Copyright 2006 Progress-U Ltd.
I still remember sitting in the car with our French representative on the way to our customer’s factory north of Paris some five years ago. At that time I was Director International Sales for a German technology company. The conversation went this way.
“Alain, what do you think? How much of a discount will Monsieur Ribault expect? You know, we offered the instrument including all accessories, installation and commissioning for 350,000 USD.”
“The last time, we sold the same machine for 280,000 USD was four years ago. Also, I know, you added some features to the machine that improved its performance. However, knowing M. Ribault, it will be tough to achieve a higher price than last time.”
“The price for the previous machine was already at the bottom. Our cost increased, not decreased, with higher wages, higher material cost and improved design. So we need a higher price this time.”
“Well, we can try to get him on 300,000 USD. Would that still be acceptable?” I inquired.
“Actually not, but o.k. At the same time we need this order now, so if he can decide immediately, we are willing to compromise to 300k.”
I knew that M. Ribault was a tough negotiator but I also knew that his company, a multi-national automotive corporation, was very satisfied with the machine they bought four years earlier.
When we met M. Ribault, he opened the conversation by saying that his top management’s requirement was to reduce the cost for any supplier by 3.5% per year on the average. This policy was introduced the year before.
M. Ribault was not a man of many words and he frankly stated: “We need your price to go down by 7% at least, i.e. the maximum we can pay for this machine is 260,000 USD. If you can’t follow our policy and efforts to reduce our cost, I’m afraid that we will need to look for alternative suppliers.”
Wow, there I sat, expecting to get a better price and now I had an important customer seriously saying that if we didn’t lower our price to 260,000 USD, we would be out of the game.
At first, I tried to explain why in this case it was impossible for us to lower the price and that we actually needed 7% more, not less. I realized quickly that this attempt would lead nowhere.
So what to do? Negotiate and pressure him so long until we reached a somewhat still tolerable compromise? Perhaps to reach at least the same price as last time? Give up? Give in? It seemed like one of us had to lose and that one would most likely be us, no matter if we compromised or not.
When I thought more about it, I realized that M. Ribault’s company would also lose. I knew that our instrument was by far the best the solution they could get for this application, so if we gave up, they would lose by choosing another supplier. If we gave in, they would lose because with such a bad margin on our side, service would be reduced to an absolutely necessary minimum in order to recover at least some of the lost margin.
Was it a lose-lose situation that couldn’t be overcome?
Suddenly, I realized that any common ground would not be attractive enough. We had to do something outside the box to turn this negotiation into a win-win situation for both parties.
Traditional negotiation practice teaches you to optimize your position when trying to establish a common ground. Common ground negotiations are straight forward and usually the fastest way to achieve an agreement. In most cases, they require compromises from one or both parties. Common ground negotiations are the appropriate procedure if the compromises are still attractive for both parties. Unfortunately this is often not the case.
So what do we normally do?
We either compromise our desired position through a sub-optimal compromise or we pressure the other party into an undesirable compromise, or both. In the worst-case scenario, we exit and let the negotiation fail.
Some might think, well, no problem if the other party compromises their position as long as we get what we want. A win-lose situation is a win for us and therefore is o.k.
I wholeheartedly disagree with this concept.
I strongly believe that if one party loses, both parties lose. Any win-lose situation eventually ends up as a lose-lose situation and is therefore not desirable.
So what else to do?
The answer is “Higher Ground Negotiation” which means to leave the common ground and to look for a higher ground that is attractive to both negotiation parties. To do this successfully, we need to have a few pre-conditions in place:
1. True trust between both parties
I elaborated on the issue of trust and it’s three key elements in our July edition of this E-Zine. Kindly refer to this section.
2. The willingness of both parties to create win-win situations
Of course, many hardcore negotiators still believe that a win-lose outcome is desirable. You may attempt to change your negotiation partners’ beliefs on this by coaching them through the potential consequences of win-lose situations. However, if this turns out not to be fruitful, you will need to decide on whether or not you want to continue doing business with people who want you to lose every time you deal with them.
3. A thorough understanding of what is important to the other party
If you have built some trust with your negotiation partners, they will help you understand what is truly important to them…and that may go way beyond the price of your product or service. You need to gain a thorough understanding of the other party to find a higher ground that is attractive to both them and you.
Once you have these three pre-conditions in place, you can start exploring an attractive higher ground. You will have to think outside the box and be creative. A solution might not be evident right away, so you might need to do some meaningful brainstorming.
In the case of our French customer, we discovered that there was an upcoming need for certain other products this company would typically source from our competitors. For a long time, my colleagues had tried to sell these kinds of products, but without success. I knew that we had rather big margins on them and could compensate for the loss of margin caused by selling the other instrument at 260,000 USD.
So everybody won. M. Ribault got his cost reduction, we got the order not only for this instrument but also for the other products and therefore could still get a good overall margin…and my colleagues were happy to finally get a chance to have their equipment employed at this important company.
Conclusion: “Winning” in negotiations means creating win-win situations. If one party loses, ultimately both parties lose. If the traditional approach of finding a common ground doesn’t lead to any attractive outcome for either party, you may need to look for a higher ground. Higher Ground Negotiations require trust, the desire for win-win situations on both sides, and a thorough understanding of what is important to the other party. With creative out-of-the-box thinking, an attractive higher ground can be found which results in true win-win situations making it unnecessary for you to compromise your position with a compromise.