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If you are a frequent reader of this column—and by the way, if you are, a heartfelt thank you—you may recall the article that addressed the issue of avoiding premature negotiations (see Digital Graphics, Nov. 2007, pg. 62). You know…those times when many sales professionals don’t realize (until it’s too late) that they’ve been drawn into the vortex of arm-twisting and blood-sucking by a cunning customer. I fear many sign and digital graphics business owners are unaware that their sales representatives are negotiating on behalf of the company, and potentially leave gobs of money on the table because of a severe skill deficiency in this area. For that matter, many business owners themselves have not been properly schooled as to how to enter into and emerge from a grueling negotiation with more than they expected… and a satisfied customer to boot.

 

Now, I am not a huge proponent of entering into negotiations with just any customer or prospect. The art-and-science of negotiation should be reserved for key customers, when, if the relationship and deal should fall apart, both sides end up losing. Or, for that very lucrative opportunity when the customer needs to feel they’ve made the right—and often, long-term—decision to go with a supplier that will work with them.

 

Ironically, the eventual success or failure of most negotiations is decided before both parties sit down to begin the festivities. Why is that true? Because ultimately, successful negotiations depend on the amount of time and effort in the planning both seller and customer invest, as well as each individual’s commitment to working toward a win-win outcome. Failure to plan and/or entering into negotiations with a “we’ll win, they’ll lose” approach dooms the entire process from the get-go. Let’s first revisit the four criteria that must be met before entering into a supplier-client negotiation, and then explore the five viable alternatives—and the order in which they should be considered at the negotiation table—that improve the probability of a successful result. Let’s roll, shall we?

 

The four criteria

Negotiations are a subset of selling. All negotiations are a form of selling, but not all selling skills should involve negotiation. First, let’s define what a sale is: A sale is an agreement to pay a price—or provide comparable value—in return for deliverables under specific or implied terms and conditions. For example, I drive into a gas station, see the advertised price for a gallon of fuel on the gas pump, swipe my credit card, and dispense gasoline into my SUV. When I am done, I replace the nozzle, replace the gas cap, collect my receipt and drive off. No negotiating took place in that sale.

 

But let’s say I then drive to a car dealership to look at the models on the lot. In mere seconds, I am intercepted (taken hostage!) by a very assertive sales person. “She’s a beaut, isn’t she? What would it take for you to drive home in this honey today?” Gosh, I love that sales technique... not! Yet in this scenario we have the ultimate example of premature negotiation.

 

What was different between these two sales situations? The price of the car was clearly displayed on the sticker. I can readily determine the value relative to the price. I know I would have to abide by the terms and conditions of the loan if I needed to finance the vehicle. Thus, the answer to the question is that there was really no difference—or shouldn’t have been—in the two scenarios. What was different was the sales person’s assumption that I was disagreeable to the sale.

 

It may not be that extreme among your sales team, but are they volunteering price concessions or “sweetening the deal” whenever the client takes a moment to think about it? Too often, sales people misinterpret silence as rejection of the offer, when in fact, all the customer may be doing is trying to figure out how to make the payments on it or justify the decision to his/her boss, partner or spouse.

 

In order to improve the chances for a win-win outcome, these four qualifying criteria must be met before any negotiation begins:

• The salesperson or organization overtly states the price, deliverables, terms and conditions of the proposition.

• The customer raises an objection that the salesperson or organization cannot overcome with benefits. 

• Both parties confirm that all objections have been raised and are on the negotiation table.

• Except for these differences, the customer indicates there is a conditional commitment to do business.

 

And it’s not a case of three-out-of-four-ain’t-bad. If any of the four criteria are not met, the salesperson or the customer will not be able to negotiate a win-win outcome. Without a doubt, someone is going to lose. Period.

 

It’s not unusual for salespeople to ignore or overlook the last of the above list of criteria. Unless the salesperson consciously remembers to ask the prospect the question, “Except for the items that separate us, we have a deal?” She has not secured conditional commitment. Engaging in negotiation at that point could prove detrimental to the sales effort.

 

Five viable alternatives

Once all four criteria are met, and assuming the opportunity is still worth pursuing, the sales organization needs to determine who will represent the company in the negotiation. Once decided, a vendor team should be formed to brainstorm all of the possible alternatives and variables that can be offered during the negotiation. Any aspect of the price, deliverables, terms and/or conditions are up for grabs in well-run negotiations.

 

Many inexperienced negotiators think that the price is the only variable that can be adjusted. That is furthest from the truth. Along with the quoted price could be a trade-out of goods and services that can be substituted for money—a.k.a. bartering. Deliverables can be varied by quantity, quality, scope of services, specifications, substituting used for new materials, and the amount of technical support or training that comes with the product. Terms and conditions can be altered as well—such as adjusting delivery dates, inventory or warehousing considerations, alternative packaging or shipping means, performance guarantees or replacement of defective materials, payment terms, volume rebates, and length of contract, to name a few. Still, price and deliverables are the obvious bargaining chips in the negotiation game.

 

The variables of the offer form the five negotiating alternatives. They are, listed in order from most to least desirable:

• Making a trade-off

• Adding an enhancement

• Splitting the difference

• Making a concession, and

• Establishing a “walk away” position.

 

By far, the best choice to increase your chances for a win-win outcome is making a trade-off. When you make a trade-off, you propose to give the customer part or all of what she needs in return for something of comparable value—exclusive of what is contained in your original offer. Therefore, trade-offs involve changing two or more aspects of the initial proposal, thus preserving the balance in value between what the client and supplier give and get.

 

Let’s consider some examples. If the difference is over price, both the price and the deliverables may be changed—lower per-unit price for a larger order or a lower overall price for less items. If you lower the price but don’t change the deliverables, you’ve made a concession—although I often hear negotiators claim, “Yeah, but ended up getting the business, so didn’t we win?” No, not really. Think of it this way: If you conceded on the original price while keeping all of the deliverables, terms and conditions the same, why didn’t you offer that price in the first place?

 

When beginning the negotiation, it’s fair to ask the customer to define specifically the gap between the original offer and what she needs to make the deal happen. Get all of the obstacles out on the table—a.k.a. the third criteria—before proposing a trade-off or any of the other alternatives.

 

Adding an enhancement means that instead of giving your customer what she asks for, you add value to your proposal in some other way. Optimally, the enhancement should be of low-cost to you and high perceived value to the customer. For example, let’s say the original offer was for a six-month, no-cost, service agreement. The customer needs a free, 12-month service agreement. If the final agreement is for a six-month agreement, but the customer can access a self-diagnostic tool online for 12-months, you’ve added an enhancement. Chances are there will be only minimal need for any service, of course, because your quality is superior to your competition.

 

When you split the difference, you and your customer find a mutually acceptable middle ground somewhere between what you proposed and what she needs. Often, this middle ground is exactly halfway between your two positions—but it doesn’t have to be. A case of splitting the difference could be where your initial offer called for terms of “Net 30 days,” but the customer states she needs “Net 60 days” payment terms. You both agree and accept terms of “Net 45 days.” Because splitting the difference is really a partial concession, it should be used sparingly.

 

Making a concession describes exactly what takes place in the negotiation—and unfortunately, occurs far too often. It is giving the customer what she needs and getting nothing more in return. Understand that making concessions can jeopardize the profitability of the sale or the sales organization’s reputation for honoring its commitments—along with setting bad precedence for future negotiations. Try to save this alternative for the end of the negotiation when there is only a trivial gap between you and the customer.

 

Just walk away

If you spend any time in negotiations, you will encounter situations where your needs and those of your customer are simply incompatible. Know, before going into a negotiation, that specific set of conditions when no combinations of alternatives will be able to produce an agreement where no one loses. In such situations, it is better to walk away from the deal than to come away with a losing agreement.

 

Walking away may appear to be a negative action, but, in reality, it reinforces your commitment to being a fair-but-firm negotiator, and it should not prevent you and your client from doing business in the future.

 

The next time you detect your business is close to landing a big deal but you find that there is still a gap between the two parties, take the time to ensure all four criteria have been reached, a significant number of possible alternatives have been identified and thoroughly analyzed, and the negotiator is fully aware of his options and authority. Good luck!