What Do You Do When Things Get Difficult?

Sometimes it is not easy to determine your negotiating objectives. How should you proceed?

When You Lack Information

It may be that you have to enter negotiations in an almost unknown market, with no real information about the price expectations of the other party or about other goods and services available in the market. If it has not yet been possible to conduct any market research, those initial negotiations constitute a means of finding out about the market. Thus you need to set a reasonable objective according to the limited information at your disposal. Yet how can you obtain such information?

Whether you are a supplier or a customer, you can, for example, use research to consult other potential customers and, among other questions, you can pose one concerning the price at which they buy products equivalent to the one that is of interest to you. You can also ask colleagues or other experts in the market.

But what if there is no precedent? Under these circumstances, it may be useful for the seller to allow the customer to “speak first,” provided that he does so well in advance of the negotiations, during an exploratory phase when there is a chance that the customer might respond honestly and not “play games” with the seller.

It is also possible to allow the customer to “speak first” by indicating that you are not prepared to open negotiations: “Let me know your probable budget. I’ll look into it and will tell you whether or not we can help.” If the customer is interested in your product, this tactic will dissuade her from quoting a ridiculous price so she does not risk losing the opportunity to make the purchase. Then, of course, whatever price the customer quotes, there is no rule against trying to initiate negotiations.

If you are the buyer, you need to assess your supplier’s “business model” to understand his cost structure. Identifying a supplier’s sources, calculating the breakdown of his fixed and variable costs, and determining a credible production cost range are tasks that are becoming ever more familiar to buyers.

When the Other Party’s Demands Change During Negotiations

• You are negotiating the sale of 10 units when the customer announces that she is actually prepared to buy 50.
• You are negotiating the sale of machine A when the customer suddenly switches his interest to machine B.
• You are negotiating a purchase: The supplier suddenly drops a demand that seemed almost nonnegotiable but makes a new, completely unexpected request.

Under all these circumstances, there is a clear risk that the negotiations will break down because you improvise a new strategy without really considering it in advance. You prepare for negotiations using basic data that primarily relate to your expectations of the other party. If those expectations change markedly, new negotiations are needed, and you need to be able to negotiate a preparatory period for these.

When You Do Not Have Clear Guidance From Above

It is quite easy to prepare for negotiations when you have been given clear instructions, including priorities, negotiating objectives, and limit points. However, executives and managers often give negotiators comparatively little information. In the case of sellers, they very rarely know their true bottom line since senior management will avoid revealing this for fear that sellers may too quickly agree to it with the customer.

Yet if you cannot set negotiating objectives, you cannot negotiate effectively. So there is a need for a minimum amount of dialog in order to analyze your counterpart’s situation, market conditions, and your business’s key aims to reach mutual agreement internally over the objectives to be pursued. At the very least, it is essential to clarify the nature of the figures quoted by senior management when it comes to price and terms and conditions: Do these constitute the outcome that is to be achieved, or are they limits that must not be exceeded under any circumstances?