Negotiation Strategy, Process, & Skills

Victor EngesserVCF Retail Advisor

What is Negotiation?• Talking with the boss about a raise?• Reaching agreement with your 9 year old about how much TV

time he can watch?• Working out pricing and delivery terms with a new supplier?• Making an offer on a house?• Agreeing with your spouse where to go on vacation?• Bargaining with senior management for the budget allocations

you need to accomplish your departments goals for the year?• Developing the agreement for a multi-year collaborative

retailer/supplier relationship?

Why Become a Better Negotiator?

• Achievement of your goals• Greater control over outcomes• Better relationships• Prevention & resolution of conflicts• Credibility

© Circuit City, Highly Confidential Document

Types of Negotiation- (in Two Party Negotiations)

• Transactional – one time events (or repeatable but with no

commitment to repeat)• Ongoing

– a series of negotiations as part of a planned continuing relationship (with carryover)

• Distributive (Single Issue)• Integrative (Multiple Issues)

Possible Outcomes- for You and the other Party

• Lose/Lose• Lose/Win• Win/Lose• Win/Win• Remember, Win/Win

Does not mean equal!

Preparation Determines Outcome• Research first

– The other person– The history– The context– The environment

• Before you sit down with the other party– What do you want?– Why should they negotiate with you?– What are your alternatives? (understand your B.A.T.N.A.)

• Must haves versus nice to have– Determine the value of each part of the deal– Never give something up without getting something in return

• Determining what is a good agreement?– Does it meet your needs?– Does it exceed your next best option?

Planning a Solid Negotiating Strategy• Identify the Main

Arguments• Work out Their Strengths

and Weaknesses• Identify Potential Sticking

Points• Anticipate the Other

Party’s Position• Work Out Concessions

You Might Offer

Reservation Price• Determining your expected value or the highest price you are

willing to pay (your reservation price) also called your “walk away” price

• Making an effort to understand the seller’s expected value or the lowest price they are willing to accept (their reservation price)

Determine Where an Agreement Can Be Reached

How much buyer is willing to pay

Amount seller wants to make

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2

Zone of Agreement

Who is happier with outcome #1? (seller surplus)

Who is happier with outcome #2? (buyer surplus)

$ $$$

Planning the Tactics You Will Use

• Think About– Timing– Method– Location– Sequence of Issues– Controlling the Release of Information– Getting Movement– Reaching Agreement

Negotiations in Business Relationships

• The foundation for building collaborative long term relationships depends on skilled negotiations

Successful Negotiations Depend On…

Knowledge

Strategy Tactics

Skill

Becoming a Better Business Negotiator

• Trial & Error?• Learn from others at work?• Go back to school?• Read-

– Harvard Business Essentials Negotiation• 2003 Harvard Business School publishing

– Winning Negotiations That Preserve Relationships• 2004 Harvard Business School publishing

– Game Theory at Work- by James Miller• 2003 McGraw-Hill

– Negotiation Analysis- by Howard Raiffa w/John Richardson & David Metcalfe• 2002 President & Fellows of Harvard College, Belkap Press

Vendor Negotiations Step 1 - Strategy

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STRATEGYSTRATEGY

PLANPLAN

Think “Big Picture” Negotiate with an

implementation mind-set

Foster negotiation as a corp capability

Conduct Background Research

Study market & customer data

Understand your portfolio strategy

Understand the vendor

Determine Key Financial Levers

Know which ones apply to your negotiation

Understand impact

Determine your options and alternatives

Plan your negotiation

Review outcomes

Confirm or Renegotiate

Conduct the meeting

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Negotiate for Implementation

• The deal & realized value should go hand and hand…

• Negotiators own the deal through implementation!

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A New Mindset•Enabling your negotiating team to transition from a deal-maker mentality to an implementation mind-set…•Start with the end in mind

– Imagine the deal 12 months out: What has gone wrong? How do you know if it’s a success? Who should have been involved earlier?

•Help them prepare– Surprising the other side doesn’t make sense, because if they promise things they

can’t deliver, you both lose.

•Treat alignment as a shared responsibility– If your counterpart’s interests aren’t aligned, it’s your problem too.

•Send one message– Brief implementation teams on both sides of the deal together so that everyone

has the same information.

•Manage negotiation like a business process– Combine a disciplined preparation process with post-negotiation reviews.– Treat negotiation as a “corporate capability”

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Conduct Background Research

– Study market & customer data–Understand your portfolio strategy–Understand the vendor– The clearer your “Perspective”

the stronger your Strategy

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Subjective Supplier Characteristics to Value

• Innovation & Core Competency• Responsiveness & Flexibility• Strength of Brand• Willingness to Partner• Distribution Strategy• Internal Connectedness• Trust• Quality of Relationship

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Role of Science

Ability to measure performance

Ability to compare performance across vendors

Ability to leverage information to secure better deals

Ability to make decisions with “edge”

•Art •Science

Good Relationships come out of good performance

Instinctively, you already use subjective criteria

Actual Supplier performance

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Consider All Financial Levers STRATEGYSTRATEGY1

Pricin

g

Payment Term

s

Turns

Compliance

Distribution

Price Protection

& Margin Protection

ExclusivityLead Times &Safety Stock

Back end

funding

Packaging

Order frequency

Marketing Funds

Returns & EOL

Support

Brand Value

FreightHandling

AVAILABILITY

Vendor Negotiations Step 2 - Plan

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EVALUATEEVALUATE

STRATEGYSTRATEGY

Think “Big Picture” Negotiate with an

implementation mind-set

Foster negotiation as a corp capability

Conduct Background Research

Study market & customer data

Understand your portfolio strategy

Understand the vendor

Determine Key Financial Levers

Know which ones apply to your negotiation

Understand impact

Determine your options and alternatives

What is your BATNA?

Anticipate the vendor’s position

Plan your negotiation

Work with your internal partners!

Plan the meeting

Review outcomes

Confirm or Renegotiate

Conduct the meeting

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Determine Your DealKnow what you want

but also what you are willing to concede

Know what your decisions will cost and the dollar rationale

Know what the vendor must keep and is able to trade

Must Have/Keep

Willing to Trade

Potential Cost/Risk

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•Know your B.A.T.N.A. and be willing to go there if the supplier will not provide

the “deal” you require-•Work to strengthen your BATNA

Preparation Assures Productivity

• Mutually built agenda (identify a ‘lead” person on both sides) • Use the phone and email to “ask”, “answer”, and “declare

ready to meet”– Research & understanding before the meeting is what

assures great meeting outcomes• Confirm the “right” attendees

– Knowledge & Authority• Work to assure “no surprises”

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Vendor Negotiations Step 3 - Execute

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EVALUATEEVALUATE

STRATEGYSTRATEGY

Think “Big Picture” Negotiate with an

implementation mind-set

Foster negotiation as a corp capability

Conduct Background Research

Study market & customer data

Understand your portfolio strategy

Understand the vendor

Determine Key Financial Levers

Know which ones apply to your negotiation

Understand impact

Determine your options and alternatives

What is your BATNA?

Anticipate the vendor’s position

Plan your negotiation Work with your

internal partners! Plan the meeting

Review outcomes

Confirm or Renegotiate

Conduct the meeting

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PLANPLAN2

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4

Conduct the Meeting EXECUTEEXECUTE3

The Art Side of Negotiating

Things to consider… When it is time to deal, fewer at the table is better Personalities & feelings really matter

Negotiating Behavior Types•Assertive

– Say what I want clearly & concisely

– Treat others with respect– Carefully listen to others– Calm, relaxed, confident– Expect win/win outcomes

•Aggressive– Say what I want in a

demanding manner– Bully, cajole & coerce– Don’t listen well to others– Interrupt others– Look for win/lose outcomes

•

•Passive– Don’t say what I want– Go along with others– Fail to accept responsibility– Hesitant or nervous– Hard to express needs clearly– Expect lose/win

•Manipulative– Indirect & expect people to know

what I want– Sarcastic– Behave passively with aggressive

intention– Often find win/lose outcomes in

disagreements

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A Few Tactics Every Good Negotiator Should Recognize…

• Hiding information & misrepresenting capabilities• Needing to refer to a higher authority• Anchoring (making the first offer)• Concessionary moves & splitting the difference• Tying deal elements together• Threats (i.e. timing & escalation)• The role of time• Red herrings to distract or create concessions• Displaying emotion to get an advantage

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Non Verbal Behavior (examples)

• Don’t read too much into any physical clue, but always be on the lookout so you can react and respond as needed,

• Rubbing Neck• Hand to nose, mouth, eyes• Chewing on glasses• Taking off glasses, rubbing bridge of nose• Hand supporting head• Hand on side of face with finger up• Folded arms• Hands behind head, or hands together (steeping)

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Conduct the Meeting EXECUTEEXECUTE3

When to Talk & When to Listen

Things to consider… When should you lead the conversation? When might silence be the best response?

The “Art” of Listening• Physical Listening

• Facing the speaker• Eye contact• Open posture• Avoid fidgeting• Don’t interrupt

• Psychological Listening• Listen for the central theme• Think ahead• Analyze & evaluate• Listen for how it is being said• Listen for what is not being said

•

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Wrap Up the Meeting

Proper Conclusion is Key Summarize agreements Identify the next steps/timeline Establish who will write meeting notes Determine necessary follow-up Understand how the deal will be

implemented Know deal breakers vs. minor adjustments

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Vendor Negotiations Step 4 - Evaluate

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EVALUATEEVALUATE

STRATEGYSTRATEGY

Think “Big Picture” Negotiate with an

implementation mind-set

Foster negotiation as a corp. capability

Conduct Background Research

Study market & customer data

Understand your portfolio strategy

Understand the vendor

Determine Key Financial Levers

Know which ones apply to your negotiation

Understand impact

Determine your options and alternatives

What is your BATNA?

Anticipate the vendor’s position

Plan your negotiation Work with your

internal partners! Plan the meeting

Review outcomes

Confirm or Renegotiate

Conduct the meeting

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PLANPLAN2

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4

Review the NegotiationEvaluate the Outcomes Did you get what you needed? Did the vendor get what they needed? Was the deal collaborative and partnership-

oriented? Do you need to renegotiate anything? Do you need to escalate the situation? Have you debriefed with your team? Who else needs to be informed of outcomes?

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Thank You!Remember,

Preparation, Perspective, BATNA, & Realization of the Deal