Cautious Concessions: Part I
In our blog last week, we discussed how to cope with combativeness in a negotiation. While most negotiators are aware of how quickly combat can threaten the success of a deal, few are aware of how concessions, the opposite of combat, can just as quickly ruin a negotiation. In order to be a truly skillful negotiator, it’s important to recognize the value of compromise. Choose your battles wisely– you will be amazed by how smoothly a negotiation progresses when both parties are willing push combativeness aside for compromise.
A key component of compromise is concession. Before you begin any negotiation, it’s important to identify which components of the deal are non-negotiable, and which components you are willing to compromise on. While this step admittedly creates additional work for you, it will prove to be invaluable in the grand scheme of the negotiation. What happens if you choose to skip this step and plunge headfirst into a deal? You’re putting yourself (and your delegates) at risk. Lack of preparedness in a negotiation leads many negotiators to commit one of the cardinal negotiation sins: the unilateral concession.
Imagine that you are the main negotiator of a deal that has the potential to make your company a tremendous amount of money. In your eagerness to begin the negotiation, you fail to identify which parts of the negotiation are open to compromise and which parts are ironclad. In a meeting with a representative from the opposing delegation, the following dialogue occurs:
Buyer: I’m sorry, but we’ve ultimately decided that we can’t use you as our supplier. You’re just too expensive.
You: There isn’t a lot I can do about the price. Are you looking for a discount?
Buyer: Well…that’s a good place to start. What can you give me?
You: Um…I can let you have… maybe 3%?
Buyer: Three percent? I’m afraid that’s not enough.
You: I’m not authorized to go beyond 5%.
The entire deal has been threatened. Blinded by panic, you’ve committed a major blunder: you’ve made a unilateral concession. The unilateral concession offers a solution that demands nothing in return. The buyer recognized the fact that you had not considered the possibility of a discount, and he took full advantage of your unpreparedness. In an effort to save the deal, you cracked under pressure and offered a solution that will yield nothing for your delegation. While you’ve temporarily stopped the negotiation from crumbling, you’ve also made some costly mistakes:
1. You made no effort to find out what the buyer meant by saying that the price was too expensive. Too expensive compared to what? How much should it be? Has the buyer produced a cost calculation?
2. You negotiated the price instead of discussing total costs. In your panic, you made up your mind about the price without knowing what the buyer thought about the delivery time, volume, quality, warranties, performances, or other conditions.
3. By emphasizing the fact that you weren’t authorized to go beyond 5% , you signaled that there was a greater discount that your boss could potentially approve.
Don’t dwell on your mistakes– even the most skillful negotiators slip up. The most effective way to recover from your mistakes is to learn something from them. In next week’s installment, we’ll explore how you can recover from unilateral concession-making and get the negotiation back on track. In the meantime, please feel free to share your own stories about your experience with concessions in the comments section. Have you ever had a similar conversation? How did you recover?
This post is excerpted from Keld Jensen’s upcoming book Power Bargaining: Adding Value to Commercial Negotiations to be published in 2012.