Negotiating skills 1

The MAANZ MXpress Program

Negotiating Skills 1

Dr Brian Monger

Copyright September 2013. This Power Point program and the associated documents remain the intellectual property and the copyright of the author and of The Marketing Association of Australia and New Zealand Inc. These notes may be used only for personal study associated with in the above referenced course and not in any

education or training program. Persons and/or corporations wishing to use these notes for any other purpose should contact MAANZ for written permission.

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institute which has operated for over 25 years.

• MAANZ International offers Professional Memberships;

• Marketing Courses (Formal and Short)• And Marketing Publications

• www.marketing.org.au

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Dr. Brian Monger

• Brian Monger is the CEO of MAANZ International and a Professional marketer and consultant with over 40 years

experience.

Marketing In Black and White 3

What is Negotiation?

• Successful negotiation is the process by which two or more parties arrive at a mutual agreement, by means of discussion and bargaining, within an agreed time scale.• Negotiation is usually the final stage in the selling

process. Once the customer has agreed that your product is the one he wants, both parties often have to

negotiate the price, terms of the agreement or both. This is where good negotiating skills become essential. In the chapters which follow we will show you how to prepare for a negotiation and the steps you need to go

through to reach a successful conclusion.

Types of Negotiation• There are four possible outcomes to a typical negotiation:• It is tempting to think that a successful negotiation (from

the salesperson's viewpoint) is one where the salesperson wins. This may be true where the negotiation is a one-off transaction, for example a house purchase, where you are

unlikely to come across the other party again. • However, most negotiations will be a part of a longer term

relationship. You will usually do a transaction with a customer in the hope of winning more business from that

customer in the future. You cannot therefore afford to upset your customer and make him feel that he has 'lost' the

negotiation.

Types of Negotiation• A successful negotiation is one in which both parties to

the negotiation are satisfied with the result - a win/win situation. This is what you should be striving for.

• To succeed in a negotiation, both parties must want to reach an agreement. If you discover early on that the

other party is reluctant, or worse, not interested, then it would be much wiser to abandon the negotiation. On the other hand, walking away from a negotiation has long been used as a high risk bargaining move. This approach is not one that should be taken in normal business negotiations. By keeping the channels of

communication open, you leave room for consideration of alternative proposals.

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Types of Negotiation

• Also, it is not wise to play the 'tough guy' with a hostile attitude. The other party may simply refuse to negotiate under those circumstances. Your objective is to sustain the other party's desire to negotiate, not to subject him to so much pressure that he feels he must give in. These approaches are counter-productive.


Building a Long Term Relationship

• The most successful marketers tend to recognise that their job is not to sell products, but instead to

create relationships. Developing long-term relationships with customers not only provides a

source of competitive advantage, but can be much more profitable than a hit-and-run approach in

which the only goal is to make a sale at a point in time. Negotiation strategy plays a critical role in

the establishment of such relationships. Specifically, there is a direct connection between a positive sum or win-win negotiating strategy

and the seller's ability to foster customer loyalty.

Building a Long Term Relationship

• Customers who perceive a negotiation to be one-sided have little incentive to give the seller any future business. Even if the deal seemed fair at the time, dissatisfaction can develop during implementation, especially after a

customer has had some time to reflect. Sellers must recognise that the relationship is as important as the literal provisions of the

negotiated contract.MAANZ International 9

Two-way Interaction• Negotiation involves two-way interaction in

which both parties seek attributes. Either side can walk away if their needs are not being minimally satisfied by those on the other side. Investments

are being made by both sides, and each party must perceive the give-and-take to be equitable.

Relationships also tend to get more personal over time. If an atmosphere of trust is not created early on, with benefits and burdens mutually shared, the job of the seller becomes more

difficult with each new negotiation involving a particular customer.


Building a Long Term Relationship• The uncertainty that surrounds businesses today also affects

on-going negotiations. Rapid changes in technology, the economy, production costs, competition, government

regulation, and market size are increasingly commonplace. In fact, the only constant in modern business would seem to

be change.

• Such turmoil can alter the fundamental relationship between a seller and buyer in a very short amount of time. The seller who takes too much advantage of his or her organisation’s

negotiating position today will most likely pay for such short-sightedness in the not-too-distant future.


Negotiations Begin Internally

• Before examining the nature of the negotiation process between buyers and sellers, it is worth

considering what is happening inside the selling organisation. For sellers to achieve a competitive

advantage in the marketplace, a number of key activities must be well co-ordinated. Research

and development, production, finance, distribution, and marketing departments must

collaborate in offering product value to customers. This collaboration is usually achieved

through a process of internal negotiation.

Internal Negotiation

• For example, the research department may develop a product, but the production

department must determine its feasibility. The finance department must ensure that the funds

are available for development, and the marketing department must assess demand and

competition. From the drawing board to the shipping dock, the firm engages in an

interactive accommodation and co-ordination among its members.


Internal Negotiation• A common breakdown in this co-operative relationship

occurs because of the competitive pressures salespeople encounter in striking a deal. Members of the sales force are under great pressure to achieve both their

personal goals and the goals of the sales department, to satisfy the customer's objectives, and to maintain a competitive posture with respect to the opposition.

• Often a salesperson will "get out front" not only of the production or financial capacity of his firm but of the

pre-existing sales commitments of his or her own department.


Internal Negotiation• Not uncommonly, the salesperson makes the deal,

leaving the details (qualifying the customer's credit worthiness or ensuring production or

delivery capability) to the relevant departments. As a result, the firm finds the cart has been placed

before the horse. The prospective buyer may have an uneven credit history, may demand costly

product changes, or may insist on impractical production or delivery schedules. These and

other conditions may result in this sale or future sales unravelling because of poor communication

with the other internal players in the firm.


Internal Negotiation• The salesperson must understand the on-going operational

commitments of his or her own firm when formulating sales objectives. By recognising the firm's limitations, the

salesperson can initiate discussions with a buyer that focus on determining what is possible, and in the process define what is negotiable. Problems can be minimised if the sales

department follows a few simple guidelines:• Allot time for negotiations with other functional areas of

the firm.• Develop and maintain co-operative relationships with other

departments.•


Internal Negotiation• Determine the relationship between specific items

in the sales agreement and areas that typically require internal negotiation.

• Verify assumptions regarding the firm's ability to fulfil terms of the sales agreement.

• Recognise issues in the sales agreement that pose internal credibility problems.

• Manage salesforce enthusiasm in a disciplined and productive manner.

• Stay abreast of internal changes that may affect relationships with customers.


Internal Negotiation• Keep superiors current on developments in major sales

agreements as they occur.• Be knowledgeable of customer histories as they relate to

issues requiring internal negotiation.• Help customers and internal people find creative

alternatives when roadblocks develop.• The salesperson who is an effective internal negotiator is

also apt to have more success in customer negotiations. He or she is likely to have more leverage

• in bargaining with customers and may well be able to go further in satisfying their needs. With this in mind, let us

turn to a more detailed discussion of the customer negotiation process.


The Nature of Customer Negotiations

• Negotiation is concerned with needs of buyers and sellers. Both parties gain from a

transaction. The customer acquires a product or service that meets needs, and the vendor

makes a sale. The possibility of mutual gain is what brings the buyer and seller together. The amount of gain realised by either party creates the conflicts that must be negotiated. Conflict

occurs because the parties find themselves competing for some of the same gains.

Customer Negotiations• In all cases, negotiation involves both science and art.

The scientific aspect involves systematic approaches for resolving conflicts between two parties. The artistic

side concerns interpersonal skills, the ability to convince and be convinced, and judgement regarding

which tactics to use and when to use them.• There is no typical negotiation. A particular negotiation

can involve any number of people and focus on any number of issues. It can be, formal or informal, lasting hours, weeks, or months. Most important, the process involved is dynamic, not static or fixed. The positions

assumed by each party at the outset can differ significantly from those held at the close of the process.


Customer Negotiations• These dynamics are strongly influenced by a number of

structural and situational characteristics. • A primary consideration is the extent to which the buying

and selling representatives have the formal authority to negotiate. How much clout do these representative have in terms of the issues under negotiation? Are there conflicts

within the seller organisation (or buyer organisation in industrial markets) on some of these issues?

• Another consideration is the degree of interdependence between the buyer and seller. Both parties need each other, so the real issue concerns where the balance of power lies. Power is a function of dependency. That is, the more the

seller is dependent on the buyer, the more power the buyer has.


Interdependence• Dependency is determined by how much one party needs the resources

(i.e., products, services, or revenue) controlled by the other party and the availability of those resources from alternative sources. If the buyer is

purchasing a critical item from a vendor who is the only available source of supply, the buyer's heavy dependency enhances the seller's negotiating

power.• Negotiation can be further characterised by the number of issues involved.

The willingness to pay or receive a certain price may interact with other issues. The existence of multiple issues to be jointly resolved through negotiation permits the parties to enlarge the size of the total pie before

determining how much each side is to receive.


Multiple Issues• It is a real challenge to determine which trade-offs the other

party will be inclined to make when multiple issues are involved.

• Also, the existence of time constraints should be noted. By optimally using the time frame available, the disadvantages

of hasty negotiation by one party can be averted. In addition, the degree to which the negotiation is public is important. If different terms are worked out with various

customer accounts, the ability to negotiate flexibly with any one account is affected by how much other customers learn

of the tactics used and final terms agreed upon. Competitors are also in a position to benefit from learning a

firm's negotiation strategy.


Negotiations can be Repetitive or Nonrepetitive

• Further, negotiations can be repetitive or nonrepetitive. That is, will this be a one-time

sale, or might there be frequent negotiations in the future? Repetitive bargaining usually finds the

parties adopting a more co-operative stance. Separately, the marketer should evaluate the

presence of any linkage effects, that is, circumstances in which a particular negotiation and its outcome are linked to other negotiations. Obstacles can sometimes be overcome by using

linkages creatively.


Location• Finally, the location of the negotiation is a factor.

There may be a psychological benefit, as well as an ability to control the agenda of the

proceedings, when the party negotiates on its home turf.

• One side can enhance its own bargaining position by negotiating in an environment in which

support people are readily available. Alternatively, negotiating on the other side's turf

allows one to learn first-hand about the needs and capabilities of the other party.


Three Categories of all Negotiations

• While many books have been written on negotiation and countless theories exist about

how to be effective, there is general agreement on the three categories that all negotiations fall

into. These are:• Situational• Principled• Positional


Situational Negotiation• Situational negotiation is the preliminary exploration of

mutual interests, often via a third party. This is the first stage of negotiation, and takes place prior to the 'face-

to-face' meeting. It is often designed to find out indirectly what the other party to the negotiation wishes to achieve, and to influence them subtly. This tactic is

used a lot by governments and other public bodies. The aim of this is to lessen the reaction in the financial

markets that could be expected if the interest rate rise were to take place suddenly and without prior warning -

the type of thing which could spark off another stockmarket crash.

Situational Negotiation

• Companies often use situational negotiation with their shareholders before announcing

their annual results. If the results are going to be bad, by leaking rumours a few months

before the results are announced, the company can usually ensure a much more favourable

reaction from shareholders than they would if bad results were announced taking everyone

by surprise and causing the share price to fall.MAANZ International 28

Principled Negotiation

• This type of negotiation was developed at Harvard University and encourages the parties to focus on the underlying principles rather than the

fixed positions or personalities involved. It depends on each side considering the options in

an atmosphere of mutual acceptance and searching for common ground. It occupies a

place between situational negotiation and positional negotiation (described below), making

the final stages of reaching a satisfactory agreement much more acceptable.


• The four rules of principled negotiation are as follows:

• Keep the subject of the negotiation separate from the personalities involved;

• Focus on the respective interests;• Search for options to benefit both sides;

• Stick to objective guidelines.



• Principled negotiation combines the best of soft and hard approaches to negotiation. Soft

negotiation, where participants are friends and give away bargaining pieces without counting the cost, is the opposite of a hard approach where one

takes a position and aims for nothing less than victory. The first will eventually lead to some

grumbling that the other party owes something in return for the other's generosity (if those involved

are not friends it may lead to a more serious dispute). The second one could end in a

longstanding grudge.



• Future business relationships are not built on those sort of foundations. As we saw earlier, the aim should be for a /win/win' agreement, with both sides feeling that

they have worked hard and found common ground both are happy with, gaining a satisfactory outcome. This

creates a sound foundation for working together in the future.

• If the atmosphere of mutual acceptance is lost during a principled negotiation, or if either side resorts to abuse

or insult, the type of negotiation changes to:


Positional Negotiation

• Positional negotiation occurs when each side clearly states its own position without regard for the position or interests of the other party. Personalities play a major role in this type of negotiation, and one side is aiming

for victory over the other side.• Positional negotiation has been widely used by Trades

Unions in their discussions to win more pay, has increased public awareness of this type of negotiation. It is not unusual to find discussions in deadlock, when

what is supposed to be a negotiation becomes a dispute.

Positional Negotiation

• Answers to problems can be found by backing away from confrontation to find common ground, often by a third party, brought in with the specific

task of arbitrating between the two parties.• This type of negotiation is less likely to occur in

conducting business, where both parties are looking for a win/win situation. However, it does

occur in situations where one party to the negotiation is in a much stronger position than the

other party.


• For more information about MAANZ International and articles about Marketing, visit:

• www.marketing.org.au• http://smartamarketing.wordpress.com• http://smartamarketing2.wordpress.com

• . http://www.linkedin.com/groups/MAANZ‐SmartaMarketing‐Group‐2650856/about

• Email: [email protected]

• Link to this site ‐ ‐ http://www.slideshare.net/bmonger for further presentations

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