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Successful negotiations
Negotiation is when persons or parties pursue different interests and communicate with each other to reach an agreement.
What do we mean by negotiation? Is every conversation, every discussion, every meeting always automatically and equally a negotiation? How can we measure the success of a negotiation, what are the worst mistakes that can occur while negotiating and what negotiation styles can be identified?
Negotiations are basically found in three areas:
Conflicts: resolve disputes, solve problems and disagreements
Relationship: to establish, strengthen, and protect relationships
Transactions: in conducting business and projects, sales or any other form of Transaction.
To negotiate, certain conditions must be met:
At least two parties or people, sometimes more
A certain degree of interdependence
A roughly well-balanced power relationship
A conflict of interest
A mutual willingness to concede
To see an agreement as the goal of negotiation
Every form of negotiation is best assessed based on three criteria:
Effectiveness = quality of the result: The transaction will bring a reasonable agreement to pass. The legitimate interests of each side are met to the greatest possible extent.
Efficiency = Time efficiency and economic benefit: The transaction should be efficient, i.e., the effort expended stands in a reasonable relation to the benefits gained.
Negotiating climate = quality of relationship: A good negotiation is unique in its design, is feasible, fair, useful for the parties involved and sustainable. According to Jo¨rg Wienke, general manager of the Shell gas station business in Germany, Austria and Switzerland, the main characteristics of a successful negotiation are the outcomes of the negotiations and their sustainability. According to this top manager, for this to be achieved it is necessary that both negotiating parties can live with the results.
Example
Imagine that you have won a convertible in a contest. Since you already have a nice car you schedule the sale of the new vehicle. If the average price for a car of this class is 80,000 €, then the cornerstone of your negotiations will be determined by the following considerations:
You will be willing in any case to sell the car for 75,000 € to a prospective buyer.
If you ask for more than 85,000 €, potential buyers will find more attractive offers on the market.
Their bargaining zone is therefore between 75,000 € and 85,000 €.
The prerequisite for a successful agreement is the so-called bargaining zone.
In negotiations the zone of agreement is referred to as ZOPA (Zone of Possible Agreement) which defines the bandwidth of a possible bilateral agreement between two parties in any negotiation. Within this zone, a positive conclusion to a negotiation is not possible outside this zone but sophisticated negotiating tactics will lead to a positive result. The trial zone thus creates the basis for further negotiation.
Against this background, you should be aware in any negotiation that there is always an alternative solution beyond these negotiations. If you decide, for example, the sale price for your property, the right question would be not what you need to get, but what you do when you have not sold the property within a certain time. How long do you intend to offer the object in question? Do you have the option to rent it out, tear it down and use it for other purposes, or other options? you should always determine what the best alternative to a negotiated agreement is for you. BATNA (BATNA is Best Alternative to Negotiated Agreement)
To evaluate the success of a negotiation, it is necessary to know its best realistic alternative (BATNA) and of course to know that of the other party.
Example
v Imagine you are at a flea market and want to sell an old cassette recorder. Your desired price is 50 €. After a while a potential customer comes and offers you 30 € with the warning that he has seen a similar device for 40 €. They are likely to agree on a price between 35 € and 45 €. As a professional negotiator, however, you must consider in advance what you will do if no one is interested in the tape recorder. You then decide to give it to your mother as a birthday present because she used to have a similar device and became very interested in it. The 40 € for theater tickets, which you would otherwise have paid, you can then save. Since you know what your best option is you will in any case not let it go for less than 40 €.
In practice, the following procedure has been successful:
Create a list of your alternatives and actions to be taken if there is no agreement.
Be creative and use appropriate techniques such as brainstorming, etc.
Think about each alternative, whether it is realistic and if it deserves to be pursued further.
Select your BATNA.
Consider your BATNA to be your negotiating partner!
The Biggest Mistake that You Can Commit While Negotiating
Negotiations can fail due to the five following factors:
1) Exerting pressure: when one partner is superior in rank/position to the other
2) Aggression: The more a negotiator has to rely on this to achieve a goal, the more likely it is to provoke rash reactions and which will ultimately prevent any bipartisan agreement.
3) Lack of flexibility: Changes to a situation can reveal parties to be so fixed in their ways as to find it difficult to adapt to new circumstances.
4) Compliance: Fearing conflict, negotiating partners are often defensive and submissive, and thus make concessions without getting anything in return. As already explained, the absence of a best alternative leads to this behavior.
5) Inadequate preparation: In many bargaining situations inadequate preparation in relation to the value of the target often prevents a mutually acceptable agreement from being reached.
Preparation of negotiations
Preparation in negotiations is known as the A and O, meaning it is the most essential ingredient. Through adequate preparation you will not be random in your approach but instead will be very specific and as a result you will be much more successful and achieve better results.
Negotiation is like sport: Every success is based on training and appropriate preparation.
1- What are your goals?
2- Where does your negotiating partner stand?
3- What conversation strategy and tactics are you pursuing?
4- What organization measures have been taken?
5- How are you personally prepared and adjusted?
Without Goals It Does Not Work
To prepare effectively for a negotiation first establish a definition of objectives, because strategy is dependent on the desired objective.
The criteria for clear goal formulations are provided by the model that goes under the name of SMART. In this model, the individual letters stand for properties that constitute the ingredients for a
clear formulation of objectives:
• S=specific (the aim is clear):
• M=measurable (degree of target achievement is measured
• A= ambitious and attractive (the goal is desirable)
• R=realistic (the goal is reachable):
• T= time-bound (the goal must be reached within a given period):
Where Does the Other Stand?
In negotiations always disconnect the person from the matter. Negotiate effectively and appropriately by formulating the problem and include the negotiating partners in the problem-solving process, rather than criticizing him as a person.
In complex negotiations emphasize systematic and structured stakeholder management to identify all possible solutions for anticipating such risks and thus for negotiating successfully.
Do not try to win the discussion and work solely with your own arguments. Instead always ask yourself what your negotiating partner wants and show him the path to meeting those needs. Help him to satisfy his needs and solve these problems.
Example:
Imagine one of your employees asks you for a salary increase of 10 %. Now it is up to you to analyze the motives behind this position taken by your employee. Mentally put yourself in the same situation as your employee.
Has he possibly been passed over for a promotion? Does he have too little responsibility? Does he need extra money because he just moved, for example?
Each of these motivations can satisfy him in different ways. The needs of employees, for example, include more money for the health of his children, offering an in-house insurance that can satisfy his motivation just as much as a raise. If your employee asks for a raise because he sees this as recognition for his work, then visible signs of recognition such as an office or a company car would under certain circumstances be more appropriate. Perhaps the employee is also seeking a raise in terms of being shown confidence in him personally. This trust can also be shown in him by giving him more responsibility, thus giving him the opportunity for self-realization within the company.
You can see that the same starting position presents different reactions depending on the interests behind the position-related motivations.
The Personal Style: Recognize Yourself and Others
One excellent way to better understand yourself and your negotiating partner is a so-called personality profile analysis, often called a personality test.
Use the Myers-Briggs Type Indicator (MBTI) together with the style compass as a guide for setting the stage for negotiations, and to help you appropriately tailor individual arguments to the relevant stakeholders and also respond effectively to possible obstacles.
Create the Perfect Atmosphere
Successful negotiators consider the perfect setting for a meeting to be an extremely important factor: “the better the mood, the better the agreement,” says an old principle of negotiation. Make sure that your negotiating partner feels comfortable.
The more pleasant the atmosphere is for talks, the better the mood of the interlocutor and thus the better the prospect of positive results.
The following conditions can have a positive influence (if any):
• the venue
• the hearing and the length of meeting
• the composition of the participants
• the agenda
Self-motivation through the right attitude
“there is nothing either good or bad but thinking makes it so” as William Shakespeare’s Hamlet says Make sure your motivation, happiness and satisfaction does not depend on external circumstances, but on your attitude.
The right attitude to your work as a negotiator is a decisive factor for your success. You convey your attitude—whether you like it or not—to your negotiating partner.
Let us consider a small example from the world of sales, which demonstrates the amazing power of attitude.
Example
Imagine two salesmen who wish to sell the same products, who are called Gu¨nter Grimm and Simon Summer. Suppose that both appear to be the same: They look the same, have the same training and rely on the same skills. The two negotiators are thus completely identical, except for one aspect: They have a different view of the market and its products. Gu¨nter Grimm thinks: “Today, customers are only interested in the price. Since more and more Asian suppliers are pushing aggressive prices in the market, I have little chance of reaching my sales targets. Our products are just too expensive. Although I do my best, I do not want to get involved in a big game of discounting with the customer”. Simon Summer is in the same situation but has a completely different view: “We are not the cheapest provider on the market, but this is not a crucial problem, because our products have many advantages. The price is important, but ultimately not the crucial basis for a decision. To offer the customer exactly what he needs and wants is much more important. It can be argued that whoever knows the exact problems and customer interests behind their positions will offer as much as those who demand a higher price compared to the competition.” The different attitudes of the two negotiators have different effects on their behavior: Gu¨nter Grimm does not lay much emphasis on detailed preparation or requirements and needs analysis since in his opinion everything revolves around the price. Also, during the negotiation, he has little patience convincing customers of the benefits of his products. Due to this lack of representation of those benefits, the customer does not recognize them. What does he do then?
He makes price his central focus! Grimm’s pessimistic prediction is fulfilled, because he unconsciously behaves in a way which leads others to fulfil the low expectations he had. He is not aware of how his behavior has influenced and caused the unfortunate discussions over price. As long as he does not change his attitude, he will not achieve better results (see Fig. 3.1). It is quite different with Simon Summer: He asks many questions and is a good listener. His aim is to find out the needs and interests of his customers. Summer first shows the benefits for the customer because he is convinced that the benefits of his products justify a higher price. What results from Summer’s approach? Because the customer is convinced of his offer, they want to buy the product. The issue of price and any discounts are now moved into the background. This again confirms Summer’s attitude that the purchase price is not critical if the customer then recognizes its individual benefits. Unquestionably Summer will not win every transaction or order, and he will give occasional discounts. But this does not change the fact that every month Summer acquires significantly more orders at better profit margins than Grimm. In addition, one’s attitude is responsible for one’s behavior. The starting point of the above example was that both negotiators were identical, except in their attitudes to “price”. This means that Grimm, like Summer, has the same ability to figure out the needs and interests of his customers by using clever questions. But in contrast to Summer he does not use this ability. The behavior you display and the abilities you use are entirely dependent on your attitude.
Motivation is one of the magic words of a successful negotiation.
Truly successful people are not motivated because they are motivated by others, but because they motivate themselves and achieve excellence through it.
Sources of motivation:
Focus on strengths, not weaknesses.
Manage your emotions and avoid negative ideas
Visualize your success and embrace your victories
Negotiation objectives and responses
The Right Mood and Attitude
Make sure your motivation, happiness and satisfaction does not depend on
external circumstances, but on your attitude
After the entry into the negotiation, your task now is to figure out the targets of your interlocutor, his desires, interests and needs. It is necessary to recognize the individual needs of your interlocutor and so as part of any negotiation an adequate needs assessment is of fundamental importance.
1- Be Aware of the Importance of Body Language.
Most of the communication is mediated by body language. Communication is not what you say but what is received by your negotiating partner. Therefore, what you want to achieve is not only important, but it is at least as important as how you say it.
Tips for Success
• Lower your voice at the end of a declarative sentence.
• Produce short, straightforward sentences. These are easier to emphasize and understand completely.
• Take short pauses between successive statements, information, and arguments.
• When not speaking keep your jaw loose, so that your lips are slightly open. This relaxes the oral cavity, larynx and diaphragm.
2- Who, How, What? Anyone Who Does Not Ask Remains Stupid
Questions are important for understanding how your negotiating partner is ticking, what drives him, and what needs he really wants to satisfy. The more you ask the more information you get and therefore the more successfully you can negotiate.
3- Listening Is Also an Art.
Active listening is the silver bullet for information. It is not only important to listen to what anyone says but to capture through active listening what and especially how someone says something. Active listening indicates to your interlocutor that you take him, and his view of things seriously and really give importance to his aims. Attentive listening is therefore a form of personal appreciation, and this signal has a positive impact on your relationship.
Tips for Success
• Maintain eye contact: For your conversation partner this is the most important non-verbal sign to indicate that you are fully in tune with his thoughts. Also, nodding as an acknowledgement confirms that you are listening.
• Smile: Be friendly to your partner. Smile as often as the situation allows. Show the other that you enjoy listening to him as this strengthens the emotional bond between you.
• Do not interrupt: Listen patiently. Always let the other finish. Talking over your partner is not only rude but you run the risk of not receiving important information. Even if the person has apparently finished speaking, you should wait and be silent a moment and look at him expectantly—to be sure you have not missed anything further, he wishes to say. Typically, your negotiator will then continue to talk and frequently disclose information that he may not have wanted to mention.
• Also show with your words that you are listening: Make it verbally clear that you are listening carefully, by interjecting using brief acknowledgments.
• Paraphrase and reformulate: Ensure that you have understood everything your partner has said. Every now and again repeat their own words to confirm understanding. If in doubt, ask. Reformulate for as long as you need until you are sure you have understood every detail exactly.
• Make notes: Whenever the situation allows it, you should write down what someone is saying to you. Firstly, this is a good way to better retain what has been said, and secondly your conversation partner feels he is being taken seriously. In this way you earn plus points on an emotional level.
How to Respond to Objections and What to Do When It Gets Tough
1- Regard Every Objection to a Successful Conclusion. Always see objections from a different angle: your negotiation partner needs a little more time, more information, additional advice and support. Objections are not about dealing with the negotiators but rather the common path to a successful conclusion.
2- How to Meet Objections Effectively Never reach the position of the other but instead keep an eye on it. Analyze the hidden interests behind the positions of your interlocutor.
3- What to Do if the Partner Is Unfair. Acquire appropriate defense strategies in order to respond quickly and confidently in conflict situations.
Negotiate with a sense of the benefits
Be clear about the benefits from your extensive research.
Studies show that general statements are significantly less persuasive than individual statements.
Example: Instead of saying “You can reduce fuel consumption by 5%, thanks to special additives in the fuel” (general statements).
Change to “Thanks to the special additives in this innovative fuel you can reduce your fuel consumption by 5%. You will benefite of AED 1,500 savings annually. (Individual statements).
Part of research research, you need to list all the advantages of the product, service and/or solution.
Select only those aspects which are relevant to the customer and therefore represent a real benefit to their personal needs.
Utilize appropriate questioning techniques, for example,
Benefit-Oriented Sales and Higher Prices Through Higher Value
What applies for negotiations in general also applies to price negotiations regarding the need for adequate preparation as central to success. As part of the preparation for a price negotiation you should deal specifically with the following questions:
What do you want or need to achieve? What price in this context is a clear, SMART goal of greatest importance? Load your target price according to the valuations made in your BATNA and ZOPA.
What is your strategy if you cannot enforce your target price? Consider, in this context, the conditions under which you can make concessions. Define clear boundaries and thereby identify points which are not negotiable for you.
What price is your “anchor” as you go into the discussion? Many negotiators demand through their ZOPA a price that is higher than their actual target price in order to establish a reserve price for the negotiations (compare also the remarks on the so-called anchor effect below).
What strategy do you use? Establish a strategy to allow you to convince your customers of the price.
What is the sales history of the customer? Gain an overview of recent negotiations entered with the customer and in this context find out what discounts and conditions for which products were previously agreed. This will prevent you from making unnecessary assertions (“We always give your company a 5 % discount”) which will confuse the customer.
A customer will only ever buy when he sees the parity between the price and the value of the product in terms of the personal benefit it offers. In this case, the product must literally appear to be worth its price, i.e., “price-value”. If the price is higher than the perceived individual benefit for the customer, he will feel that the product is too expensive. You then have only two options: to lower the price or to increase the personal benefits through use- and needs based negotiations with the customer.
It cannot be stressed enough that a customer does not opt for a product based on objective benefits but on a perception of its greater subjective benefits. This means you do not have to be necessarily better than your competitors, but instead need to communicate your product’s benefits more effectively. In this way they stay in the customer’s mind.
Example
Imagine you want to buy a digital camera from a dealer. You do not want to pay the suggested retail price and instead ask for a discount of 50 €. How would you feel if the seller agrees to this immediately, and gives you the discount? You would certainly think: “Had I not asked for it I would have paid too much” or “In this shop a discount is too willingly granted without further negotiations and discussions.” If you shopped more frequently here and were thus a regular customer, you might think even worse of the sales strategy of the store: “Surely I have always paid too much in the past when I have not demanded a discount. They have thus taken advantage of me in the past. I will not buy from them again!”
The example shows that you can lose out in terms of margins using discounts but also in terms of credibility. This means that you should always defend your prices at an appropriate price margin and not make it too easy for the customer. Another psychological aspect in this context is the combination of price, quality and value: the customer decides on a price, whether consciously or unconsciously, that reflects the value of the product or service. So, your price should be established with regards to inferences about the value of your product. What should you do if from the customer’s point of view the price of your product is not worth it regardless of your use- and needs-based negotiations? Since a price reduction on these grounds should only be the “ultima ratio” (i.e., the last resort), your only option is to increase the perceived value of your offer. You must thus offer the customer an additional benefit that was not previously part of your offer that or you have not yet spoken about in the context of the negotiation. More appropriate value or additional benefits may include the following aspects:
• Promotional items for retailers (e.g., a pen).
• Free accessories (for example, additional rubber car mats for the winter).
• 24-h emergency assistance (for example, free replacement car in case of repair).
• Prolonged or extended warranty (for example, free extended warranty after expiration of the statutory warranty).
• Special payment terms (for example, payment by instalments).
Aspects of price negotiations
Why It Pays Off to Enforce Prices
Firstly, the impression is given by a price reduction or discount that the original price was too high which means that in the future no customer will accept a return to that regular price.
Secondly, the customer will always try to increase their discounts on their next purchase and may use the discount originally granted as a base for further reductions.
There is no doubt that sales negotiations are more difficult today than ever before because of the continual increase in price pressure.
This is due to the following factors:
• Homogeneity and interchangeability of products: It is becoming difficult for companies in any industry to maintain a competitive advantage through innovation. This is because successful product innovation within short time spans are always copied, improved or developed by the competition and can be offered in addition to a more favorable price. So, this product become so-called commodities. The stronger this effect is the more the price moves as a primary differentiator between items into the center of the purchasing decision of consumers.
• Competitors with an aggressive pricing strategy: Many companies pursue an aggressive sales strategy by selling products based solely on price in the fight for market share. This is true for new competitors who try this low-price strategy to entry into markets.
• Intensified pressure on costs in companies: Against the background of global competition, more and more companies adhere to strict cost management. This is also reflected in their purchasing behavior: Through aggressive price negotiations they will try to minimize their respective purchase prices. In addition, buyers in a company will be motivated by variable salary components which hinge on their achieving price reductions from their suppliers.
• Increased price sensitivity of customers: consumers are always hunting for bargains—and are more self-confident in pursuit of them. This is mainly because in the Internet era, price transparency for customers has increased tremendously: supply and price comparisons are available for every customer through portals on the Internet at any time. Against this background the price pressure on a company will continue to increase as industrial and private customers within the framework of negotiations increasingly demand discounts that are not feasible in most cases and impact dramatically on profits.
Create Alternatives, and Create a List of Concessions
In practice it has proved useful to provide a variety of different offers. The customer can decide with your help which variant best corresponds with his individual needs, his desired price and other considerations. This also brings with it the advantage that you can get away from a discussion based solely on price. In this regard you can also make use of the concept derived from psychology called the contrast principle, which influences the way in which we experience the difference between multiple stimuli presented to us in rapid succession. In simple terms, this principle states: If the second thing that we see is substantially different from the first, we tend to see the two things a lot differently than we would normally. Try this small experiment: sit in front of three bowls filled with water. The left-hand bowl has been left outside in the cold, the middle is lukewarm, and the right-hand bowl is filled with hot water.
First, hold your left hand in the bowl with cold water and your right hand in the bowl with hot water. Then keep both hands simultaneously in the bowl with lukewarm water. If you have never tried this little experiment you will be surprised at the effect: Although both hands are now in the same bowl, the hand which was previously held in cold water feels that water to be very hot, while the hand which was previously in the hot water now feels the same water to be cold. What is striking is how one and the same thing—in this case the bowl of lukewarm water—can be perceived so differently because the experience that preceded it acts as a basis for comparison.
The big advantage of this principle is that it is virtually impossible to prove. Those who use it can do so without giving the impression that they are trying to manipulate a situation in their favor. Consider the following example to illustrate this in the field of retail.
Example
Imagine you want to buy a jacket and have already tried on several. The seller notes that you have chosen two jackets (A and B) for your short-list and looks at the price tags. You say that you like B somewhat better but that you did not want to spend that much. Before you decide, the seller hands you another jacket (C) to try. The third jacket really fits you well but when you look at the price tag you see that C costs much more than the other two jackets. You give the seller the third jacket back and opt for jacket B.
In the example, the seller has used the contrast principle to his advantage. The ultimately selected jacket (B) was quite expensive and more expensive than jacket A. However, the seller has provided you with another jacket (C) to choose from, and you now see jacket B in a different context and so it appears to be not so expensive. This shows that the same stimulus, such as an object, a person or an event, can be perceived and judged very differently depending on the context in which it is presented or what preceded it as a basis for comparison. You can take advantage of this effect by offering further targeted alternatives.
Tips for Success
Increase the value of your offer rather than grant a discount.
Defend your prices, because they are determined by the value of your product and your services.
A real benefit for the customer is how the product meets their personal needs and requirements.
Always put the value of your service in the mind of the customers.
Always connect price to the value of your services.
Look for additional benefits by which you can add value to your offer.
Offer several versions at different prices.
Strategies after the negotiations
After the Negotiation Is Before the Negotiation
In analyzing the satisfaction of your negotiating partner, you should contact them some time after the conclusion of the contract to inquire whether you are still satisfied, or if any issues or problems have arisen.
Reflect on the Transaction, and Document the Results
Build a database of valuable information about your negotiations with others.
Maintain and Use the Relationship
Do not be afraid to ask your negotiating partner for a recommendation, or to establish a specific contact.
In our dynamic economic world in which products and services are becoming increasingly interchangeable, next to the brand, the relationship is often the only thing that can help a business achieve a unique position.
It is important to continue your relationship with your negotiating partner even after the completion of business.
Sometime after completion, ask your negotiating partner if they are still happy with the result.
Write down all the important information about a negotiator in a corresponding database.
Seize the opportunities to network and referral database.
Communication skills
At each level of the communication process, content, voice level and the use of body language are key means by which messages are sent.
Most of the communication is mediated by body language.
Communication is not just what you say, but also what is seen by your negotiating partner.
Personal Space: Be aware of the personal space of your negotiation partner, By encroaching into this area your partner will feel harassed or become annoyed.
Invading the territory of another can be understood as an indication of overconfidence or aggression and trigger reactions to what is perceived to be a threat.
Avoid touching and hugging.
Ideal communication in negotiations
Ideal communication in negotiations means always to respect the self-esteem of your negotiation partner.
You must reinforce your negotiating partner’s self confidence in a sincere manner.
To reinforce your negotiating partner’s self-confidence, you can utilize the following techniques:
1- State compliments
2- Admire their interests
3- Stay calm, cool and collective
4- Be clear and specific (no ambiguity)
5- Smile
