reason, negotiators should identify the real needs of the other party and the likely concessions they must make before closing, and build them into the overall package.

Deadline

The most obvious sign that it is time to close discussions is when the deadline approaches. Both parties should agree to the deadline in advance: when setting the agenda or at the initial stage of the negotiation. A deadline arbitrarily set by one party in the course of the talks can lead to undue pressure on the other side to close.

Deadlines should, however, be flexible. They can be renegotiated to allow the discussions to proceed until agreement is reached. In particular, when negotiators enter into complex talks in different cultural environments, they should allow for the possibility of extra time when planning the agenda.

To ensure smooth implementation of the agreement, negotiators should ask themselves the following questions before concluding the discussions (Box 8.1).

Final Points

When a deal is about to be concluded, negotiators need to ask themselves certain questions in order to avoid unpleasant experiences in the implementation phase. In most cases, agreements that run into problems do not suddenly become difficult to implement. Instead, it is generally minor issues that are unattended or left to degenerate over time that lead to major crises.⁷ Negotiators reaching satisfying and sustainable agreements spend as much as 80 percent of the time determining the needs of the other party and jointly creating problem-solving solutions as per Figure 8.1.

Figure 8.1 Time allocation to closing

In fact, experienced negotiators consider closing an ongoing process, starting from the time they are interacting with the other party and continuing until agreement is reached as well as during implementation. Closing is not the end of the negotiation but the beginning of a business relationship.

Each party should monitor the execution of the contract through the agreed procedures by periodic visits and ongoing communications. By maintaining regular contact, keeping accurate records of all transactions, and paying attention to minor details, the parties can help ensure a smooth business relationship. Box 8.2 lists some dos and don’ts and points to remember about closing.

Summary

Many negotiators do not know how to bring business talks to a successful close. They should be thoroughly prepared, including knowing when and how to apply appropriate methods and how to respond to the other party’s use of closing tactics. By mastering closing techniques, negotiators can achieve agreements that both parties can implement smoothly throughout the life of the agreed-upon transaction. When closing a deal, negotiators should remember that negotiations based on trust and fair play may lead to repeat business and referrals. As it is expensive and time consuming to find new business partners, negotiators should retain existing ones by agreeing to terms and conditions with which both sides feel comfortable.