1.1 The Nature of Negotiation
1.2 The Negotiation Process
1.3 The Pre-Negotiation Stage
1.4 Preparation of the Meeting
1.5 L I M I T All Targets
1.6 Take Time
1.7 Satisfaction from a Negotiation
2.1 Commitment
2.2 Integrity and Reputation
2.3 Lacking in Charity
2.4 Toughness and Resilience
2.5 Taciturnity
2.6 Listening and Signalling
2.7 Patience and Pace
3.1 The Structure of the Meeting
3.2 Power
3.3 Tactics and their Use
3.4 Countermeaures to Tactics
3.5 The Focus on Price
3.6 Negotiating with Foreigners
3.7 Tactics I : The Opening Offer
3.8 Tactics II : The Power of Legitimacy
3.9 Tactics III : Deadlines
3.10 Tactics IV : Escalating Authority
3.11 Tactics V : Mother Hubbard
3.12 Tactics VI : Sell Cheap, Get Famous!
3.13 Tactics VII : What If ... ?
3.14 Tactics VIII : The Seven Word Challenge
3.15 Tactics IX : Take It or Leave It!
3.16 Tactics X : Intimidation
3.17 Tactics XI : Good Guy, Bad Guy
3.18 Tactics XII : Threats - General Remarks
3.19 Tactics XIII : Threats (Tactical)
3.20 Tactics IXX : Tricks and Dirty Tricks
4.0 The Power of the Considered Response
4.1 The Agreement Sub-Stage
4.2 The Cost of Concessions
4.3 In Praise of Parsimony
4.4 Concession Process
4.5 Concession Planning
4.6 Tit-for-Tat & Splitting the Difference
4.7 "Fair and Reasonable"
4.8 Concession Patterns
4.9 The Danger of Deadlines
4.10 Risk Taking
4.11 The Role of Model Contracts
4.12 Changing the Deal
4.13 Liquidated Damages
4.14 Cartels and Monopolies
4.15 When Deadlock is Looming
5.1 Bargains
5.2 Dealing with a Price Increase
5.3 The Supplier Relationship
5.4 Post Negotiation Remorse
5.5 Team Negotiations
5.6 The Legal Contract
5.7 Writing the Agreement
5.8 Compliance by the Supplier
No matter which his industry or what his area of specialisation, one skill that every purchasing or sales professional should be practised in is negotiation.
For the buyer, a dictionary might define "negotiation" as a discussion between ourselves and a supplier intended to produce an agreement, and over which each has the power of veto as to the final outcome. If either of us is compelled to agree terms, it is not a negotiation ... in negotiation, consent to the final agreement is by definition voluntary and mutual. Nevertheless, negotiation is not about equality or equity or fairness. The supplier has a warehouse full of 12v electric engines and wishes to replace them with money. We have money and would like to spend some of it on twenty 12v engines. But there is nothing to say how much money equals 20 x 12v engines. There are merely two opposing assertions: one (by the supplier) that one engine (his) is worth £10 of our money, and the other assertion (by us) that £6 (ours) equals one engine (his). The assertions themselves are, of course, considerably complicated by the fact that the supplier and ourselves are both in business to make a profit. The more money he gets for his engines, the bigger his profit and vice versa. The purchasing executive spends a considerable time negotiating such matters as material prices, schedules and delivery plans, quality standards, credit terms, discounts and so forth.
Not every purchase or every contract will be negotiated, and the depth of negotiation will not be the same for every one that is. The 80/20 rule will be invoked to concentrate on major purchases; "new buys"; long-term contracts and deals with suppliers with whom it is hoped to establish important, long-term relationships.
The route to negotiating an agreement can stress either co-operation, emphasising first and foremost what the parties are perfectly agreed on. This approach says that the purpose of negotiation is not simply to resolve areas of conflicting interest. It is also to cement agreement in matters where both sides are in full accord. This is an important message regarding negotiation: the skilled and sucessful negotiator builds into the negotiation process a solid sub-structure of known agreement. By taking the lead and emphasing the positive, a greater chance exists that genuine areas of conflict will be resolved satisfactorily with more than a tilt in our own favour. The second approach is more-or-less to ignore this aspect and simply go for "advantage". What is already agreed is made to look unimportant - yesterdays problems. Confrontation may be kindled as remaining areas of disagreement are tackled head on. Even in this day of "supplier partnerships", the confrontation alternative should not be ruled out. Certain suppliers or supplier personnel may be best dealt with in this way. Or perhaps our relationship with the supplier will never be close, and so going for the jugular will be best for our company.
Best of all, perhaps, is to try and have it both ways. It is said that negotiation is only about give-and-take so long as we make sure we only give a little and take a lot. After all, poor negotiators are not buyers who are poor at getting deals - they are buyers who get poor deals.
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The consecutive, interlinked stages and sub-stages of an industrial purchasing negotiation are: 1) PRE-NEGOTIATION (sourcing, vendor appraisal etc.) ; 2) MEETING PREPARATION; (3) THE MEETING ITSELF (comprising three accepted sub-stages (3a) INTRODUCTION; (3b) DISCUSSION; (3c) AGREEMENT)) and (4) POST-NEGOTIATION (contract preparation, operational implementation).
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The pre-negotiation stage is part of purchasing research, sourcing, vendor appraisal and supplier performance evaluation ... each an on-going activity of the buyer's every-day professional life. Clearly, when a definite negotiation is in mind, the work is focussed on specific material, a specific supplier and on that supplier's competitors. The important thing is that sufficient time be set aside to marshall and sift the data and commit the salient facts to mind. Information may be gathered and arranged under two headings: strategic and tactical. Thus:
Strategic: Each year the buyer should agree a strategic plan with senior management covering such important topics as *the results of last years activities; *an analyis of market conditions; *constraints and opportunities; *the key suppliers; *sourcing policy in such matters as supplier location, size and whether or not single source; *identification of who is to be responsible for actual negotiation, and the limits of his (her) authority; *targets to be aimed for and how the results achieved are to be evaluated (targets may be difficult to attain, but they must be achievable).
Tactical: The negotiator must pull together all such information as will be useful to him in preparing a case. For example: * the general state of the economy and the industry, trends, and the effect of such factors as inflation and industrial prices; *details of companies which provide the service or equipment which is the subject of the negotiation; * the "fine detail" on companies which seem worth approaching - by whom they are owned, their profitability, management structure, market share and their reputation for quality and delivery; * details of any current agreement as to its duration, value, terms and the satisfactoriness with which it is being carried out (ie current performance in respect of delivery, price and quality).
Acquiring and assembling this data are major tasks. Once established and catalogued, it is not difficult, however, to keep it up to date by the insertion of new information as it comes to hand. Hard facts and figures are powerful tools in any negotiation, and the more one party has, by far the stronger its position.
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1.4 The Preparation of the Meeting
The careful preparation - even, sometimes rehearsal! - of the meeting is essential. The alibi of the amateur is the phrase let's see what they have to say, which often really means I have done no preparation for the meeting, so I am forced to negotiate as I go along, by the seat of my pants. The checklist of meeting preparation consists of seven major headings and a number of smaller topics as follows.
1. Authority
Ensure that the person who is to conduct the negotiation has sufficient authority to conclude a deal and do a good job. Senior people, for example, are able to be more flexible and make deals outside general company guidelines. Use the telephone and supplier knowledge to check the seniority of the supplier personnel who are to conduct the negotiation. Remember that playing with "escalating authority" is a major tactic in the negotiation process (see below).
2. Issues
Issues will relate to such matters as future pricing policy and programmes of technical improvement. They answer the question "what do you want to get out of the meeting?". Each issue might be assigned a weight. And remember that the supplier will also have issues of various weights of importance - say, the continuity of our business and our own future product development intentions. Issues are typically dealt with at the middle sub-stage of the Meeting.
3. Supplier Knowledge and Assumptions
What do you know about the supplier? Basic information is usually relatively easy to obtain, such as his size, history and profitability. But other knowledge should be gathered where it is possible to get it. Paramount among this, if the company already does business with this firm, is past and current performance. Questions which must be answered quantitatively are consequently those that relate to delivery performance, quality, price rises and product improvement. Other knowledge about about the supplier would be good to have ... is he overstocked and desparate for an order? ... on the downslide? The answers to such questions as these are usually best considered merely as assumptions, with various probabilities of their being true. A major purpose of the Introductory sub-stage of the meeting is to test such assumptions.
4. Purchasing Requirements
The buyer should find from the using department the specific requirements of the company regarding technical standards, delivery and the acceptability or otherwise of competitor products. When we discuss "power" (below in these Notes), we note that power is in the mind of the negotiator. The background of technical needs and commercial availability will make an enormous difference to the negotiation approach and the balance of power. Even where the buyer might otherwise feel he is weak because the supplier has technical superiority, careful research will strengthen his hand from deep product and market knowledge.
It is essential that meaningful, clearly stated targets be set. By 'meaningful' is meant that they are expressed in concrete, quantitative terms. For example, an objective of "doing better than in last years negotiation" is not meaningful, whereas objectives stated in terms of specific price bands, delivery performance targets and SPC quality levels are meaningful. Objectives should be written down by purchasing management, published, communicated and discussed. Failure to state targets clearly, and in unambiguous terms, is a major cause of negotiation failure, especially in team negotiations. A good way to set out targets is according to the L I M model, in which money/prices are drawn on a horizontal line. L stands for Like To Get, a range on the horizontal line which starts from a point at the lowest price on the line equal to our lowest ideal purchase price. I stands for Intend To Get, a range of prices we would be prepared to pay, from a lower price that would be a success to a higher price that would not be. Finally on our horizontal line there is M, Must Avoid. All the prices in the M range must be avoided and will not be paid. (Perhaps the supplier's opening offer is at the highest end of this range!).
6. Other Preparatory Matters
Five issues and questions arise. (1) Can the meeting be timed to suit the buyer? For example, can the buyer judge when there may be surplus capacity in the market of the required item to be purchased? (2) Is the buyer to be involved with one firm or several at the meeting? (3) Is it intended to send out a detailed specification and ask for a writen quotation before the meeting, so that the strength of the supplier's hand can be assessed in advance? (4) Where is the meeting to be held? It is normally an advantage to the buyer to hold it on home territory, but there are exceptions - for example, when he wishes to see the state of the opponent's factory. (5) The buyer should prepare an agenda and time plan, in order to take the initiative.
7. Teams
Who is to attend? Should a team be set up, including experts? Remember again that if a team is involved, it is essential that all our representatives are thoroughly briefed as to the objectives and the plan, and that each team member is assigned a task. (For more about teams, see below). Depending on their size, teams are often organised along the following lines. Leader - the main person and main speaker at the meeting, but not necessarily the most senior person. Summariser - interrupts the leader in the meeting in order to clarify difficult points and - particularly - to summarise, buy time and keep things on the tracks that our side wants. Observer - keeps a visual watch on the opposition to pick up any tell-tale signs, such as those of stress.
Note that unless there is no alternative or adequate time has been denied to prepare a full case, negotiation by telephone or teleconferencing should be avoided. Telephone selling is a particular skill and tactic of some suppliers, and may be adopted by them with the express purpose of finding the buyer off his guard. In no event should the buyer feel compelled to give an instant decision on the phone - for example, for a "special offer". If he does respond, he should make it clear that everyting "agreed" is, in fact, merely "discussed", to be confirmed later.
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In talking about targets in discussing the preparation of the Meeting, the 'L-I-M' system was referred to as Like to - Intend - Must. This kind of targeting reflects the fact that the skilful and successful negotiator is one who considers a wide range of outcomes and options in preparing for a negotiation. On almost every point in the negotiation itself the agreement reached will be a compromise, whether with regard to price, delivery conditions, cost of training, maintenance, payment terms ... This could be illustrated by an L-I-M 'scale' - a horizontal line marked off in equal divisions of financial value, showing, say, £10 at the left extreme, and, say, £30 at the right extreme. The left point of the scale is where the buyer would like to be (buying at £10) and the right point of the scale is where he must avoid. Somewhere in the middle of the scale, say £17 up to £22, is what might be terrmed the 'room for negotiation'. The supplier also views the scale in this way, though clearly his LIM points are opposite to the buyer's.
Comments about the L I M points on the scale are as follows:
L the like to get or ideal settlement
For example, £10 is the ideal but credible settlement price the purchaser would like to pay, and £28 is the ideal price the supplier would like to sell at. If the opposing negotators are experienced, each side's opening request will be even more 'optimistic' than his ideal price.
I the intend to get, or realistic settlement
For example, £23 is a realistic settlement price the supplier would like to obtain and, say, £15 is the purchaser's like-to-get price.
M the must get, or fall back position
On the scale referred to above, the purchaser believes (at the outset, anyway) that he will definitely not pay more than £21 and the supplier at the outset believes he will definitely not sell for less than £17.
As stated, the part of the scale between the two parties' positions is the 'room for negotiation'. It should be noted that the centre of the buyer's Like part of the scale and the centre of the supplier's Like part of the scale do not coincide. The skilled negotiator must thus consider a wide range of possible outcomes.
One analogy of the L I M model is the runner in the London Marathon who would like to win the race. He intends to finish. He must not give up and pull out of it.
The Walking Towards You Negotiation Game
A more vivid illustration of L I M is that of two opposing negotiators, each in his Like to position in opposite corners of a room, who must meet and shake hands to conclude their business. The winner is the one nearest his Like-to (starting) position. They walk towards each other (= the negotiation), attempting nevertheless to stay as close to home as possible. The winner is the one who has taken smaller, fewer and more grudging steps.
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Time spent in preparation is money made, and the more time you take, the more you make. As mentioned earlier, the 80/20 rule applies in purchasing. That is, 20% of the products we buy will be seen to account for 80% of the annual purchasing budget. To perform this analysis and verify the contention just made, take the annual usage of each purchased product and multiply it by its unit cost. The answer is the 'annual value'. Next do two things. First, add up the annual value amounts to get a grand total. Secondly, arrange the products in descending order of their individual annual value. It will then be found that the top 20% of the products in the list account for 80% of the grand total.
In the matter of time also, it must be remembered that most of the goods entering our factory each week are doing so as the result of re-orders. They are not the first arrivals of 'new buys'. So with combination of this fact and the 80/20 rule, it must be at least ensured that the top products get plenty of time devoted to them.
As one goes down the list of purchases well into the morass of the 80% that account for 20% of the budget, the buyer will increasingly have less time for protracted negotiation preparation. (Eventually, he has no time for negotiation at all, and must place orders direct, with only a nominal discount.) If the buyer has less time, he should chose a negotiation strategy that is sharper and more brusque ... Take It or Leave It, The Seven-Word Challenge etc..
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1.7 Satisfaction from a Negotiation
In negotiation, the party who gets the best price is not always the happiest. In negotiation, it is also how we get the price that counts. Feelings about "how" have a marked effect on the conduct of the contract, the subsequent buyer/supplier relationship and the next negotiation. "How" may not matter for many trivial purchases, but for those purchases on which the buyer spends significant negotiating time, it undoubtedly does matter.
Suppose that a supplier sold a certain type of engine that you needed which had a list price of £6000. You enquire about availability, and ask what would be discounted. The supplier offers the engine with a £700 discount - ie for £5300. Then you say "Fine! I'll buy. Where do I sign?". Alas! Now the supplier is miserable! All he can think is that the £700 discount is too big. "If only I'd asked for £5800", he weeps.
Buyers do not want weeping suppliers. They see sales representative and companies year after year. As stated, how they feel about the previous deal has a great bearing on the relationship between the firms and the next negotiation. Feeling of satisfaction are important in both the short-term and long-term, and depend as much on how the price and conditions are got as the price and conditions themselves. If we accept the supplier's offer too soon, he will feel he could have got a better price or got other more favourable terms. (Similarly, if he accepts our offer too soon, we will feel we have overpaid him.) If things are too fast and easy, and the supplier feels he might have done better, he will be far more difficult to deal with next time ... discounts hard to get, concessions not forthcoming. In the example above, you had previously decided you were willing to pay £5500 for the engine that had a list price of £6000. As before, you ask for a discount and again he says £5300. But now you say you'll think about it and you'll talk it over with production. Later, you phone him and tell him you can go to £5000. He now says his last offer is £5200 and not a penny less, and you reluctantly agree (I'll find the £200 from somewhere, but Lord knows how!). He is pleased at getting £5200 and you would have paid £5500. It's a win-win situation! And the next time you meet the supplier he is pleased to be doing business. He remembers last time with pleasure - he really made you work.
The buyer also is entitled to a little satisfaction here on Earth. If (an inexperienced) supplier accepts your offer straightaway, you will feel that you have paid more than you needed. In these circumstances, that feeling is likely to be justified. So make sure the offer you do make is low (see below).
In summary, a supplier can be made to feel happier about a £5200 price than a £5300 price. It is the buyer's job to leave the supplier feeling happy with the agreement. So never accept a first offer. If you give him his price too easily, he feels miserable. (Try the negotiator's trick: in a quiet, utterly serious voice tell the supplier at the conclusion of the deal what a hard man he is / hard woman she is.) Make your opponent feels good about himself!
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L i s t e n i n g
Most of the information that comes our way is of no relevance to our lives and is filtered out of consciousness by our mind. We pay attention only to those things which are of concern to us. The problem with this way of seeing and listening is that the brain takes shortcuts without evaluating or 'taking in' all the evidence. But shortcuts often lead down wrong paths. Our mind makes instant assumptions- we jump to conclusions and then carry on with an erroneous impression of the facts. In a normal environment - in the office or in the pub - this doesn't really matter, because the speaker repeats the message several times in different ways. On the second or third occassion the penny drops (Hey! Are you telling me that ... ?).
But in negotiation, all this matters. For a number of reasons we simply cannot afford to have a lazyminded attitude to what is being said. The negotiation is not like the 'normal' environment of office and pub. So things will not be said over and over again until the opponent is sure we have taken them in, or at least, if it has to be, progress will be slow. It is essential, therefore, that we listen carefully. That we concencentrate acutely on what is actually being said, and don't 'hear' what we assume the supplier is going to say. And that we evaluate - turn over - all that is being said in our mind.
A further reason we should listen carefully to what words are being uttered is that the supplier may say something that increases our power. That is, he may give out information that bears upon the product, his company, his stock or his financial situation. (Of course, if what he says can be taken in two ways, we must question him carefully to make sure we have interpreted the news correctly.)
The main reason we must listen carefully, however, is to receive the supplier's signals.
S i g n a l l i n g
A signal is used to overcome an impasse in a negotiation. It is the means by which one party which has taken a resolute stance on a current issue now indicates its willingness nevertheless to negotiate, provided this willingness is reciprocated by the opponent. The reply by the second party to a signal is a reciprocal signal that it is willing to proceed along the new lines. The purpose of the signal and reciprocal signal is to move the negotiation along, and break a deadlock.
A signal usually takes the form of a qualification - perhaps quite a subtle qualification - to the main stance. For example, from "we simply cannot do it" to "we would find it very difficult to do". The reciprocal signal must take up the new direction of the argument. This willingness to to take things up just in the direction of the first signal is important. If it is done incorrectly or if the opponent simply repeats his previous demands in a different form, the original signal would start to look like a surrender. Since it was not intended as a surrender, the original party will immediately back off and the negotiation will be at deadlock as it was before.
The three simple examples below illustrate why the buyer must listen carefully to what is being said in order to pick up the signals. If the buyer misses a signal, it is true that the supplier can repeat it, louder and louder. But time is limited, especially the buyer's. The buyer who misses signals will either spend far longer negotiating than he intends or needs, or will break off negotiating unnecessarily because he (wrongly) believes he can make no progress.
Example 1:
No Signal: Buyer: We require a 15% discount. Supplier: We never give discounts of any size. Buyer: Well, we want one even so.
Signal: Buyer: We require a 15% discount. Supplier: We never give discounts, and even if we did they would not be as high as 15%. Buyer: Well, how high could they go to?
Example 2:
No Signal: Buyer: We require delivery on 24 hours notice. Supplier: We need 5 days notice of all deliveries. Buyer: You're not living in the modern world.
Signal: We require delivery on 24 hours notice. Supplier: We would find it extremely difficult to deliver with less than 5 days notice. Buyer: Well, how could we help shorten your leadtime?
Example 3:
No Signal: Supplier: Our price is £20 each. Buyer: Our offer is £10 each. Supplier: I can only let them go at £20.
Signal: Supplier: Our price is £20 each. Buyer: Our offer is £1000 per thousand. Supplier: What would be the yearly value of the business?
To summarise, a supplier's signal is an indication of his willingness to talk over (ie negotiate) a position. It is not a surrender and it is not a request to the buyer to propose a different set of terms. The buyer's response must be to go along with the signal (give a safe conduct pass) so the viscious circle of deadlock is broken. This is why signalling is done - it is its only purpose. A common mistake of the inexperienced buyer is to react to a signal with yet another new proposal. If he does so, eventually the negotiation ends up with the buyer having put all his possible concessions on the table for the supplier to pick and choose which he would like best.
Note: If a signal is recognised but ignored, this is a sign that the party ignoring it believes it can intimidate the other. The argument is accordingly resumed. If other signals are ignored and there is no capitulation, deadlock will ensue.
One of the purposes of 'discussion' is to air the issues mentioned in the pre-discussion stage - the supplier's as well as our own. But beware - discussion also leads to argument. Remember also not to accept facts and figures unless their source is impeccable (even then, their interpretation might be questioned). If facts are not forthcoming, probe to find out why he will not provide them.
As the agreements start to come, be on your guard. See Concession Management below.
Broad Front. After the issues have been identified in the Introduction, in a broad front negotiation the deal is discussed in its entirety - ie all fronts together, such as delivery, price, terms etc.. As the negotiation proceeds, all these aspects are gone into in increasingly fine detail. One advantage of this approach is that it saves having to re-open each facet of the agreement as every new product requirement is dealt with. Broad front negotiation is likely to be suitable when dealing with major new suppliers or suppliers of critical material. Broad front is not usually used when it is the buyer's intention to be confrontational (see below).
Narrow Front. Each issue or purchase is dealt with in its entirety, with the agreement on it finalised before moving on to the next. Narrow front negotiations are best employed, for example, with an established supplier selling a variety of dissimilar products. Note that when narrow front is used in a confrontational manner, the order in which issues are raised should be considered carefully - see below.
It is a truth that two companies in negotiation as supplier and buyer have far more in common than otherwise. (This may not be true in industrial wage negotiations or in political or international negotiations, but those are not the concern of these Course Notes.) It is likely to be better, therefore, to follow the collaborative route described below, at least for mainstream supplies - ie the 20% of the items we spend 80% of our money on. Thus:
C o l l a b o r a t i o n : The positive is emphasised from the beginning. For example, the buyer is likely to begin the meeting by going over areas of total accord - and there will be many (We propose to continue paying you specially by BACS, not by cheque - you said you preferred this.) The desire is for both parties to win. Ultimately, this may pave the way to a close supplier relationship, such as described in the Notes in Section 5 below.
C o n f r o n t a t i o n : The buyer is solely concerned with his own company, not the mutual relationship between the two companies. He is therefore seeking solely to gain his own advantage. The order of raising issues is important. The buyer should have a cogent reason reason to depart from it. The order is:
1. Work on an issue not important to us or, indeed, to the supplier, and on which we are prepared to make a concession.
2. Work on an issue not too important to us, but important to the supplier, to test his pattern of concessions.
3. Work on an issue of serious importance to us (although don't say so!).
4. Other major issues.
5. Other minor issuees.
6. One last minor issue that we can fight and then surrender, to give the supplier the impression of having got an overall bargain.
The Form of Argument
The manner in which the inevitable disagreements between buyer and supplier are brought up are important. There are two basic forms:
C o u n t e r p r o p o s a l s : The buyer makes considered counterproposals to the supplier's requests, with a view to discussing the merits of the two. For example, in response to a quoted price of £100, the buyer would first verify the exact meaning of the proposal - what was and what was not included in the price. Then a counterproposal would be put of the nature of Our figures show that £50 is the right price for this material, plus £5 for delivery. This form of argument is better for the collaborative approach.
C o u n t e r a t t a c k s : The buyer attacks the supplier's proposal with a view ultimately to wearing him down. In response to the quoted price of £100, the buyer says Rubbish! How can you justify that? We would be looking for a 50% discount on that basis.
Understanding, creating and exercising power are at the centre of the negotiating process. Power itself is the sum of two elements:
Objective Power: this is the power arising from circumstances that are plain for all to see. For example, the fact that the supplier is selling and the buyer is buying. The fact that ICI is a large multinational firm and Garstang Engineering is small. The fact that Company X is the sole supplier of a particular technology and Company Y requires to buy that technology.
Subjective Power: this power is in the mind and cannot be seen or quantified. It concerns not whether we buy and sell, but our degree of eagerness to sell and our degree of willingness to buy. It concerns how attractive or unattractive we find a product; a particular supplier's acceptability to us against the acceptability to us of its competitors; the 'importance' of various conditions of sale. Subjective power can and often does change over the course of the negotiation.
It is true that objective circumstances ultimately create the very reason for the negotiation itself, but once that negotiation is underway, they are subserviant in importance to subjective circumstances. And if subjective power is in the mind, we remember in negotiation that there are two minds.
The key to the exercise of power is belief that it really does exist and work the way we say it does. Power (subjective power, at any rate) cannot be literally seen or measured. It is not like the physical power of a gun or a stick which is obvious to all. When we use a gun or stick, we can see its effect. When we use our negotiating power, we cannot see the turmoil in the supplier's mind or see his despondency as he contemplates a lower price. Indeed, the selection criteria and training of salesmen are focussed on their ability to hide signs of emotion.
What the buyer is asked to do is to weigh the effects of something that has no physical weight. He must believe his power is working, even though he cannot see it work. If he wishes to, he must be able to feel the emotions inside the salesman's mind. He must believe in his power and patiently wait for the outward manifestation of its effect on the supplier, in the way of capituation and concessions. And he should invoke his commitment to ensure that his power is ruthlessly exercised.
There are four elements in the assessment of power, as follows:
1. The Objective Circumstances, which include indisputable facts such as our use of particular products in our production process, the fact that the supplier makes and sells these products, the nature of our company, its size, the existence or not of a research department, the nature of the supplier's company ... Most of these facts will be known to both parties, but some will not be. A purpose of preparation is to ensure that the facts relating to objective circumstances are at our fingertips.
2. Our Own Real Subjective Circumstances, These include our real need for the product, our "L I M" view on price, our budget, the urgency with which the using department requires the product, the real value of prompt delivery, our real assessment of the competition ... Our own real subjective circumstances are unknown to the supplier. Opportunities and facts arising in the course of the negotiation may change these circumstances.
3. Our Subjective Circumstances as they are perceived by the Supplier. The supplier may have made assumptions about the issues in 2. above and so it is these assumptions that will be in his mind during the negotiation. Consequently, in evaluating power for the purpose of establishing negotiation advantage, we must take into account the supplier's perception of what we want, the supplier's perception of how much we want it and the supplier's perception of what we are prepared to give, not the underlying "truth" (that only we know!). Where the supplier has not yet made assumptions, he will be trying to build up facts so that he can do so. If the supplier were to know these things, he would clearly have an immense advantage in the negotiation ... he would know what to press for and how far to go.
4. Our Perception of the Supplier's Circumstances. These include the lowest price at which we believe he will be prepared to sell, the cost to him of making the product, his commitment to quality, the value of his product improvement programme, his production control and abilty to deliver on schedule, how much his company needs the business from a financial viewpoint ... A large part of the negotiation process, therefore, is building up facts and testing the validity of our assumptions about the supplier. If we, the buyer, were to know these things, we would clearly have an immense advantage in the negotiation. We ourselves would know what to press for and how far to go.
In order to gather power and so be capable of exploiting his position, the buyer must undertake the following tasks vis-a-vis the four power sub-headings in 3.3 above.
* He must ensure he is up-to-date on objective facts;
* He must be is fully aware of his own real circumstances, and that he knows enough to be able to spot opportunities for change, should they arise and be to his own advantage. This knowledge must be rigorously denied to the opponent. For example, under this heading, the buyer may in reality be pleased with the supplier's past performance and quality, and unimpressed by his competitors. He should not say so. He must not say so. He must safeguard his power.
*The buyer must create an impression in the mind of the supplier about the real facts that will give him an advantage. For example, a buyer who is (really) pleased with a supplier may nevertheless care to have a copy of a competitor's catalogue on his desk. Suppliers will try to test the validity of their assumptions in this area, but the buyer must stay tightlipped. He must not say how much he loves the supplier's products - he might mention his competitor's excellent product range instead. If the supplier believes you have the balance of power (eg if he thinks this buyer knows I havn't made a sale all week) - then you have the balance of power, by definition. If you believe he has it, it will cost you something.
* He must probe the supplier patiently and skilfully to elicit facts and test/validate his own assumptions.
The buyer must learn to strip out colour and emotion from the supplier's arguments and .. .(i) recognise which of the standard tactics is being used against him or her; (ii) label the argument with the corresponding tactic label; and (iii) from his knowledge of tactics, and so knowing what the tactic is intended to achieve, isolate the supplier's arguments and prepare a countermeasure along standard lines relevant to that particular tactic.
Different approaches and different ways of packaging an argument - ie different tactics - are suitable for different circumstances. The buyer must select with care the one or ones he or she intends to use, based on two important considerations as follows: (a) A tactic must be chosen that is inherently suitable for the negotiation in question. The background and purpose of different tactics will be given in due course, but for now, tactics can be considered in two classes: 1. those used in either collaboration or confrontation negotiations; 2. tactics used exclusively in confrontation negotiations . (b) The tactic must be couched in terms which relate to our own company and its operation and circumstances. In other words, we must dress up our argument as a 'true' story based on 'true' facts. The stronger these facts are ... ie the nearer they are to the real truth! ... the better we will be able to defend our case. In other words, while it will usually be possible to invent a storyline in which to cloak an argument, it would be better if we could use some important, genuine event to lend verisimilitude to our argument.
Rule 1. Keep the dialogue going;
Rule 2. Change the deal - reshape the original proposal with new conditions and variants of what it had been proposed to buy. This pushes the tactical position to the sidelines.
1. the supplier's aspirations are lowered;
2. the buyer has room to manoeuvre;
3. the final deal is much more likely to be at our end of the range than the supplier's.
your own purchasing department's "standard" terms and conditions; the supplier's printed price list; discount tables; the company's printed procedures and policies; finance departments 'unalterable' credit terms; ready-made contract documents which state that 'no other marks are to be made except the signatures of the contracting parties'.
(a) challenging the actual legitimacy of the document - for example, by quoting instances in the past or with other companies where this document's directives have been broken;
(b) producing an 'opposite' - ie a contradictory - document which challenges the original ones produced, such as your own company's printed terms of payment. So then, if the terms of payment can be different, why can't the discount policy?
(c) use of the power of legimacy is often accompanied by a regret on behalf of the person using it that he can't do more (cave!). In which case, a buyer might explain to the supplier how he can overcome things by, say, initialling changes on the document or drawing up a completely new agreement;
(d) use of "How much off if I ... ?";
(e) use of "This document does not cover X, so how much off if I wish to buy stock of X?".
I have to place the order either with you or Competitor X by Friday 4pm;
The engineering design people are meeting on Monday morning. I can place the order now at Price N in time to tell them.
I am being reassigned on May 1st and won't be responsible for this product after then.
Our year-end is August 31st, and it has to show up in the capital budget by then.
We have an hour. I'm seeing another firm then.
This offer is only open until the 31st,
If we don't have your offer by Friday, it can't be scheduled into next months production,
Head Office's new prices come into effect on the 15th of this month.
Old Mother Hubbard
Went to the cupboard
To fetch her poor dog a bone.
But when she got there,
The Cupboard was bare,
And so the poor dog had none.
1. a purchased part for a new product must be bought for £8 not £10, otherwise the new product cannot be sold at its target price;
2. not only is there a limit on the machine being purchased that is less than the asking price, but this includes all extras such as training, installation etc..
1. What if the machine does not reach 500 units / 300 units / 200 units per hour? And how do we define and measure "units per hour"?
2. What if the machine breaks down?
3. What if the machine breaks down due to our company's own negligence?
4. What if the supplier goes out of business?
5. What if any non-consumable part requires replacing within the first 12 months? And how long should the replacement take?
I am now offering 8p per kilo, and you're now saying 10p. If you want the business, 8p is what we'll pay. If you don't, Goodbye!
Your product is barely acceptable, and if I wanted to take the trouble I could find better alternatives and a better supplier tomorrow. However, I'm offering you £1000 - take it or leave it.
Here is our final offer and there are no Ifs, Buts or Maybe's. I don't have the time for further debate. Finis! Take it or leave it.
Keeping the supplier waiting;
Rescheduling the appointment;
Inferior seating for the supplier, or, say, facing a bright window or light;
Arranging for someone important to interrupt you;
Phone keeps ringing (buyer answers in an unhurried way);
The buyer gets the supplier's company name wrong;
The door is left open, or the room is uncomfortable;
The buyer makes disparaging remarks about the supplier's product or service;
The buyer makes extended complimentary remarks about the supplier's competitor products.
The negotiation is interrupted and then resumed with a different buyer at the same level or more junior.
Bad Guy: a fellow buyer, an engineer or other - someone with a sense of theatre and a belligerent way with him. The bad guy makes continual outrageous (not credible) demands in a haranguing, obstreperous manner. [Note: this role must not be overplayed such as to cause the supplier distress. If it is, the supplier will complain to higher management and the tactic will collapse.]
Good Guy ... steps in and either dismisses or silences the bad guy. The good guy is quiet, polite and friendly. The requests he makes seem reasonable. In fact, they are tough, but are dressed up by him and put across with skill so as not to seem so.
Never negotiate by telephone. The telephone caller holds all the aces. He has prepared; he has papers to hand; and he has facts and figures. Simply ring off. Some companies you shouldn't be buying from in the first place make a speciality of phoning up with 'offers', bargains, new releases etc.. This is no way to buy. Hang up.
The seller agrees a low price, but then declares that various features which are customarily not separately charged for are 'additional items'. The tactic can be played in conjunction with the fait accompli in 5. below.
The buyer wishes to obtain a low bid on a particular component, and so cooks up an elaborate trap in the form of a memo or summary sheet containing fictitious low bids by actual competitors. The buyer leaves the room during the negotiation, leaving the supplier able to read the document.
The buyer must never promise to buy at some time in the future volumes of material he has no intention of buying. Nor should he give specifications he has every intention of changing when price has been agreed.
The purchasing department sends a cheque for a lower payment than is due for goods and services, and a note marked "Full and final settlement". Terms of payment are 2% discount if paid in 7 days. The firm pays in 30 days but deducts the 2% anyway.
A buyer arranges for a number of suppliers to meet each other prior to the one-by-one negotiations. The hope is that the suppliers will be stampeded into making price reductions or other concessions, and providing more information than normal (especially about other competitors). Suppliers will often refuse to take part in such meetings. A variant of this tactic is to ask for quotations and accompanying literature, and use these to respecify the original request along sharper lines.