Golden Rule No. 3: Only Grant a Concession if You Get Something in Return
This is without doubt the most important rule of all—and the rule that is most often ignored. It relies on five essential foundations:
- It is one of the basic rules of commerce. Commerce presupposes exchanges or swaps, and in the business world it is generally accepted that the granting of a benefit and getting something in return go hand in hand, in whatever form that takes. For a “trader” or a businessperson, a concession given unilaterally is at best deemed to be mismanagement, or at worst a sign of weakness. Above all, getting something in return is a means of ensuring that you are respected.
- It is a means of protecting the viability of the business relationship. Certain concessions granted during negotiations can cost dearly. One of the ways of ensuring that you do not “lose the shirt off your back” is to get something in return to offset any concessions made.
- It is the only means of obtaining certain benefits. As we have seen, paradoxically, negotiators who issue a direct request for concessions place themselves in a weak position: The other party may respond in the negative. Such a rejection involves two setbacks for the party making the request:
° An economic setback, because the concession hoped for has not been obtained
° A psychological setback, which may be felt as humiliation in the most extreme cases
Consequently, when the other party exercises her “power to say no” to a request for a concession, the party making the request is prepared to make certain sacrifices in order to avoid those two setbacks. It is at this point—and at this point alone—that you can obtain benefits that you would have been refused at any other time.
- It is a way of limiting the other party’s “appetite.” Once she has obtained one concession, a seasoned negotiator will try to obtain another. An advantage obtained “pain-free” (e.g., for a buyer, a 5% discount granted without any compensatory measure) is seen as an incitement to ask for more. Why stop when you are on a roll?
Faced with an adversary who does not use his “power to say no,” such a negotiator feels invincible. In contrast, when faced with an opposing party who fights tooth and nail and only gives concessions in exchange for compensation, she has to adapt to a relationship of equals.
Under these conditions, in order to achieve a favorable agreement, she knows that it is in her interest to make precise and limited demands.
- It is a way of changing the nature of the negotiations. There are essentially two conceptions of the negotiating process:
a. The distributive conception: According to this approach, there is a “cake to be shared” and it is in each negotiator’s interest to get the largest slice. Consequently the logic of the balance of forces is crucial and the battle takes place based on the position that each party is in.
b. The integrative conception: This consists of the view that each party has legitimate expectations and that it is a question of finding a solution allowing these to be met in an acceptable manner. Thus it is a cooperative approach that prevails and the negotiations take place not around “positions,” but around a quest for solutions to meet each party’s “real needs.” Therefore, from this viewpoint, creativity is an essential quality in a negotiator.
The quest for compensation allows you to move from a purely distributive approach to integrative negotiations. Thus this is a way of reducing the pressure and seeking a “win-win” outcome, as opposed to there being a winner and a loser.
The sales manager of a specialist industrial tooling manufacturer was negotiating a 3.5% price increase with his main German customer. The German buyer was rejecting any price increase: “My German suppliers are not raising their prices this year,” he said.
The French seller was convinced that the increase was justified: “Over the past year, our production costs have risen by 3.5% across the board. The increase that I am proposing is quite reasonable.”
The situation had reached a stalemate, as the buyer refused any compromise. The French seller was losing her patience. She had promised her line management that it would be “no problem” to convince them to accept the price increase.
Suddenly the German buyer lowered his voice: “Right, we need to find a solution. As you know, I want us to continue to work together as partners.”
Aware of her counterpart’s formidable negotiating skills, the seller remained on the defensive.
“Ultimately,” the buyer continued, “what you want is to maintain a good level of profitability on your sales.”
The seller agreed with this statement.
“For my part,” the buyer continued, “of course, I want to pay the lowest possible price for my tooling.”
He stopped for a moment and then added, “But what is even more important to me is to pay a bit less for my tooling than my competitors do.”
Once again, the seller could only acknowledge this.
The buyer then reminded her of the support that she had been shown in the past: “You must remember how, a year ago, I recommended you to my friend Mr. Kaufmann, my colleague in Munich.”
The seller assents, “That’s true, and I am grateful to you for that, because Mr. Kaufmann is now a good customer and…”
The buyer immediately interrupts her: “If you can show me evidence that Mr. Kaufmann has accepted a 4% increase from 1 January, I’ll be glad to agree to 3.5%.”
It matters little how those negotiations ended. The buyer changed the nature of the game; he proposed a solution through which the two opposing parties could both achieve their respective objectives—a price increase for one and a competitive advantage for the other.
So in order to be a successful negotiator, you need to identify the shared interests of the two parties (an essential basis for cooperation) but also, and above all, their diverging priorities (very useful for building a win-win agreement by exchanging reciprocal concessions).
How to Get Something in Return: A Four-Phase Methodology
Phase 1: Arguments
As we have seen with Golden Rule No. 2, it is essential that you defend your initial offer before you envisage changing it. The longer and more detailed this first phase is, the more favorable the final outcome will be for you.
Phase 2: Preliminary Question
Buyer: I’m not going to buy without a 10% discount.
Seller: For your part, would you be prepared to make our maintenance engineers’ work a little easier?
Thus we can define a “preliminary question” as a closed question that
- is phrased positively (do not say, “Couldn’t you…?”),
- apparently involves a minimal commitment by your counterpart, thanks to its fairly vague formulation,
- displays a sincere desire to reach a deal.
This is a powerful tool: When your counterpart is “afraid of failure” after making a request for a concession, his tendency will be to answer in the affirmative. He is thereby taking a major step toward acceptance of the counteroffer. If your customer answers no, you can
- stand your ground but show that an open attitude from your counterpart in this area of the negotiations could allow him to achieve a better agreement overall,
- pose another preliminary question in order to find out whether your counterpart is prepared to reconsider the payment terms, operating schedule, or other factors.
If your counterpart gives a response other than no, you can then move on to the third phase.
Phase 3: Opening
Seller: If you were to agree to assign two engineers to work full time during commissioning of the equipment, no doubt we could make an extra effort. Can you envisage that?
An opening is a precise condition that
- starts by specifying very precisely the compensatory measure requested,
- states the principle of a potential concession on your part, without revealing the details,
- asks your counterpart to express an opinion.
The objective of an opening is to oblige your counterpart to proceed by exchanging concessions and to avoid revealing too early the precise concessions that you are prepared to make. Of course, you cannot ask the other party to give a definitive commitment on a concession the compensation for which you have not yet revealed, but you must get her to agree that she can envisage this possibility. In a way, your counterpart is showing you that this card is part of the hand she is playing. You can then play your own card.
Phase 4: Counteroffer
Seller: If, as we have just envisaged, you agree to assign two engineers to work full time on the commissioning of the equipment, we could offer you the benefits of using an additional XL200 machine free of charge. That equipment is normally sold at a price of $2700 and will allow you to make extra energy savings. Shall we proceed on that basis?
The counteroffer starts by stating the compensation requested, presenting the compensation as specific and immediate, then states the concession offered, highlights the value and significance of this concession to the other party, and ends by asking for your counterpart’s agreement.