Win-Win Outcomes: Myths and Realities
Now with all our emphasis so far on finding the other party’s Least Acceptable Settlement (LAS) and using techniques to manage their perception of your LAS, you might be wondering whatever happened to win-win? Don’t we need to have a win-win outcome in order to have a good long-term relationship? Absolutely. Having a win-win outcome is critical. The problem is that there are many myths and misconceptions about the concept of win-win.
There are two pieces to the win-win puzzle. The first is what we call the automatic side to win-win. Let’s go back to our software case. As you negotiate the price of the licenses for this software, the process will feel to you very much like a zero-sum game. A zero-sum game is a game like poker. If just the two of us are playing and I win $50, then you have lost $50. If we add up the total of our winnings and losses, it will always equal zero. That’s why poker is a zero-sum game.
If you are the buyer in this software case, every dollar you give to the salesperson is one more that she has and one less that you have. Similarly, if you are the salesperson here, every dollar you give to the buyer is one more that he has and one less that you have. That sure feels like a zero-sum game.
However, if we step back from the trees and look at the forest, a very different picture emerges. Look again at the Settlement Range Figure 1.1 on page 4. If you are the seller, your company has decided that you can go as low as $400 per license for this software. At $400 you’re still better off making the deal than you would be if you walked away. Below $400, you’re better off walking away because there’s not enough profit in the deal for you to go forward. Now if I come out of the negotiation better off than I was when I started it, then I would define that as a win. So even if I settle at my LAS, I still win.
The reasoning is the same for the buyer. Even if the buyer has to settle at their LAS of $450, they are still better off than they would have been walking away, so it is a win for them.
So how many places can we have a win-win outcome in this negotiation? Well, anywhere between $400 and $450. In other words, even if one of the two negotiators ends up settling at their LAS, it is still a win for both parties. Not only that, but we actually cannot have a deal that is not a win-win. Settling at $395 would not be a win for the salesperson, but we can’t have a settlement at $395 because the salesperson is not allowed to go that low. Similarly, we can’t have a settlement at $470 because the buyer doesn’t have that much money in his budget.
As a result, if we reach an agreement, it has to be a win-win by definition. People will only reach agreement if it makes them better off than they would’ve been had they walked away. Another way to say this is that $400 is the cake that the seller has to have and that $450 is the cake that the buyer has to have. The $50 between those two positions is the frosting in the negotiation. It’s that frosting that everybody is battling over. And it is negotiating skills that will determine who gets how much of the frosting. But no matter how hard we battle over the frosting, if we reach an agreement, each party will at least get the cake that they have to have and thus it will be a win-win.
That’s the automatic win-win in a negotiation. However, in order to have a really robust win-win, there’s a second piece that we have to focus on. That involves the psychology of the negotiation process and the feelings of the other party.
Let’s say that you are an industrial buyer at ABC manufacturing. Yesterday, the plant had a minor electrical accident which severely damaged five large pumps. You absolutely have to replace these pumps right away. You have called around and only one local distributor has them in stock. You ask the salesperson how much the pumps cost and he responds that they cost $1,026 each. Since you are stuck and have to replace them right away, you would pay the full $1,026 asking price for these pumps. However, you still want to negotiate.
We have these pumps in stock and I can get them right over to you, and as you know our price is $1,026 each. Shall I send them over?
No way, your price is way out of line. We need you to come down to $800 per pump.
Boy, that’s a pretty low price. But, you’re good customer, so I think we can do that. Cut me a purchase order for $800 and I’ll send them over.
What is your reaction as the buyer? Do you feel like you just won? Or instead do you start thinking to yourself things like:
• “Boy, has he been ripping me off on these pumps if he could really go to $800.”
• “Oh my goodness, why didn’t I say $700 in the first place? I probably still could have gotten him lower.”
Now from the sales side, we might wonder, why is the buyer upset? He just got the price that he asked for. But negotiation is about paradoxes. Giving the buyer what he asked for, in fact, made it appear that it wasn’t a win-win because first, he will now feel that the seller’s initial prices weren’t reasonable, and second, he fears that he still left money on the table. So, in the end, the customer does not feel like it is a win-win.
Everybody has strong feelings about the outcome of a negotiation. Everybody wants to feel like they won. But it’s not the actual numbers on the deal that count as much as the feeling that you didn’t leave any money on the table. No matter how good a deal is, I will feel bad if I felt I left a lot of money on the table. No matter how bad the deal is, I will still feel much better if I believe that, even though I didn’t get everything I wanted, I got everything that was possibly available.
Making sure that the other side has a win-win feeling about the outcome actually takes us back to that concept of managing the other party’s perception of our LAS. We want to keep on managing that perception even after the negotiation is over.
To illustrate, let’s imagine that instead of caving in right away, the salesperson finally got the buyer to agree to a price of $970 per pump. The salesperson wants to make sure that the buyer feels that it really was a win, so he says:
You know, I’ve got to tell you, now that we’re done and we can be a little more open, I really appreciate the fact that you came up that last $10 to $970, because if you’d hung out there at $960, my boss surely would have told me that we just couldn’t afford that business.
Translation? The buyer settled at the salesperson’s LAS. He just didn’t have any more to give. That means that the buyer came away with a great win. But the buyer is playing the same game and responds:
Well, now that we’re being a little more forthright here, I just have to tell you how glad I am that your boss did let you come down that last $10, because if you’d held out at $980, I’m afraid I would have had to look much more seriously at your competition. I’m not sure we could have done this deal.
Translation? The customer had also reached his LAS. Well, would you look at that, our LAS’s were right exactly, precisely in the same place. How fortunate. Did the salesperson have more room to give price reductions? Probably. Could the buyer have paid more? Absolutely. Since he had to have the pumps right away, he would’ve been willing to pay the full list price of $1,026.
But both parties are working after the negotiation is done, trying to make sure that the other side believes that they got the best possible deal available and therefore it was a great win for them.
Another key component of the feeling side of win-win has to do with building relationships and making people glad that they did business with you. Imagine a situation where you’ve reached agreement, you’ve shaken hands on that deal, it’s a good deal for you, it’s a good deal for the other party, and yet you wished you never had to see that person again as long as you lived. Does that take away from the feeling of win-win? Of course it does. So make sure you never stop building those relationships.
And finally, have you ever shaken hands on that deal and quick counted all your fingers to make sure that they were still there? The third component of the feeling side of win-win has to do with the way you do business, your ethics, your credibility, and how trustworthy you are.
And so you can fight like cats and dogs over the issues in a negotiation, because if the other party agrees to make a deal, you know that it is a win-win. What you need to focus on is the feelings. Make sure that they feel like they got the best deal possible, that they like you and like doing business with you, and that you are an ethical, trustworthy person to do business with.
If you focus on the feeling side of win-win, the automatic side of win-win will take care of itself and you can come out with both a good deal and a happy negotiating partner who feels like they were involved in a real win-win negotiation.