Counterpoint CoursesBuilding Excellence in Procurement and Communications

Essential Negotiation Skills

Find it in Worcestershire – 16 June 2014

Ros Howard and Steve Mallaband

16 June 2015 4

There is no right answer

16 June 2015

Seller

LDO

218MDO

348How do you decide the price

within this range?

ZoMA

40

BuyerLDO

258

MDO

As cheap as

possible

5

MDO = Most Desirable Outcome

LDO = Least Desirable Outcome

ZoMA = Zone of Mutual Agreement

An agreement may not be possible

16 June 2015

Buyer

Seller

LDO

120

LDO

100

MDO

348

No ZoMA

MDO

As cheap as

possible

6

Have cheaper supplier

Lowest daily rate

Knowing when to walk away

As a Supplier you should know your LDO: the

lowest price you will sell at, for given terms

As a Buyer you should know your LDO: the

highest price you are prepared to pay, for given

terms

16 June 2015 7

BATNA – Best Alternative to Negotiated

Agreement

There may be no ZoMA, which means you should

know what your BATNA is:

As a supplier: we can find other customers who

will pay more

As a buyer: we can find other suppliers who will

charge less

16 June 2015 8

When should we negotiate?

There is a belief that the problem can be solved

But

the parties have different interests

There is a willingness to work together

But

the parties do not know if they can trust each other

16 June 2015 9

What can we negotiate?

Buying and selling of goods, services and works –

getting into contracts

Termination of contracts – getting out of contracts

Changes to contracts

Extensions to contracts

Price rises

Disputes and claims

“In business as in life, you don’t get what you

deserve, you get what you negotiate”

16 June 2015 10

The mind of the salesperson

16 June 2015 11

Volumes

Training

Training

Training

Relationship

The mind of the buyer

16 June 2015 12

Savings

Fairness

16 June 2015

Is this fair? Or is this fair?

13

Is it fair that a supplier should always make a profit?

The negotiation process

16 June 2015 14

Close/Agree

Propose/Bargain

Exchange Info/Debate

Open

Preparation

Implementation

Be prepared!

16 June 2015 15

Look at the market to see where the power

lies

16 June 2015

Who has the power is often set by the market

16

Rivalry among existing

competitors

Threat of new

entrants

Bargaining power of buyers

Threat of substitute

products or services

Bargaining power of suppliers

Interests

Interest: An interest is what lies behind the need to

negotiate

Buyer

Wants to buy courses at a price significantly less than public

courses

Seller

Wants to sell lots of courses at a good daily rate

16 June 2015 17

Trainalot’s interests

To sell as many similar courses as possible – preparation

costs time

To achieve an average income of 20 counters per day

In general a course takes 2 days to tailor (and a lot more to

create from scratch)

If public courses then need to recover marketing and

administration costs (+30%)

If private course and travel involved want to recover at cost

For four courses at client’s site, would want to charge at least

218 counters

16 June 2015 18

Drinkalot’s interests

Currently use external courses at 10 counters per delegate

(including expenses)

Quick market review for in-house training indicates that

discounts of up to 20% available because no need for

supplier to market event and find premises

Also for in-house courses Drinkalot do not need to pay

expenses for delegates, only expenses for trainers

Leads to expectation of 6 counters per delegate = 240

counters for 4 courses of 10 delegates, plus trainer’s

expenses of 18 counters = 258

For four courses at own site, would want to pay at most 258

counters

16 June 2015 19

List your tradables

Price

Volumes

Time of delivery

Location

Expenses of delegates

Expenses of trainers

Payment terms

Travel time

16 June 2015 20

What is the value of your tradable to you,

the seller, Trainalot, and to them?

16 June 2015 21

Value

to me

Value to

buyer

LDO MDO BATNA

Price H H 40 per

course

60 per

course

Find other buyers

Volume H M 2 courses 4+

courses

Could do 1

course but price

higher and with

preparation

Location L H Our

premises

Drinkalot

premises

Don’t care

Preparation

payment

M M 2 days 3 days Spread over

course fee

Payment

terms

M H 60 days 30 days Would accept

advance payment

Staged

payments

What is the value of your tradable to you,

the buyer, Drinkalot, and to them?

16 June 2015 22

Value

to me

Value to

seller

LDO MDO BATNA

Price H H 60 per

course

< 20 per

course

Find another

supplier

Volume M H 4 courses 4 courses

Location H L Their

premises

Drinkalot

premises

Preparation

payment

H M 1 day no days Hide in

course fee

Payment

terms

M M 30 days 60 days

Staged

payment

terms

You can increase your power

Thorough preparation

Align your stakeholders

Enlist a powerful ally

Make the other party think you have the power

Create some other things to trade

Create a realistic BATNA

You have more power than you first might think

16 June 2015 23

Preparation checklist

Look at the market to see where the power lies

What steps can I take to increase my power?

What are the risks?

What can I trade?

What is my LDO, my MDO and my BATNA?

What is the agenda for the first meeting?

How long will this negotiation last?

16 June 2015 24

Open

16 June 2015 25

Close/Agree

Propose/Bargain

Exchange Info/Debate

Open

Preparation

Implementation

Positions

All prices are fictitious: 348, 210, 120, 258, 200,

235, 225…

Position: A position is what is actually expressed

as a need or a want: “The price of two courses is

210 counters”

16 June 2015 26

Exchange info, debate, propose, bargain

16 June 2015 27

Close/Agree

Propose/Bargain

Exchange Info/Debate

Open

Preparation

Implementation

Seller’s strategy

Get cosy with budget-holder to get sale

Bid high on 2 courses to give leeway to discount on

more

Support higher in-house price on basis of travel

time and expenses

◦ Expenses are real

◦ Travel time is not – usually travel in evenings

Push hard for firm commitment to 4 courses

Use “last minute nibble” to get quick payment – 30

days

16 June 2015 28

Buyer’s strategy

Close alignment with budget-holder

Pre-condition using “lack of budget”

Get facts from market

Ask for opening bid for 2 courses only, to disguise

true need for 4

Support lower in-house price on basis of reduced

marketing and administration

Offer 4 courses in return for substantial discount

Accept nibble – can live with 30 days and prefer

this to advance payments

16 June 2015 29

Trading

Move from signals to proposals to bargains to

agreement

Never make a concession without getting

something in return

Try to trade something that is worth little to you for

something that is worth a lot to you

Do not give away lightly something that is worth

little to you, it may be worth a lot to the other party

Use “if, then” questions and always put the other

party first

16 June 2015 30

Planning concessions

The negotiation process is all about trading

concessions

Be innovative and create options – things to trade

Be sure to concentrate on needs not wants

Plan how you will do this:

◦ Big steps

◦ Little steps

◦ All at once

◦ Never

16 June 2015 31

What is a concession?

Generally you will move from your positions towards

your interests – a movement is called a concession

Seller “If you could place a purchase order for 4

courses to be delivered in the next six months, then

we could come down to 235”

Buyer: “If you could reduce to 225, then we would

place purchase order this week?”

Seller “OK”

Concession is 10

16 June 2015 32

Trading concessions

Step 1: Signal

Seller “Would you be interested in more courses?”

Step 2: Proposal

Buyer “If you come down further, then I could buy

four”

Seller “If you bought four, then we could waive

preparation time”

Step 3: Strike a bargain

Buyer “OK”

16 June 2015 33

Trading concessions

Step 1: Signal

Buyer “I’ve spoken to Eve and by juggling the budget

we could find 200 in total”

Step 2: Proposal

Seller “If you could place a purchase order for 4

courses to be delivered in the next six months, then

we could come down to 235”

Buyer: “225 if we place purchase order this week?”

Step 3: Strike a bargain

Seller “OK”16 June 2015 34

Panic, Yes, No or Trade

Whenever you are asked a question you have four

choices:

Panic: but you won't do this if you are well

prepared, will you?

Say "Yes": but you may be too soft, and give

something away for free

Say "No": but you may be too hard, and miss the

opportunity for mutual gain

Trade: it may be best to trade: "If you do this for

me, I will do this for you"

16 June 2015 35

Close and agree

16 June 2015 36

Close/Agree

Propose/Bargain

Exchange Info/Debate

Open

Preparation

Implementation

Nothing is agreed until everything is agreed

Step 4: Summary and agreement

Seller: I think so, let’s just go through the details. You

will place a purchase order by Friday for four courses

to be carried out at mutually acceptable dates within

the next six months. You will pay us 225 counters all-

inclusive in total, there will be no further charge for

preparation or expenses.

Buyer: Agreed

16 June 2015 37

Nothing is agreed until everything is agreed

Step 4: Summary and agreement

Seller: I think so, let’s just go through the details. You

will place a purchase order by Friday for four courses

to be carried out at mutually acceptable dates within

the next six months. You will pay us 225 counters all-

inclusive in total, there will be no further charge for

preparation or expenses. We’re assuming 30 days

payment is OK?! (last minute nibble)

Buyer: Agreed

16 June 2015 38

Useful tactics

Use conditioning and preconditioning

Don’t be afraid to ask questions

Ask for adjournment to check and align

Don’t say too much – no need to justify yourself

Sort things out in informal meetings

Set aside difficult points for later

16 June 2015 39

Simple things to bear in mind

All prices are fictitious

Aim high and set expectations at start

Know your LDO and BATNA

You have more power than you think

Don’t expect things to be “fair”

Win-win sounds nice but is not always possible

You (nearly) always have 4 choices:

◦ Panic, yes, no, trade

No free gifts: If you… then I….

Nothing is agreed until everything is agreed16 June 2015 40

Time for questions!

16 June 2015 41