How to Negotiate

© Copyright by William A. Cohen, 2005

Adapted from How to Make It Big as a Consultant, (AMACOM,  2001)

Robert Ringer describes an amazing negotiating incident in his book, Winning Through Intimidation. Ringer had been observing a difficult negotiation in which a businessperson he knew had ruthlessly demanded and re­ceived outrageously advantageous terms. The other party had agreed to these terms because he was clearly desperate to get the contract. Further, there were heavy penalties for failure to comply with all of the terms of the contract. On the way out, Ringer commented to this businessperson that it would be very difficult for the other party to live up to the terms. The businessperson smiled and said, "If you look at the contract carefully, you will see that he is already technically in violation of the contract. ¹"

Unfortunately, many leaders become so desperate that they also negotiate extremely unfavorable terms. The newsreels were rolling when the Prime Minister of England, Neville Chamberlain returned from negotiating with Hitler in September of 1938 announcing that his agreement with Hitler meant “peace in our time.” Contrary to other guarantees made by his country, Chamberlain had agreed to stand aside while parts of Czechoslovakia were annexed by Germany. He got nothing except a promise in return, and the promise was broken less than a year later.

Don't let this happen to you! Never negotiation out of desperation. Never agree to “give away the store” for promises. And most importantly, prepare for the negotiation before you begin.

Goals, Objectives and Limitations in Negotiations are Important

You may never understand the full situation, including limitations and pressures that affect the way your negotiating partner negotiates. You may be interested in a win-win outcome, but there are very broad definitions of what a win-win negotiation is, because this means different things to different people. For example, The Munich Agreement, where Chamberlain agreed to the dismantlement of a friendly foreign country and its incorporation by Germany in exchange for Hitler’s promise not to seek any additional land acquisitions in Europe was by definition a win-win.

Why? Hitler got the land he sought and Chamberlain got peace --- at least for the time being. You’d have to agree that from each negotiator’s perspective he achieved his goal.  However, there were pressures on both. There were political pressures on Chamberlain from the British public to avoid war with Hitler at almost any cost. Hitler knew this. But Chamberlain didn’t know that there were severe pressures on Hitler, too. His generals desperately wanted to avoid a war in which they were not as yet fully prepared and in which they would probably be opposed by the armies of England, France, Poland, and Czechoslovakia.  In fact, the Czech army had a reputation as one of the best armies in Europe. After the Munich Agreement, Hitler no longer worried about the Czech army. But at the time, Hitler’s generals feared that if the British stood tough and threatened war, Germany would have to back down. They thought that Hitler had overstepped what he would be able to get away with.

When I teach negotiation, one of the simulations I use is negotiation for the purchase of a computer. The computer sellers are given the following instructions which they instructed not to reveal to the buyers:

 

“You are the vice-president of sales of a company that designs computer systems for business. Yesterday you received an emergency notice from top management. This message told you that you must withdraw and junk one of your older models, the XC-1000 computer, immediately. This is due to the implementation of a government regulation requiring additional features to prevent tampering, which this model does not have.

“Unfortunately you cannot modify the XC-1OOO, as it was built to "last forever." You can't even use it for parts. By law you must sell or get rid of all computer systems such as the XC-100O by April 3 (this is April 2!). After that date, you cannot offer it to the market at any price. You can't even give it away.

“Fortunately you have only one of the XC-lOOOs left in inventory. In fact you haven't sold any of these models in several years. This morning your assistant contacted the Acme Junk Company. rt agreed to pick up your XC-1000 and melt it down to sell for scrap, at no charge to you.

“Before you can make final arrangements, you re­ceive a call from Consolidated Unlimited. Its director of MIS would like to meet with you tomorrow about the possible immediate purchase of an XC-1O00. You tell him there is one left and that the price is negotiable. You delay your arrangements with Acme and begin to prepare for your meeting with Consolidated.”

 

 Those playing the roles of computer seller feel the pressure of having to sell to this potential buyer or getting nothing for the computer at all. They are desperate to sell, yet don't have much of a product. They are probably wondering why in the world Consolidated Unlimited wants such a system.

 I designate another group as buyers. They also receive confidential instructions. If the sellers knew what these instructions were, they would know that Consolidated Unlimited was desperate to buy this exact product and would probably be willing to pay quite a bit more for it than might be expected. The instructions to the buyers are:

“Several years ago, you became director of Management Information Systems for Consolidated Unlimited, a small company manufacturing copper tubing. One of your first actions was to buy an XC-1000 computer. One of this computer's most attrac­tive features was its lack of need of maintenance. In fact, when you bought the computer, it came with a three-year money back guarantee if the computer didn't per­form in any way. For three years and one month, the computer performed beautifully, but this morning your XC-1000 failed completely.

“One of the first things you did was have your assistant look for a newer replacement model that would perform the same functions. Unfortunately, as your com­pany grew, all functions were built around your XC­1000, 50 you have very limited options. As a matter of fact, the lowest-priced replacement computer other than an XC-1000 is $50,000.

“You made some tentative calls around the country to other companies that you knew had bought XC-1000s. You discovered that most companies had replaced them long ago. You were also a little concerned about buying a used model, since none were less than three years old and the guarantee had expired.

“You called the president to apprise her of the prob­lem, but her response was, ‘Get another new XC-1000.’ You called the manufacturer of the XC-100O and ar­ranged a meeting with the vice-president of sales tomor­row for an immediate purchase of an XC-1000. When you asked her the price, she told you there was one left and the price was negotiable. You began to prepare for your meeting.”

Now you can see that both parties to this situation have a serious problem. If the sellers do not sell the computer, they get absolutely nothing. If the buyers do not buy the computer, they must pay $50,000 to get another system elsewhere. And of course, the president of the buyer's company has flat ordered that one of these computers be purchased. So you see, at any price other than zero or $50,000, both sellers and buyers gain. It is a win-win situation as long as they come to an agreement within these limits.

However, if we were calculating a fair price, we would probably agree that it would be the midpoint between zero and $50,000 - that is, $25,000.

But remember, neither side has the information that the other has. Both know only of their own problem, and not the main problem putting pressure on the other party.

What results do I get? Interestingly, the prices vary widely between zero and $50,000 among different groups of buyers and sellers negotiating on the same day. Yet conditions are the same for all.

The last time I gave this exercise, it was to four groups of graduate students. The prices for which the computer was sold were $2,500, $12,500, $27,300, and $45,000.

This should tell you that in any situation in which you are negotiating with a client, you do not know the client's side of the story, and he or she does not know yours. Therefore, even if poor cash flow or some other situation causes you to be hungry for a job, you still want to negotiate for what you are worth.

How can you best do this? The key is preparation.

Preparation: The Key to Negotiation

For all but the simplest of negotiations, you can assume that your negotiating partner is going to get all of the needed data together. He or she is going to do his homework, check the facts, prepare and anticipate your arguments, and de­velop responses to them. Most important, he or she will develop specific negotiation objectives related to what you want, performance, or timing. To be prepared, you must do the same.

Do more than review your facts. Know the areas in which you can afford to be flexible and where you must stand fast. If your negotiation involves money, know the price for your services below which you cannot go. Know the areas in which you can speed things up and complete your tasks earlier and where you cannot. Understand where you can increase or decrease the level of performance and what this will cost or save. And most importantly, write down your specific negotiating objectives.

What if your negotiating partner fails to do his preparation, or doesn’t do as good a job preparing as you? In that case, you have the advantage in the negotiation. I know you want to treat everyone fairly, and do not want to take advantage of anyone. However, you should keep two things in mind. First, not everyone feels as you. Some feel as the businessman that Robert Ringer described. These individuals will try to wring every advantage they can from the situation. Second, if you are in control, you will be better able to negotiate an engagement which works to everyone’s benefit.

The Negotiation Plan

To reach your objectives successfully, prepare a negotiation plan. The negotiation plan should include an overall objective and a target figure if monetary, performance specifications, quantities, or anything with numbers is involved. Write down your limitations. As I mentioned earlier, know your bottom line conditions, below which you cannot go without losing money. Then work out a strategy to achieve your objectives.

Your strategy in reaching your planned price objective might be simply to restate the price in your proposal. If this is questioned, you might show how your pricing is similar to or lower than pricing on other jobs that you or others have done. You might compare this price against the benefits that

will be achieved as a result of your work. Finally, if price is still an issue, you might have a few fallback positions to show what you can accomplish for lower prices.

At every step, you should anticipate questions or objec­tions, work out answers to the other party's questions, and counter his or her tactics to overcome objections.

Negotiation Gamesmanship

Even where both parties try to look out for each other’s interests, a great deal of gamesmanship goes on in any negotiation. Some tactics are no worse than beginning at a higher price than you actually want because you know that your client always wants to negotiate you down to a lower price. However, some prospective clients, again like the businessperson noted by Robert Ringer, see any negotiation as a competition that must be won at all costs. Such individuals may use a wide variety of tactics against you, some of which may be highly unethical.

Some people believe that lying in a negotiation is per­fectly acceptable. A friend of mine who teaches negotiating says, "A lie is not a lie when the truth is not expected." He points out that when labor and management are negotiating, one or the other will make a statement something like this:

"We will never, never agree to these terms. Never, never!" The next day, the contract is signed under the very terms they claimed they would never_, never agree to. Was the statement that they would never agree a lie? You must make your own judgment about this. But in any case, you should be ready in case a prospective client misrepresents or uses any negotiating tactics against you.

Here are some of the more common ploys used:

Make the other party appear unreasonable. Your negotiating partner may point out that a competitor charges such and such or has agreed to certain terms that you won't agree to. The implication is that something is wrong with you and the way you do business. That you are being unreason­able.

Your defense against this tactic is to point out how this situation is different from the others. Of course you can always add what I consider the ultimate response: "I am a lot better at _____________ than those you have mentioned."

Put the other party on the defensive. Your negotiating partner may ask a question for which you are unprepared. This is another good reason to make certain that you are as pre­pared as you can be.

Maybe the party you are negotiating with has a top dollar limit to his or her negotiating authority, which you both know is $100,000. During the negotiation, you agreed not to go above this amount. Just as you think you have a deal, your prospective client asks a question like this: "You aren't going to embarrass me by making your price so close to $100,000 that my supervisors will suspect what we are doing?"

Being on the defensive, you could end up dropping your price several thousand dollars to protect the other party's "vanity." You may still be profitable several thousands of dollars lower, but if that is below your standard price, it is less than you are worth, and the difference comes out of your pocket. Chances are, your negotiating partner gets his or her bonuses this way.

If you are prepared for this ploy, you can say something like, "I'm sorry. I've been negotiating in good faith. This is my best offer."

Blame a third party. Here your negotiating partner attempts to shift the blame for unwillingness to give in on a negotiating point to someone or something over which he or she has no control: "I agree with what you are saying, but it's the policy of the company. It won't allow me to do it."

This is a difficult problem to overcome. It may mean that your negotiating adversary absolutely will not give in on this point. If you feel strongly enough about the issue, you can test it by refusing to give in and suggesting that the negotia­tions be suspended while the other party checks out the situation with "the boss." Or you can explore how you might achieve the results you want while not violating this "company policy." For example, if you want money up front but company policy is not to pay until work is done, you can suggest an additional progress payment shortly after an early contract milestone.

Play good-guy, bad-guy . The good-guy, bad-guy technique began with the interrogation of prisoners. One interrogator, the "bad guy," would yell and scream and even beat the prisoner. If he didn't get the information he wanted, he would leave the room. Then the "good guy" would enter. The “good guy” would offer the prisoner a cigarette and com­miserate with him on what a monster the other interrogator was. He might even embellish his partner's performance by describing how another prisoner had died under the bad guy's interrogation. The “good guy” would suggest that the prisoner give part of the information or make a reduced confession just to appease the “bad guy.”

This works because of the contrast between the two interrogators. Someone under the extreme pressure applied by the “bad guy” is in need of support, which the “good guy” provides. The “good guy's” demands seem small in compar­ison with those of the “bad guy” and the prisoner is more likely to go along with them.

The same technique is sometimes used when you are negotiating with more than one member of an organization. The "bad guy" continually puts pressure on you and rudely presses every point. While you won't get slapped around, the “bad guy” may actually yell and scream. The "good guy" says something like, "Gee, I think it's terri­ble the way he is behaving. Maybe if you can give him just a little of what he wants, he'll be satisfied. If you can do this, I'll try to help."

When you see this kind of performance, just remember that it is probably exactly that - a performance. When nego­tiating with another party, the two may actually switch roles! Just remember that both are on the other side of the negotiation, and look out for your own interests.

Raise straw issues. Straw issues are non-issues. They really aren't important to your negotiating partner at all. However, they may be strongly introduced as a negotiating point so that they can be given up later in exchange for a real concession from you.

During the Cold War, the Soviets, who were quite good at negotiating, did this all the time. They would sometimes introduce positions that were completely unreasonable. They would allow themselves to be ne­gotiated out of these positions in exchange for major conces­sions on the other party's part. As a result, right up until the end, some of the arms control treaties negotiated with the Soviets were quite lopsided in their favor. Yet when asked how it could have possibly agreed to such terms, our negotiating team would respond, "But you should have seen the position they started with!" When your adversary is unreasonable or intro­duces straw issues, offer little or nothing in exchange for dropping them.

Walkout. The walkout ploy is used infrequently because it may be difficult to get negotiations going again if the ploy fails. Your prospective clients say something like, "We can't pay any more and that's it." Then they prepare to leave. This is a supreme test, and you can either attempt to move toward their position or call their bluff and let them go. Many times, even if they leave, you can call them later and reopen negotiations. Sometimes they will even call you to reopen negotiations. But occasionally they are not bluffing. I am biased in favor of letting them go, unless you really have been unreasonable previously; otherwise they're going to think that you're desperate and take advantage of you even more.

Ask for a recess. This is almost always a good tactic because it breaks negotiations temporarily, but does not break off negotiations. It allows the air to cool and may offer an opportunity for either side to rethink its position. if your adversary calls for a recess, don't panic. It may be called simply to put pressure on you while you ask yourself why it was called. Sometimes a negotiating partner calls a recess when you are in a hurry, as when you must catch a plane. In that case, you can show your resolve by refusing to accept the pressure: Reschedule your flight. if necessary, stay an extra day.

Use time as a pressure point.. Time is money. You know this, and so does your negotiating adversary. He may try to put pressure on you to come to an agreement on his or her points by using delaying tactics. The recess is one way of doing this, but there are many others. For example, a negotiating partner may say, "We can't continue to negoti­ate past three o'clock because we have some people flying in for an important meeting."

What can you do? Tell him or her, "I understand, but I want to be certain that the engagement gets started right. Then we won't have problems later. If you aren't available after three o'clock, let's set a time when we can complete our negotiations."

Some General Negotiating Hints

There are an infinite variety of negotiating tactics which you may encounter. Your best defense is to prepare ahead of time. Here are some general hints for negotiating that will help you to negotiate fairly, yet competently:

1.   When things get tense, try humor.

2.   Don't ridicule or insult anyone. Don't be rude. Be courteous and  considerate.

3.   Don't try to make anyone look bad.

4.    Be reasonable. (unless you are using being unreasonable as a tactic).

5.    Try to find the best solution which meets the interest of both parties.

6.      Negotiating means both talking and listening. Remember to do both.

7.   Don't accept any statement made by the other party as 100 percent accurate. Remember, the person may be honest and trustworthy, but he or she may be "just negotiating."

8.   You can give in on small points, but fight hard for the issues that are important to you.

9.   Price may be only one aspect of the negotiation situation. Remember that you can also manipulate time and performance or other aspects of the situation. 

10.  Don't forget the computer negotiation example mentioned earlier. You  don't know your prospective client's situation. Chances are you are in  at least as good a position as your negotiating partner.

11.    11. If you see a good offer, take it. Don't feel that you must a]ways knock something off a deal that is offered you.

12.    12. Don't discuss an issue you aren't prepared for. If something comes up  for which you aren't prepared, defer the issue until you are.

13.   13.  Don't assume that the other side completely understands all the advantages you are offering. Take the time to spell them out.

13.    14. Don’t make big changes in your offer to get a quick deal; give in very slowly and in very small bites.

14.    15. Never tell anyone how you outsmarted anyone in negotiations. It could come back to haunt you. Some years ago, Donald Trump sold Merv Griffin a casino for hundreds of millions of dollars. Trump later went on national television saying that he had “taken” Griffin to the cleaners. Not too long afterwards, Trump went bankrupt. Did one have anything to do with the other? I don’t know, but if Merv Griffin had an opportunity to return the favor and “renegotiate the deal” through his influence in another situation, you can bet he would have done so.

      When you are eager in some situation, you may have a tendency to rush into negotiations ill prepared and eager to get them over with. Negotiations are an important part of everything you do. Take the time to do it right.

 

1.    Robert J. Ringer, Winning Through Intimidation (New York: Fawcett Books, 1979).