Preparation
The most important part of preparation is to practice – essential if you are to execute well.
Also, know about the party you're negotiating with so you can capitalize on your strengths and the other party's weaknesses. It may be that they are very experienced, but this also means that they have built up a reputation and history. If possible, talk to business associates who have dealt with this person before. Many negotiators develop patterns and certain styles that you may be able to use to your advantage.
If you are a buyer, be completely familiar with the product or service under negotiation. If the other party senses you are weak on such details, you may be a prime target for a bluff or another technique designed to create anxiety and uncertainty. Psychology plays a crucial role in your ability to make the most of the other party's lack of preparation and anticipate their next move.
Most negotiators have a price target or goal in mind. It should be based on realistic expectations, considering all the constraints. These might include budget limits, direction from management, pressure to make sales goals, and many other external forces. During the course of the negotiation, the goal may change based on changes in scope and other unforeseen actions by either party. While your ultimate goal should be realistic, this should not constrain your first offer or counteroffer.
Before you start the negotiation, ensure that the other party is fully empowered to make binding commitments. How frustrating it is (to put it mildly) to believe you've struck a deal, only to discover that your agreement must be approved by someone higher in the chain of command.
Strategy
There are basic principles that apply to every negotiation. The first offer is usually the most important and becomes the benchmark. Make your first offer bold and aggressive. The asking price is just that, and will typically include a pad or margin to give away during negotiations. Start lower than the seller expects. As long as your offer is not ridiculous, the other side will continue the negotiations in the hope of settling at a better figure.
As a buyer, do not disclose your budget or other limitations in your negotiating position. A favourite ploy of salesmen is to reshuffle the product parameters in order to sell you an inferior product to fit your budget. You want the best product you can get for your money, so employ an approach that maintains the possibility of spending less than you had originally planned.
Always have something to give away without hurting your negotiating position. If you're submitting a project price proposal to a buyer, consider including some nice-to-have items that aren't critical to the success of the project. If the buyer takes those items out to reduce the overall cost, you haven't lost anything, but it may help the buyer reach his price target. Employing this strategy however must be viewed in the context and in consideration of what other bidders may be doing.
Watch for clues such as body movement, speech patterns and reactions to what you say. According to Amy Cuddy, social psychologist, Harvard Business School assistant professor and Program on Negotiation faculty member, how you behave not only impacts the perception others have of your relative strength or weakness, but also affects your negotiating skills and negotiation tactics. Behavioural cues are “highly specific, evolved nonverbal displays” that demonstrate an individual’s assessment of his strength or weakness at a subconscious level.
Be prepared to suspend or cancel negotiations if you feel things are getting nowhere or the other party seems stuck in their position. Indicate your reluctance to continue under those conditions and make the other side wonder if you are ever coming back. If they are anxious to cut a deal, they will feel the pressure to move. Be patient even if the other party isn't.
From a contractual standpoint, a counteroffer automatically rejects all previous offers. Once an offer is made, you should expect an acceptance or rejection of your offer, or a counteroffer that keeps the negotiation open. If the last offer on the table is yours, always insist on a counteroffer to force the other party to move his/her position before you make another offer.
Also worth a read: 10 Powerful Tips to Boost Your Sales.
Leverage
If you're the only source available for a particular product, you have tremendous leverage. If economic conditions have created a market in which the product you're selling is in great demand and low supply, that gives you greater bargaining power. If you are the buyer in a depressed economy, you normally have the advantage of too much supply and lower demand.
Establish a strong foundation early in the process by demonstrating your knowledge and expertise of the subject matter. This might intimidate those on the other side and it's easier to take the initiative and steer the process in the direction you want.
The Offer
An offer is more than just an amount of money. It must encompass all of the elements of the bargain and will normally comprise the basis for a formal contract. If you make an offer without nailing all of the specifics, you may find out later that there was no meeting of the minds with the other party. The basis of the bargain should include: offer price (in proper denomination), statement of work (scope), identification and quantities of goods or services, delivery schedule, performance incentives (if any), express warranties (if any), terms and conditions, and any documents incorporated by reference.
Keep some bargaining chips in your back pocket until you need them to close the deal for the price you want. Trading one element for another - such as a lower price for a more relaxed schedule - is a common tactic. While your primary focus is normally on price, you should always keep all the other components of the deal in the forefront of your mind. Everything, including the fine print, is open to change. If the other party refuses to alter onerous terms, consider walking away.
To avoid misunderstandings, offers should be presented in writing and include all elements of the bargain. Keep private notes along the way so that if things go awry, you have all the rationale to restart negotiations. If you work for a company or the government, those notes are usually required anyway to document the negotiated outcome and complete the contract file.
A Win-Win Solution
Throughout negotiations, try to determine what you believe to be the acceptable outcome and priorities for the other party. It is usually price but delivery date or product quality might be the drivers. What would you do in their place? Your offer must attempt to satisfy their priorities without weakening your position. You can concede the little things without compromising your bigger picture.
Your goal should be to secure a good deal without humiliating the other party. This is especially true if you will be negotiating with them on a recurring basis. Once the negotiation is completed, even if it got heated, you want to be able to work effectively with those in the other party during contract performance. If they feel pushed into a corner they probably won't negotiate with you again, possibly cutting off any future business. Sometimes collaboration and compromise are needed to get a deal done.
Closing the Deal
Negotiation is like chess in that each move should be designed to set up not only your next move, but several moves down the line. Generally, your moves should get progressively smaller, and you can expect the same from the other party.
Always have the endgame in mind as you plot strategy, and be prepared at some point to split the remaining difference. It's almost inevitable when the parties are close but can't seem to make that last leap. That's why all the offers leading up to that point are so important: they will set the stage for the final handshake.
Sources
- The Art of Negotiating by Michael Sanibel, Entrepreneur Magazine:www.entrepreneur.com/article/203168.
- Business Negotiations: Representing Others at the Bargaining Table by Pon Staff , Harvard Business Review: www.pon.harvard.edu/daily/bus.
- Global Negotiation Services: blog.negotiators.com/category/negotiation-examples.
- The Negotiation Experts: www.negotiations.com/training/.