Archive for January, 2009

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A Negotiator’s Best Friend: Time To Think

Thursday, January 29th, 2009
Negotiators Need To Develop Patience In Order To Be Successful

Negotiators Need To Develop Patience In Order To Be Successful

Quick – what is the most important characteristic of a negotiator? Sorry, that was a trick question – there are a number of correct possible answers. However, one trait that needs to be on that list is patience. Although being an American can often be an great asset, in negotiations sometimes it can be a hindrance because we are impatient!

So what is patience? In short it’s the ability to wait, the ability to not rush to a conclusion. Although this can be very difficult to do, it is a trait well worth developing. With patience you can cause the following things to happen:

  1. Get the other side to grant concession after concession.
  2. Discover new issues that need to be negotiated.
  3. Cause the other side to have internal divisions.
  4. Cause the other side to redefine their objectives.
  5. Provide time for both sides to accept new ideas.

So if we can all agree that patience is a good thing for a negotiator to have, the big question that comes up right off the bat is just how does one develop patience? Since pressure and patience are so closely linked, the ability to develop patience often comes down to how your organization works.

In order to build patience, here is what you need to do:

  1. You need to make sure that you have made sure that everyone on you negotiating team is made aware of the value of patience.
  2. You need to take the time to plan ahead.
  3. Get an inch, when you really need a yard. Time is something that you can always use – buy yourself more whenever you have an opportunity.
  4. Establish milestones that are future based so that everyone has the same view of the future.
  5. Manage the expectations of upper management so that pressure on the negotiating team is minimized as much as possible.

Speaking of upper management, as with all negotiating tactics, patience has two sides to it. Your upper management will be well aware that too much patience may result in the negotiating never reaching a conclusion.

Given the way the world works, there is a good chance that you’ll encounter a situation in which the other side of the table starts to use patience as a tactic against you! In these situations, there are several ways to defend yourself:

  1. Internally understand that his using patience may turn out to make things tougher on the other side than on you.
  2. Set a deadline in order to negate the other side’s use of patience.
  3. React by making sure that you are relaxed and make yourself comfortable.
  4. Prepare your internal team for a long march (also make sure that your senior management does not expect immediate results).
  5. Develop a strategy that will send signals to the other side that let’s them know that patience won’t work out for them.
  6. Make patience both costly and risky for the other side.
  7. Walk out!

Using simple patience is a tatic that is often overlooked in today’s go-go business environment. That’s one of the reasons that it can work so well! Make sure that you communicate the importance of patience to your entire negotiating team and you’ll be well positioned to do well during your next negotiation.

Have you ever used patience as a negoitiating tool? Was it successful? Has the other side ever used patience as a tool against you?  How did you react? Leave me a comment and let me know what you are thinking.

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Weird Negotiating: The Buy Now – Negotiate Later Tactic

Tuesday, January 27th, 2009
Buy Now - Negotiate Later Is A Dangerous Tactic That Should Be Used Carefully

Buy Now - Negotiate Later Is A Dangerous Tactic That Should Be Used Carefully

I’ve always thought that this tactic was just a little bit crazy, but I have come to think that it goes on a lot more than any of us may believe. To set the stage properly, you’ve got to be able to imagine a buyer who is desperate. For whatever reason, a project has got to be started NOW. Ultimately the project has a number of items that are going to have to be negotiated, but its got to start NOW.

Using the buy now – negotiate later tactic, the buyer asks the seller to start the project now on a prearranged contractual basis. The buyer will then provide some limited funds in order get things started and both the buyer and the seller agree to work out the details in the future.

Does this sound dangerous to you? This is not the way that I like to work – things can get messy really quickly. The key reason for the way that I feel is that it can be incredibly hard for a buyer to change vendors once the project is started. We all tend to make both financial as well as mental commitments that are hard to change after we’ve reached an initial agreement with the seller. What was once a temporary agreement, has somehow become permanent and the buyer is locked in to it.

With all of this having been said, buy now – negotiate later can still be the way for a buyer to go in certain special circumstances. Some of these are:

  • Blobs: Sometimes the amount of work that has to be done truly can’t be estimated until some initial work has been done.
  • Out Of Time: Although we’d all like to have plenty of time to sit down and complete a negotiation, sometimes there is no time for negotiation – work needs to begin right NOW!
  • Phantom Costs: Sometimes there has been an initial discussion of prices between both parties. This has left the buyer feeling as though the seller is trying to collect for expenses that will probably never occur.
  • Pilot Time: If the buyer has never dealt with the seller before or if the job requires unique specialized skills, then the buyer may want to try-it-before-he-buys-it. This will provide the buyer with a way to find out if the seller truly knows his stuff.
  • Seller’s Advantage: The seller may be willing to enter into this type of deal if he/she realizes that his bargaining power is going to be less later on. There are several different reasons why this can happen, the most common is that resources have been committed and this means that he/she will lose this contract opportunity.
  • Good Record: The buyer may be willing to enter into this type of agreement if his research shows that the seller has a good track record and past customers report that he probably won’t rip the buyer off.
  • Not To Exceed: The buyer can consider entering into this type of deal if the seller is willing to commit to a not-to-exceed price at the outset.

I’m still wary of these types of deals. Even sellers need to be careful. A seller’s power in a negotiation is the greatest during negotiations BEFORE work has started. Once services start to be delivered, then all bets are off.

Have you ever been part of a buy now – pay later deal? Why was this type of deal proposed? Who proposed it: the buyer or the seller? How did it turn out – was everyone happy in the end? Leave me a comment and let me know what you are thinking.

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Negotiating Self Defense: Countering The Reverse Auction Tactic

Thursday, January 22nd, 2009
Sellers Need To Defend Themselves Against Buyers Who Use The Reverse Auction Negotiating Tactic

Sellers Need To Defend Themselves Against Buyers Who Use The Reverse Auction Negotiating Tactic

I’ve always liked superheros. From my earliest days of reading comic books to my current-day trips to the movie theater to see Spiderman and Iron Man, I just don’t seem to be able to get my fill of superheros.

I believe that superheros, although fictional (probably – however I still have hope), can teach us a lot about how to become better negotiators. One lesson that all superheros seem to learn in superhero school is that in order to be successful in a fight, they always need to have good self defense skills.

In negotiations, sellers need to have a good defense against one negotiating tactic that a buyer can use which is called the “reverse auction”. It works like this: let’s pretend that you wanted to build buy a new car. You visit three different car dealers and get three different offers. As you can imagine, each of these offers will contain a confusing mix of different financing and option packages.

Your next step will be to call a “reverse auction”. You go back to each dealer an tell them that you’ve visited the other two dealers. Each dealer will then proceed to tell you why they are the best and why you should avoid buying from the other dealers. After you’ve had a chance to talk with all three dealers, you now understand the subtleties and the options associated with buying the car that you want.

With all of this new information, you are now able to more clearly refine your specifications because the alternatives have become clear. You can now specify the specific financing and option packages that the dealers can bid on.

You will end up selecting the dealer who can provide the best price while providing the most car for that price. By using a reverse auction, the buyer was able to learn a great deal about buying a specific new car and was able to trade off options that he/she originally did not know existed.

All of this is great if you are a buyer, but what if you are the seller (or the dealer in the case of our example)?

It turns out that although it may initially appear as though the buyer is holding all the cards when they are using the reverse auction tactic, that’s not really true – you still have a great deal of negotiating power.

Your greatest strength comes from the simple fact that the reverse auction takes a great deal of the buyer’s time in order to do correctly. They have to identify sellers, collect bids, evaluate, revisit to collect information, and then revisit again to negotiate a final deal. All this takes time that they may not have to give.

What you need to do is to present yourself as being the seller who best understands that the buyer’s needs are. If you can convince him of your credibility then you’ll be well positioned to close the deal.

Here are a few tips that will help you come out ahead when your buyer decides to us the reverse auction tactic on you:

  1. Be Last: You want to be the last person that the buyer talks with, not the first. This may allow you to short-circuit the reverse auction process.
  2. Use Your Best: When dealing with the buyer, you want to use either your best negotiators or at least make sure that you are well prepared for the discussion (no distractions!).
  3. Give In Slowly: This is always a good tip – do not hurry to make concessions to the buyer.
  4. Sell, Sell, Sell: Make sure that you sell the buyer on your strengths and benefits.
  5. Use Limits: Clearly communicate to the buyer that the scope of your authority is limited in this deal to the bottom-line figure.
  6. Use Experts: The buyer is desperately looking for somebody to believe in so that they can be convinced that you are the right one to buy from. Make sure that you provide the expert that they need to find.
  7. Use Innovation As A Back-Up: Life is unpredictable. Sometimes a reverse auction will start to go badly for you. In these cases, you need to make sure that you have a new and innovative approach that you can whip out if this happens – lifetime free oil changes anyone?
  8. Find The Decision Maker: You can talk with the buyer until you are blue in the face, but it will be all for naught if you haven’t done your homework and made sure that they really are the final decision maker. Check before you invest the time and energy.

Have you ever been in a situation where a buyer used the reverse auction tactic on you? Did you feel as though they had the power in the negotiation or that you had it? Was time a key factor that the buyer was dealing with? Were you able to convince them that you were the expert? Leave me a comment and let me know what you are thinking.

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How To Negotiate To Buy A New Car In 2009

Tuesday, January 20th, 2009
When Buying A New Car, You've Got To Understand How Much Negotiaitng Room You Have

When Buying A New Car, You've Got To Understand How Much Negotiaitng Room You Have

Ok, so let’s be straight about this – buying a new car is one of the biggest negotiations that most of us do on an annual basis. Any time that we have a chance to find out how to do a better job at negotiating this transaction, it’s almost like putting more money into our pockets. Interested now?

Philip Reed, a Senior Consumer Advice Editor over at Edmonds has spent some time thinking about this topic and so it would probably be a good idea to see what he has to say on the topic.

When you get ready to negotiate to buy a car, the first and most important question that you need to have the answer to is just how much room does the dealer have to give? I mean if the car has a list price of $20,000 just how far could you expect to negotiate him down to if you were the best negotiator in the world?

Reed points out that In a $20,000 car, the difference between the sticker and the invoice (dealer cost) is between $1,500 and $3,000. This is the negotiating territory that you are dealing with. I’m very sorry, but no matter how good you are your chances of negotiating the dealer down to $5,000 for the car are basically nil.

That being said, just a bit of negotiating on your side should result in a savings of $1,500 on most cars. Reed’s opinion is that if you negotiate actively you might save $3,000 (dealer holdbacks and rebates mean that you can sometimes buy a car for invoice or below).

A quick aside here: who does the best / worst job of negotiating? Studies by lawyers who have been investigating civil rights claims have revealed some interesting things.

The tests that they conducted reveled that white males receive significantly better prices than blacks and women. White women had to pay forty percent higher markups than white men; black men had to pay more than twice the markup, and black women had to pay more than three times the markup of white male testers.

It sure looks like we all need to be on our toes when we negotiate for a new car – and knowing how low the dealer can go is just the start.

Reed’s next point has to do with just how you go about talking about the 900 lb gorrilla that’s in the room when you are negotiating for a new car – the starting price.

One of the biggest issues here revolves around who brings up price first. The thinking is that whoever mentions it first will set the starting point for the discussions. Since you really don’t know how low the car dealer is willing to go, you are at somewhat of a disadvantage here.

The suggestion is that you hold off and bite your tongue. If the car dealer asks you (and they will) how much you are willing to pay, don’t answer them. Be vague, ask them how much they are REALLY willing to sell it for.

Remember that the sales person that you are dealing with may know about dealer discounts that they will receive that you don’t know about. They may start out at a lower price than you had even dreamed about and this could  help you save a lot of money!

How did your last negotiation for a car go – did you feel like you got a good deal? Have you ever been the first one to put a price on the table? How did that turn out? Did you ever let the other party bring up price first? How did that turn out? Leave me a comment and let me know what you are thinking.

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Negotiation Tactic: The Reverse Auction

Thursday, January 15th, 2009
The Reverse Auction Negotiation Technique Is A Powerful Tool For Buyers

The Reverse Auction Negotiation Technique Is A Powerful Tool For Buyers

In the world of negotiations, there are few tactics as old and as well thought of as the “reverse auction”. This is a powerful negotiating technique that allows a buyer to get the sellers to offer their best pricing for the most amount of work. Not bad if you are a buyer, eh?

Here’s how a reverse action works for you if you are a buyer: let’s pretend that you wanted to build a house. You go out and get three different offers from three different home builders. As you can imagine, when you get the bids they will contain a confusing mix of different options and time frames.

Your next step will be to call a “reverse auction”. You invite all three builders to meet with you. You have them show up early and have them wait in the same room before they meet with you. After they’ve had a chance to sit and glare at each other for a bit, you then call them in to meet with you one by one.

Each builder will then proceed to tell you why they are the best and why you should avoid selecting the other builders. After you’ve had a chance to talk with all three builders, you now understand the subtleties and the risks that are involved in building the house that you want.

With all of this new information, you are now able to more clearly refine your specifications because the alternatives have become clear. You can now provide the builders with an updated proposal that they can bid on.

You will end up selecting the builder who can provide the best price while providing the most house for that price. By using a reverse auction, you were able to learn a great deal about building a house and you were able to trade off options that you originally did not know existed.

Why does a reverse auction work for a seller? Simple, there are four reasons:

  1. Competition Works: when you allow sellers who are competing against each other to “see” each other, it increases the level of competition.
  2. Apply Pressure To Management: the reverse auction technique allows you to move beyond the salesperson that you are dealing with and actually put pressure on the company’s management.
  3. Almost There Syndrome: each of the sellers has already put a lot of time and effort into responding to your original proposal. This means that they all think that with just a little more effort they can close the deal.
  4. It’s Concession Time: you know that sellers are more adverse to losing a deal during negotiations than earlier in a deal. This means that they may make concessions that they normally would not.

This negotiating technique is not without its downside. You need to keep in mind that whichever seller you select is going to feel as though they were put through the ringer. They will probably resent the auction process and will want to make up for being forced to bid a low price.

What this means to you is that any changes that you want to make to the contact after it has been signed will probably end up costing you dearly. Additionally, the seller may end up delivering the product to you late and may even shave some corners on the quality of what gets delivered.

Have you ever had a chance to use a reverse auction during a negotiation? Was it successful? Were you happy with what was delivered in the end? Have you ever had to compete in a reverse auction process? Did you win? How did you feel if you did win? Leave me a comment and let me know what you are thinking.

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