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| Negotiation- A Tug of War |
I recently stumbled upon an interesting article " Should you eat while you negotiate" by Lakshmi Balachandra and a thought came into my mind- Let's explore what are the things already available as far as negotiation techniques are concerned. There are some interesting insights shared in this article :-
http://blogs.hbr.org/2013/01/should-you-eat-while-you-negot/
My opinion- Eating together is a social activity and like any other social activity, it helps in humanizes negotiation process, which otherwise might turn into a fierce battle. So having a meal or not is not important but important part is to connect socially with your customer. Also, it would be interesting to keep in mind- environment and time frame of negotiation process.
Most sales cycle ends on a negotiation stage, which makes this phase a real deal breaker. Negotiation is a dynamic process and it plays an important role in reaching a collaborative settlement.An ideal selling is selling at the perceived value to Customer. However, in real scenarios it is impossible to achieve because there are lot of factors that determine this perceived value:-
1. Brand:- Is your product/service considered- premium, good or average.
2. Availability:- How many vendors can provide products/service and at what quality.
3. Importance of a product/service to Customer's Value Chain
4. Differentiation:- Is your product/service offers a unique value to Customer
5. Customer Knowledge:- How aware is the Customer of value proposition of entire deal
On a scale of 1 to 10, 10 being the highest and 1 being the lowest, If a product/service scores between 4 to 20, then an aggressive Sales team is required to maximize distribution- knock as many doors as possible. If product/service scores above 20, organization is less dependent on Sales team to sell products.Nevertheless in both scenarios, negotiation is of utmost importance to maximize the perceived value and hence contribution margins-
Generally there are two types of negotiation:- Transactional and Consultative.
Transaction techniques is one in which buyers and sellers compete for a greater share of pie.This is the most competitive form of negotiation as present value/deal holds more importance than future/deal value. For instance, Airplane tickets, freight, disruptive technology, buying a car, getting second hand items etc.
Consultative technique is all about fair distribution and creating more value in deal for both parties. We call it win-win situation. e.g. Long term deals, Solution Implementation
" Don't think negotiation process as a Zero Sum Game"- Even If you cannot negotiate on the desired things- It doesn't imply that you cannot find areas of mutual interest.
Challenges in the Negotiation Process
A survey conducted by Duke Business School Research team, among sales person and procurement managers shows following most common challenges in the negotiation process:-
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| Challenges- Negotiation Process |
There is one golden rule- Just keep in mind "Everything's negotiable" as far as business is concerned.
Some Negotiation Techniques
1. BATNA ( Best alternative to Negotiated Agreement)- It is the action taken by a party when current negotiations are failed and an agreement cannot be reached.(Roger Fisher and William Ury, Getting to Yes [Penguin Books, 1991], 100-01)
The purpose of negotiation is to reach a result which is better than result you can get without negotiation.
Not every negotiation concludes with an agreement. There are times when you can do better by walking away. In any negotiation alternatives exist. They may not all be attractive, but they will be there. The best alternative is your BATNA.
Key:- A successful negotiation will end with a result that is better than your BATNA. If the result is not better than your BATNA you should walk.
Hence, preparing your BATNA before negotiation is crucial as it will determine when to talk and when to walk.Some negotiators enter negotiations without knowing what they will do if they cannot reach agreement. This can lead to being insecure and unsure of when to continue negotiations and when to walk. Negotiators who know what they will do if they don’t reach agreement have much greater confidence during the negotiations
How to measure your BATNA :-
1. Come up with alternatives
2. List down all the alternatives with pros and cons
3. Choose the best alternative in case you don't get your first option.
4. Grab as much information as possible on the deal because this will help you in understanding other side BATNA as well and an educated negotiator.
Taking the time to determine your BATNA and thinking of ways to strengthen BATNA will improve the outcome of your negotiations.
2. Reservation Value:- The lowest price you'd accept if you were positive you couldn't get more on the deal.
For example:- You are selling your 2nd hand bicycle and you have decided that your BATNA in this case is 6000$ and maximum you can get out of this deal is $6100- So reservation value for this deal is $6100.
3. ZOPA ( Zone of Possible Agreement)- The people you're negotiating with have a BATNA too. The ZOPA is the set of all deals that are at least as good for each party in a negotiation as their respective BATNAs.
In simple terms, let's assume you're negotiating to buy a used car. You've thought about what you'll do if you can't reach a deal and there's another car you could buy for $8,000 but the car you're negotiating for now is worth $1,000 more to you i,e. Your perceived value for this car. Your BATNA is "buy the other car for $8,000" and in terms of this deal that's equivalent in value to "buy this car for $9,000".
Unknown to you, the seller is moving overseas and has to sell. She has an offer for $6,000 and if she can't get a higher price from you, she'll take it.
The ZOPA for this negotiation is $6,000 to $9,000. Any deal within that range is possible. The ZOPA reflects how much value is being created in the deal -- you and the seller are better off by a combined $3,000 if you buy the car from her.
ZOPA can be thought of as the total amount of money sitting on a table waiting to be divided between two parties
Therefore knowledge of position of other party is crucial because the party with better understanding of deal captures higher value of ZOPA. Beyond that, knowledge is a fundamental requirement for creating powerful options particularly when you can't count on the other side to engage in mutual problem-solving with you.
Negotiauctions
An interesting negotiation technique is shared by Mr. Guhan from Harvard Faculty- he called it as Negotiauctions- a part Negotiation and a part Auction. Key concepts include:
- In a negotiauction, the rules are never perfectly pinned down, which creates both opportunities and challenges.
- The three common negotiauction moves are set-up, rearranging, and shut-down.
- Negotiauctions help in the current economic downturn by providing a more nuanced mechanism and better outcome for both parties.
Putting BATNA, Reservation Value and ZOPA together can create effective tools for negotiation.
http://www.linkedin.com/today/post/article/20131208221846-266437464-how-to-make-a-deal-in-3-seconds-flat-part-one?trk=object-title
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