How We Negotiate, Part I

Negotiating is a lot like sex. Negotiations involve (at least) two people. The stated goal is for both parties to walk away happy...though it's not uncommon for only one to truly be satisfied. And while negotiating is something we all do at some point in our lives, few of us were ever properly trained. We may have one or two good moves, but that’s about it. We probably aren't as good at it as we think we are. Most importantly, if you ever find yourself about to negotiate with a real pro, it's time to walk away.

Part of my job as a procurement professional is to negotiate. The longer I work in the field, the more often I run into the skilled and seasoned few, and I realize I am no expert. But in this post, I will share some of the lessons I've learned. They may be of some use if you are negotiating a large dollar purchase, such as a car or ongoing services with a supplier; and the concepts can also apply to smaller negotiations as well, such as a phone bill or craigslist purchase.

Have a Plan

You'd be surprised how often people, even professional negotiators, will enter into a high dollar negotiation without any negotiation plan whatsoever. They wing it. As a result, having any plan whatsoever can give you a significant advantage. Before you have your first conversation, you should spend time (days or weeks, not hours) in the planning phase. As with most things in life, preparation is more important than perspiration. You are better off spending a day gathering information and developing a strategy than spending that day pounding a table and raising your voice, trying to bully the other party into accepting your offer. I include the items below in my negotiation plans.

Research

Gaining information about the subject of the negotiation (e.g. - a particular car, or plumbing services), as well as the party you are negotiating with, is critical.  Is the salesman close to an end of month or end of quarter commission period?  Is a seller on Craigslist in need of an item in need of cash for some reason? What are conditions like in the industry in which you're buying? How long has the item sat, unsold? What other add-ons might benefit you if they were included in purchase?

Much research can be done ahead of time, but some can only be ascertained once conversations have begun. As such, your first priority in any conversation is to gather information. Do not rush to talk about price. If you are the seller, why is the buyer interested in your product or service? Are they replacing a current model? Does the other party have time pressures, such as needing a car by the end of the weekend so they can drive to work on Monday? Think of the information you need to know, the questions you’ll need to ask, write them down, and bring them to the negotiation.

Positions and Interests

A position is what a party publicly states in a negotiation: (e.g. - "I need to have this home addition completed no later than September 30th.")  An interest is that party's genuine objective as it relates to that part of the negotiation: (e.g. - "I want the addition completed before I travel abroad in November, and I want to sure I can supervise the end of the construction.")  The goal is to understand the other party's interests, and not to simply focus on their positions.  This unfortunately is not easy, since interests are complicated and often hidden.

Money is usually the first interest that comes to mind. We think it's in the seller’s interest to get as much money as possible, and that’s certainly true. But in the context of his situation, might he take much less? Does the seller have debts that are due? Is a car due to be repossessed in the coming month? Is money needed to pay for an upcoming vacation? Much of this information can be gained simply by asking why the item is being sold (or asking why it is needed, if you are the seller).  This all goes to say again that the negotiator’s first objective is to learn, not to hammer away on price. The information gained will determine (and expand) the range of prices you can work from.

Think hard about the other party’s interests, even the psychological ones.  A salesman might be especially motivated to get a deal done (even a relatively mediocre deal, for him) to get his first sale of the month. After all, the first sale is the hardest. If you are a long time customer, the sales rep’s main interest might simply be to keep you as a customer. He may be willing to concede on price today to keep the account. Ego plays a big role as well. The agreement has to be framed so that the other party feels like they are getting a good deal: something he or she can brag about. (We'll talk more about how to achieve this in a future post.)

I should not give the impression that a line of questioning will always glean one or more of the other party's interests. The other party might not ever tell you the real reason they are parting with an item. But it is surprising how often some well phrased questions will tell you something critical, and you cannot gain information if you do not seek it. The better you are at gaining information about your negotiating party, the more adeptly you can address his or her interests.

Establishing, and moving, BATNA

BATNA stands for the "best alternative to a negotiated agreement." It is the next best thing you can accomplish, without the other party, if you cannot get a deal done. This might be a competitor's offer, or your existing services, or it might just be going without the new widget or service you're negotiating. BATNA is a simple idea in theory but it can get complex in its application. It's important to clearly know what your best alternative is, for a few reasons:

• Your BATNA lets you know when you really should walk away. If talks break down and your alternative is better than what the other party can offer, it's easy (and advisable) to walk away. Walking away has several benefits (one of which is that the other party often improves their offer as you are walking). The rub is that people don't know their BATNA, and thus feel they don’t have the ability to walk. They feel the must make a deal with this one party.
• Knowing your BATNA gives you confidence in negotiations. You can assuredly state your positions knowing that you have a viable alternative.
• Often people will fake a BATNA ("I've got a guy coming over later today to look at this car,") but actually having an alternative is far more effective. The truth provides amazing leverage, while a lie can be ferreted out and can often hurt you in a negotiation.
• Improve your BATNA. During your research, it’s often helpful to determine your second best option and negotiate with that party prior to negotiating with your best option. Two things happen when you do this. Your second place option can improve their offer via negotiations (better quality than originally anticipated, add-ons, better price) so that your BATNA improves, and the gap between your first and second options is smaller. Secondly, your negotiations can sometimes put your second place option into first; when you go to negotiate with the original first place party, that party is now in a position in which he or she must improve their offer.
• Try to understand the other party’s BATNA as well. What is likely to happen to the other party if the deal falls through? Might the salesman have pressure from his boss to close the deal? Do they really have other buyers lined up, or are they counting on you to make the sale?

What about Price?

I started writing about how to discuss pricing and make concessions, but the subject made the post entirely too long. So next week when I'm on my hike, my wife will publish a post on the tactics of negotiating terms and pricing. 

Again, prior to starting talks, it is vitally important to spend proper time planning. The items above are only a brief introduction to items you might include in your planning phase. But if you do some research, try to identify the other party's interests (as well as your own), and give some thought to BATNAs prior to a negotiation, I’d estimate you are already in a better position than 80% of the people you might negotiate with. Thanks, as always, for reading.

*Photo is from Victor1558 at Flickr Creative Commons.