The word negotiations often conjures up visions of opposing teams of professionals, countering tactic with tactic to reach an agreement acceptable to both sides. In reality, every businessperson uses effective negotiation skills on a daily basis. All need negotiations training.
For example, when I visited Rome many years ago, I found that the smallest of operations can practice good negotiating skills. I had just toured St. Peter's Basilica and, having been raised Roman Catholic, wanted to purchase a souvenir for my mother.
On the street, I met a vendor who held up a lovely cut-glass rosary. "How much?" I asked.
"It's my last one," he said. "When I sell this, I can go home. So - special for you - 12,000 lira." (About $20 at the time.) It was my third day in Rome and I had found that everything was negotiable to a much greater degree than Americans assume.
By then, I understood the "game." I fell back on my negotiations training. The first mention of any price in Rome, no matter how reasonable, is met with a flinch. So, I flinched. The vendor, having seen this many times before, responded with, "How much you want to pay?"
I started by low-balling my offer. "I'll give you 1,000 lira," I said. He looked at me, opened his eyes wide in apparent disbelief, rattled off a litany of facts detailing the quality of the rosary and said, "How 'bout 11,000?" I remembered my negotiations training. I had learned that to meet a street vendor half-way is to lose. I stuck to my position. "1,000 lira."
He then told me about the large family he had and how he wanted to buy his children new shoes. "I'll take 10,000," he countered. He was using his own negotiations training. My self-talk said, "You're on a roll!" I made my offer again, "1,000 lira."
He next bemoaned the price of food and the cost of feeding his family. "But, you look like a nice guy," he said sincerely, "I'll give you a deal - 8,000 lira."
This point-counterpoint lasted a good 10 minutes. Each time, the price was lowered. Finally, he said, feigned desperation on his face, "Okay, 2,000 lira and it's yours, and I'll even throw in this plastic rosary case."
"Fine," I said. "I'm a fair man." I gave him 2,000 lira and put the rosary in my pocket. About a block down the street, I encountered another street vendor selling rosaries which were identical to the one I had just purchased.
To verify my negotiating prowess, I asked, "How much?" "2,000 lira," he said. My self-image shattered, I turned to walk away. As I did, he grabbed my arm and whispered softly, "But for you, 1,750."
This true story illustrates seven points that are as appropriate to the businessperson as they are to the professional negotiator. Whether it's pricing a project or determining a package deal, these principles apply to your negotiations.
1 - State an opening position that is perceived to be reasonable and that will achieve the greatest advantage for you. The perception of being reasonable is key. Our realities are not based upon how things really are, but on how we believe them to be. Begin with the initial negotiations training to objectively determine if your position is fair when compared to previous negotiating opportunities.
If you were the other party, would you feel that you had a
basis for continuing the negotiations?
The first rosary vendor took a calculated risk. Because I had just come from St. Peter's, he viewed me as a prospective rosary buyer. Running through the situation in his mind, he reasoned that I may already have bought one.
If I had, he would move on. If I hadn't, I might not know
the normal asking price of the merchandise. He decided to start much higher
than he realistically should have. Because I
was not familiar with the price, I truly felt the merchandise was worth 12,000 lira.
I took the opportunity seriously. Had I known that others were selling the same merchandise for a much lower price, the opening position would have been considered unreasonable. I would have refused to bargain and walked away.
This tactic may be all right for a Roman street vendor, but it will, in most cases, meet with failure for the businessperson. Prospective clients today are shoppers. They talk with several suppliers before arriving at a buying decision. Opening positions which are unreasonable are quickly found out and disregarded, along with the organizations that made them. Dont waste your negotiations training by assuming a ridiculous opening position.
2 - Expect a counteroffer that will detail the other side's most favorable position.
Your perception of that offer will help you determine whether or not the other side is approaching the negotiations in good faith. If you feel that too big a gap exists between the two positions, it could be worthwhile to walk away and determine the advisability of continuing.
Had the rosary vendor's opening position not been so
inflated, he might have viewed my counteroffer as being way too low. He
expressed his surprise, then waited for a response.
When I didn't budge, he knew that the final sale price would be closer to my number than to his. However, that was okay with him, so he continued.
3 - Develop a firm picture of the type and value of concessions you are considering.
When he met me, the Roman street vendor knew how low he was willing to price the merchandise. That's why my intransigence didn't dampen his enthusiasm for the potential deal. As long as his asking price remained higher than the lowest price he was willing to accept, he continued to negotiate. He had a number in his head that satisfied him. Any amount in excess of that number was an additional benefit to him, a sort of windfall profit.
By clearly defining your anticipated concessions before beginning the negotiations, you keep yourself on-track with what is happening and with how much further you are willing to go to reach an acceptable compromise position.
4 - Pace concessions and make them only after an explanation is given for each one.
Even though you have allowed yourself room to make them, you will want to explain why a particular concession is being made. The reason could be as simple as, "I really want your business and I'm willing to go further than I normally would if you can assure me that you'll give me a chance to bid on future projects."
This type of statement implies that you are also getting something of value from the concession - the potential for future business. The rosary vendor explained his price reductions, hoping that I would make my own concessions. But because his initial position was so high, he didn't ask me to raise my offer each time. This is not the best tactic as the next principle indicates.
5 - Make a concession only if a concession is given in return by the other side.
This give-and-take adds value to each move because, in effect, each concession is being paid for. As both sides move closer to a mutually agreed-upon position, each feels that specific conceded items have intrinsic value because of what was given in return.
This brings to light a basic caveat: If an opening position is set too high and concessions are made without receiving something from the other party, the value of the concessions is lessened.
After the first few unanswered concessions from the vendor, I expected the concessions to continue. I wasn't certain how low the final price would be, but I felt he would continue to lower his price because it was relatively easy to get the price reductions and he asked for nothing in return.
However, in his mind, I had made a concession - I stayed to bargain further. By not walking away, I was giving him something in return for his price adjustments. The vendor felt that if he kept me interested long enough, I would buy.
6 - A small, unexpected concession will often prompt the other party to act.
Frequently, the bargaining on a particular point becomes routine and static. Both parties develop mindsets regarding the validity and scope of the final position.
When one party introduces an unexpected, unrequested concession, the other may see this as a bonus and be willing to make more of a concession than has initially been anticipated or thought possible. In my situation, the street vendor offered to include a small plastic case. Its value was little, but its impact caused me to finally increase my offer.
A businessperson must also adhere to a final principle that was unimportant to the street vendor.
7 - If it can be shown that a significantly better deal is
available elsewhere, the
value of the final agreement is diminished. The lifeline of any business is repeat and referral customers. All negotiations must be approached as win/win situations. If the other party loses the battle, you could lose the war.
Once again, it is the perception that takes forefront. If the other party's initial "win" begins to look like a "loss," it is the loss that will be retold to others who may have been your prospects.
The Roman street vendor exited my life as soon as the rosary went into my pocket. He wasn't concerned about how I would feel later. Your reputation, though, depends on others perceiving they have been part of a fair and equitable agreement.
If so, they will return to you and tell others of your flexibility and willingness to meet their needs. If not, word will quickly spread that you deal only when you can outdo the other party, a negative categorization that will affect your business.
As with any skill, negotiations training must be practiced and refined. Remember the lessons I learned on a street corner in Rome, then use the strategies discussed in the next chapter to make you even more professional in your negotiations.