Linkage and Separation
When there are several issues at stake in a negotiation, which is normally the case, it is important to determine in advance how we will treat the interaction of those issues. Many people automatically use the separation approach. They deal with issues one at a time, resolving those they can and putting off those they can’t until later.
The danger of a strict separation approach is that agreements reached in the early phases of the negotiation may impact the other issues not yet discussed. As a result, it may be difficult to reach agreement on those later issues without going back and reopening some of the earlier agreements. But attempts to reopen “settled” issues may in turn lead to accusations of bad faith.
The opposite approach is total linkage, which treats every issue as dependent on every other issue. Nothing is agreed to until an agreement is reached on everything. This tends to be the approach that the Japanese use. However, linking everything together Japanese style may make the negotiation extremely long and cumbersome.
Between these two extremes it is possible to link some issues and separate others depending upon your strategic goals and the issues involved. As a general rule I tend to link financial issues as one set of things to be discussed more or less at the same time. I tend to do that even if the financial issues are somewhat disparate.
For example, in our Lakeside/Ceramic Design technology marketing example, although the royalty rate is of a somewhat different nature than an upfront payment or a guaranteed annual payment, they are linkable. The first is dependent on the success of the marketing effort while the other two are fixed sums of money that will be paid to the licensor. Both parties are balancing risk and thinking about how money now relates to the potential of money later. For example, the licensor might be willing to accept a smaller upfront payment, in return for a higher royalty rate.
The key is to manage the linkage and separation process so that it works to your best advantage.
Some years ago, I was giving my two-day training program for a company that sold various types of scientific equipment. When we got to discussing asymmetrical trades, I heard a woman gasp in recognition. She went on to tell us this story.
She was calling on a university that had received several grants and wished to purchase seven of her more expensive instruments. These instruments cost between $50,000 and $60,000 each, and she generally sold them one at a time. The fact that she had an opportunity to sell seven of them at once was, needless to say, very exciting. At the time, she was just a junior salesperson. The only hitch was that she did have one very strong competitor. She was talking to the buyer and he said to her:
You know, your equipment is bigger than the equipment that it will replace. Are you prepared to deal with that when you install?
Oh no problem, our movers can handle that.
Good, because the lab managers have given us a diagram as to how they would like their entire labs rearranged. And since your movers are going to be there anyway, they could do that at the same time, right?
Oh my goodness, this is going to be on a weekend, which means overtime, but this is a big deal, so I guess we can do that.
Good. And, by the way, we have this other problem. You know, you’ve seen the grants, we’re going to get the money, but the government pays kind of slowly.
OK, OK, we can work something out with the credit people.
Good and I have this other problem…
And so on. And she told us that she was getting really excited, because the things she was offering to do for him were obviously of high value to him and didn’t cost her much, and she figured it was a done deal. Then he dropped the bomb:
You know, I am very impressed how a huge company like you can be so flexible with our little outfit. And so now, if you could just negotiate a super low price, maybe we can do some business.
But, I thought we were negotiating.
Oh no, you’ve been giving. Now let’s negotiate.
What was the customer up to? What he was doing was taking, and giving nothing in return. And when he had captured all her asymmetrical trades, he wanted a low price too. The customer was effectively pursuing a separation strategy. He was separating the asymmetrical trades from the price negotiation. Since she had given all her trades away at the start, she didn’t have much left to use as leverage to negotiate price.
Asymmetrical trades add value for the customer and therefore have the potential of moving their Least Acceptable Settlement (LAS) in your direction. But don’t just automatically dump them on the table. You might want to hold some of them back, or maybe even hold all of them back and use them either to obtain other things of value to you or to trade them for monetary issues. In other words, you can counter the separation strategy with a linkage strategy.
The buyer of scientific equipment was able to capture all of the seller’s asymmetrical trades, such as having her movers rearrange the labs and getting special payment terms, by separating them from the price negotiation. This was clearly a deliberate plan on his part to try to get all the goodies he could get without having to pay for them. She might have countered by using a linkage strategy:
Will your movers rearrange the labs?
Well, that’s expensive. I’ll have to see how the whole deal works out.
Well, will they do it or not?
It depends. Let’s work on the other issues.
I need to know, is it possible or not?
I said maybe, and that’s final.
OK, maybe that’s a bit extreme, but you get the point. She could have linked things together, particularly linking his getting those asymmetrical trades and the price that he was going to pay.
The exact linkage or separation strategy that you use for any individual negotiation will depend on the specific issues involved and the circumstances surrounding that negotiation. The key, however, is to consciously select which issues should be linked, which issues should be separated, and in what order they should be addressed.
Playing from the Weak Position
Every once in a while life will deal you a rotten hand of cards. Imagine that you are a salesperson in the buyer’s office, ready to begin negotiating a renewal of your annual contract. Last year, you were able to negotiate somewhat better prices than your competition was offering because of your high service levels, responsiveness, and other added values.
Unfortunately, during the last year, there were a couple of shipments where every item ordered came in one size too small due to a major foul-up in your computer systems. And last month the move to your new warehouse totally disrupted deliveries and almost everything was late. And there were three major billing errors that took you weeks to clear up with your own accounts receivable people. Yes, we’ve all been there, and it’s not fun.
Now one way to approach this would be simply to say, “Everything’s fine. Nothing bad has happened in the last month, so let’s move forward,” and try to just brush it off. And sometimes you can get away with that. However, denial, defensiveness, and the like will sometimes simply pour fuel onto the other person’s anger and will end up being counterproductive.
If you fear that might happen, you can consider playing from the weak position. This depends very much on the circumstances and especially with whom you are negotiating. Some research has shown that the strong, confident, and secure negotiator, faced with a person in a very weak position, will tend to be magnanimous and generous if approached in the right way. On the other hand, the same research indicated that the less confident, more insecure negotiator, when faced with a person with a weak position, will tend to exploit that position as much as possible.
If you do decide to play from the weak position, it has the advantage of cooling emotions. It’s very difficult for someone to yell at you as you are apologizing, acknowledging fault, and at the same time showing them, in some detail, how you fixed it, and why it won’t happen again.
I want to apologize to you for myself and on behalf of my company for the string of problems that we’ve had lately. These were each unique one-time events, but I understand fully that from your perspective that doesn’t matter since everything seemed to go sour at once.
We totally underestimated the potential disruption of moving to our new warehouse. Clearly it was our fault, but fortunately things are back under control and all of our deliveries are now on time.
I spent two hours with our billing people last week focusing entirely on rectifying the billing problems that we’ve had with you. I think that it’s now completely under control, but I will personally monitor it to make sure that there are no more problems.
Caucuses
There are times when you will want to take a break in the middle of a negotiation. Maybe they have brought up some new information that you need to think about, maybe you need to do some calculations, maybe they have completely blown you out of the water and you need to start again. But you need a pause. One way is to simply say:
• “Would you mind if I took a moment to review all of this?”
If you are negotiating as part of a team, this can be especially important to do if you are starting to lose team discipline and the group is unraveling. In a lot of negotiating situations, say in a joint venture deal or an acquisition, calling a caucus or a private meeting is normal and everybody is comfortable with it. And if you are the buyer dealing with the salesperson, you will have no trouble calling for a caucus.
In a sales situation, sometimes people feel that asking for a formal caucus might break the flow or might raise questions that they don’t want to raise. So if you need to take a break, and feel uncomfortable asking for one directly, have a little strategy for it.
Would you mind if we took a quick coffee break?
I think it might be time for a bio break.
I’ll just need a couple of minutes to crunch some numbers here.
You’ve brought up some interesting points. Let me just make a quick call to our pricing people to see what their reaction is.
Have some plan for how you can briefly take a pause to catch your breath, or think about something, or calculate something, so that when you find the need to take a caucus, you are ready.
Of course, there are always unique situations. One sales manager told me a story about when he and one of his salespeople were visiting a very important client in an attempt to close a seven-figure deal. It quickly became apparent that the buying team did not have its act together. They were arguing, didn’t agree on the facts, and basically coming apart at the seams.
Now, normally, a little bit of that is good. You would be amazed at what you can learn as you watch people on the other side argue and disagree in front of you. However, the gut reaction of this senior sales manager was that the situation was getting out of hand and was actually going to undermine the possibility of closing this sale.
So he interrupted and said, “I wonder if it would be a good idea if we stepped outside for a few minutes and gave you folks a little time to discuss all of this among yourselves.”
The buyers looked at him with intense relief. They ushered him out into a waiting area and proceeded to discuss their issues for the next 45 minutes. When they were called back into the office, everybody was all smiles and they wrapped up the sale in the next half-hour.
So you have to use your instincts. There will be unusual situations where you have to give people the space that they need.
Building Momentum
As a negotiation moves closer to an agreement, there is a sense of movement and excitement that we are almost there. After all the hard work, you are close. From your point of view, this can be either good or bad depending on where you stand in the negotiation. Here are three different possible situations and how one might play it in each case.
Situation 1: Most of the major issues have been resolved and there’s just one problem that needs to be solved to close the deal:
Let’s recap where we are. We’ve agreed on the royalty rate, the upfront payment, guaranteed payments, and geographic exclusivity. All that we have to do is work out some intellectual property rights, and I think that we’ll be there.
The message is that we have come a long way and there’s nothing major standing between us and an agreement, so let’s roll up our sleeves and make it happen.
Situation 2: In this case you aren’t that happy with the current deal and they are going to have to move a fair distance if you are to reach agreement.
We have really come a long way here and it would be a shame if it all fell apart over the issue of the upfront payment. We really want to do this deal, but we simply are not in the ballpark on that one issue.
Here you’re trying to use the momentum approach to get the other side to make major concessions. You are staking out a position that they really are about to lose the whole deal unless they make major concessions on the upfront payment.
Situation 3: The other side is using momentum building statements such as the ones we have previously laid out. However, you feel that you are not close to an agreement, that there are many issues that are either unresolved or not clearly delineated, and you want to resist their efforts at momentum building.
Without a doubt, we do want to do this deal. Unfortunately, I’m afraid that we are really not that close at this point. It’s not my intention to rain on any parades, but to be frank, we really have a long way to go and a lot of work to do.
The walkout tactic can be a very effective way of sending messages to the other party about the location of your LAS. In a lot of negotiations, a walkout is considered to be part of the ritual. In negotiations over real estate, acquisitions, labor agreements, and many others, both sides may expect a certain amount of walking out and coming back together again. This is also true in purchasing situations where the buyer will often tell the seller to politely “take a hike” only to come back and cheerfully continue the negotiations a week later if the seller has not caved in.
If you’re in sales however, the situation is a little different. Buyers generally believe that salespeople will not walk out on a deal that they could accept. Here a walkout will deliver a stronger message simply because when the seller walks out, they run a severe risk of losing the business.
There are two different sales situations where it is appropriate to walk out of the negotiation. The first is when you have come down to your LAS. The second is if you have determined where the buyer’s LAS is, either exactly, or in a very tight range.
Let’s say that you started at $120 and that your LAS is $100. And let’s say that the buyer started at $80. Unfortunately, in this case, you have had great difficulty in figuring out the buyer’s LAS and the buyer has been quite reluctant to make concessions. Nonetheless, you have gotten the buyer to come up to $90. You have been careful not to drop too fast but nonetheless you have come all the way down to $107. But the buyer just won’t move off of $90. What do you do?
At this point you probably need to give it one final shot by coming down to your LAS in one or two steps and if the buyer still won’t move, it’s time to walk out. That is what your LAS is for. It tells you where you do not want to sell.
But how you walkout is very important. Don’t get angry and don’t burn any bridges. Instead, be very friendly, very relaxed, and very understanding.
We really have reached our limit. I would love to sell it to you for $90 apiece but we just can’t afford to do that.
I certainly understand that you have to get the best possible price for your company, and I respect that.
Also, you want to make it very easy for the buyer to come back to you if in fact they are bluffing. If $90 is a bluff and the buyer’s LAS really is at $100 or higher, ultimately they will come back and buy from you. Just make sure that they don’t lose face by doing so. Make it easy for them.
I’ll give you a ring next week just to touch base. If anything comes up in the meantime, or you need anything else from me, please don’t hesitate to call.
When you call the buyer up the next week and if he is still in the market for your product or service, that in itself could be a signal that he still could go up some more. If the buyer goes so far as to say:
Well, maybe we could consider $95 but that’s the absolute last stop, that would be an even more encouraging sign because maybe they could come all the way to $100 no matter what they say.
If the buyer does raise the offer to $95, reject it very gently. Remember, now that you have reached your LAS, your position hardens and your strength in the negotiation actually increases, because you can’t make any concessions. And when you are in a very strong position, you need to take a softer approach. So you may say something like:
I really wish we could, but we’ve just given you everything we have to give. I would love to go below $100 but it’s just not possible. If you can’t get up that high, well, we’ll understand.
If they really have an LAS of $100 or more, they will ultimately make the purchase. If they don’t, they won’t.
The second circumstance where walkout can work really well for you if you’re in the sales role is when you have a really solid idea as to the location of the buyer’s LAS. Maybe you got some information from some other people in their organization that leads you to conclude that they really would be willing to pay $110. If that were the case, even if the buyer was currently offering $105, you might still do a soft walk out after you have come down to $110 just as we described earlier.
Now, normally you don’t want to walk out if the buyer’s offer is above your LAS of $100 because that is high risk. The danger is that the buyer will go elsewhere before you have an opportunity to call them back next week. But, if you are really sure that the buyer will go to $110, then the risk is much lower. So, if you walk away at $110 when the buyer is at $105, the message that the buyer gets is that your LAS is above $105 because a salesperson would never walk out on a deal that they could accept.
Again, you would only do this if you had some really good information as to where the buyer’s LAS was. Otherwise, it is probably too much of a risk to take. And again, do a particularly soft walkout, since in all likelihood the buyer is going to have to come back to you.