Master the art of negotiation: the approach, tactics, and techniques you need to reach a win-win deal
Imagine you are a senior manager at a health care supply company and the contract for one of your key manufacturers is up for renewal. Moving forward, it’s critical that you secure better terms for your company, especially around process innovation and lead times.
Now, you’ve done your research. You know your walkaway point and have an idea of your manufacturer’s best alternative options. It’s clear that your business is valuable to them, but they also hold critical patents that would make switching to another manufacturer a time-consuming and unfavorable option, a fact of which they are well aware.
So, how do you proceed?
Do you lead with your terms and hope they respond generously?
Do you play hard and bluff about some of the cards in your deck?
Do you start with an informal conversation and then segue that into a discussion about long-term vision?
What is the most effective approach to ensure you secure a win for your company?
At Krauthammer, we believe that the art of negotiation centers around three key phases:
- Preparing scenarios
- Mastering tactics
- Conquering complexity
Whether you are brokering a large deal like in the example above or asking for a yearly pay raise, understanding these phases will help you strengthen your negotiation skills. Read on as we walk you through each phase, and share tactics and techniques that will help you approach any negotiation with confidence.
Preparing scenarios: how to set your negotiation up for success
From our perspective, the objective of negotiation is to achieve three goals:
- Reach an agreement.
- The agreement should be win-win.
- If all else fails, protect the relationship.
Let’s start by defining what we mean by win-win.
The importance of a win-win negotiation style and preserving the relationship
A win-win negotiation involves working to get the best deal possible for yourself while also working to ensure that your counterpart is satisfied. When both sides are happy with the outcome, a long-lasting and successful business partnership is more likely to emerge.
There are several myths that exist around win-win agreements. Let’s dispel a few now:
- Being “fair” means splitting resources right down the middle.
This is not true. Win-win situations may be about benefits that are hard to measure, but which bring great value.
- When one party makes a concession, the other should automatically make one.
Again, this is not true. Negotiating on a “win-win” basis means taking into consideration the needs of the other party. A concession of small or no value to the other party offers no need for reciprocation.
- Conflict and tensions should be avoided at all cost.
On the contrary, defusing emotionally charged situations can prove to be a crucial step towards a satisfying end. Solving conflict in a negotiation involves going from the emotional to the rational, clarifying the stakes, and recreating conditions that favor mutual satisfaction.
The third goal of negotiation – protecting the relationship – is also crucial to note. Preserving a strong relationship between counterparts while still reaching your goals is vital, because burning a bridge rarely serves the long-term goals of either side.
This means separating the negotiation from the person with whom you are negotiating. While a negotiation can feel personal, it’s not about the personal opinions of the individual- rather, about the professional goals of each side. Understanding those goals, pain points, and desires of your counterpart is the first step to finding common ground.
Before a negotiation begins, you should work to understand what criteria the other party needs for a successful solution. Explore their industry history and business vocabulary. Get to know how they operate.
Approach your background research with the right questions
As you dive into your research, it’s important to ask questions that both paint a big-picture view of your counterpart’s vision and uncover the underlying motivations driving their actions.
In the scenario described above with the health care company, the sales manager might ask:
What is preventing the manufacturer from investing in new technologies or processes?
What are the long-term goals of their company?
What trends on the horizon might be exciting or worrisome for them?
Answers to these questions can be discovered through a SWOT analysis of the business landscape, discussions with competitors, and chats with trusted business partners.
The sales manager could also indeed propose an informal check-in before the negotiation. In the meeting, the sales manager should then begin by asking open questions, and listen closely to get to the intangibles behind what they’re saying on the surface.
For example, if the manufacturer says their goal is to open a new plant in five years, that’s great to know. But what’s even more important to understand is what’s driving that growth.
How do they envision the future ownership of their company?
Which product ranges are they looking to encourage or expand with?
Uncover their why.
When you understand the why behind your counterpart’s position, you can begin to identify where that intersects with your company’s interests. This will be key to determining your negotiation approach.
Before any conversations begin, it’s also critical for you to ask yourself some hard questions:
- What are you willing to sacrifice in the negotiation? And what do you need to remain firm on?
- What is your best alternative to a negotiated agreement? These are the options available to you in case you absolutely cannot reach an agreement.
What are the acceptable possible outcomes? Discuss with your team which different possible outcomes are suitable for your side.
Lay the groundwork: build trust and understand cultural differences
Another key element of preparing for a negotiation that often goes overlooked is the importance of building trust – long before any negotiation begins. If you are preparing to negotiate with a long-term business relationship, this may look like maintaining the relationship through occasional coffee check-ins, but if the other party is a relatively new contact, you may want to use your network to open doors for you, and then work on building rapport.
If your counterpart comes from a different cultural background than yours, you’ll also want to spend some time researching their cultural customs to avoid any potential pitfalls and ensure you are communicating to your advantage.
Let’s take a closer look at these points:
Use your network
Seek out referrals and recommendations. If you’re recommended by a friend or colleague to a potential counterpart, he or she will probably treat you better than they would if you didn’t share a common bond. If possible, choose the people you’d like to negotiate with.
Once you have a connection, building rapport takes more than simply exchanging a few friendly emails before meeting in person. Meet for an informal lunch or two. Research suggests that when you’re dealing with a particularly competitive negotiator, it might be a good idea to share some appetizers or visit a restaurant where it’s common to share dishes.
Understanding cultural differences
In the relationship building phase, note any cultural differences that could impede discussions. Cultural norms and attitudes can make or break a negotiation. For instance, if your counterpart is German, they may consider emotional expressiveness unprofessional. On the other hand, if they are Mexican, that same expressiveness may be taken as a sign of honesty which could help build trust.
Erin Meyer, professor and program director for Managing Global Virtual Teams at INSEAD shares five tips for reducing potential cultural miscommunications:
- Figure out how to express disagreement.
- Recognize what emotional expressiveness signifies.
- Learn how the other culture builds trust.
- Avoid yes-or-no questions.
- Beware of putting the deal in writing.
Now, if you’re thinking that this seems like a lot to do before the negotiation begins, you’re not wrong. However, you will thank yourself for this thorough preparation when you reach the bargaining stage of negotiation – the part where each side states what it wants and puts their numbers and terms on the table.
In the bargaining stage, there are several tactics that will serve you well.
Mastering negotiation tactics
Communication is the basis of any negotiation – and this is where all of your research will come in handy. By understanding your counterpart and their communication style, you can adapt yours accordingly and learn to read between the lines in order to increase success.
During the bargaining phase of negotiation, the first thing to remember is that you can only negotiate with one person at a time. That goes to say: no negotiating with yourself. By holding to the walkaway point and concessions you deemed acceptable before entering the negotiation, you can keep your line of communication clear and focused.
Making the first offer and concessions: what to know
Once you have sufficiently analyzed and listened to the other party and have a full understanding of their position, you can either wait for them to make an offer or make the opening bid yourself. While it is commonly believed that going first puts you at a disadvantage, there are actually great advantages to going first – one study even found that 85% of outcomes favor the person who goes first.
The reason for this can largely be attributed to a psychological phenomenon known as the anchoring effect. The anchoring effect is a cognitive bias we have as humans to make decisions based on an established reference point. This reference point can distort our perception of what we deem a good deal or not. It’s a bias that many of us are probably familiar with.
Imagine you have a budget of $50 in mind to buy a watch. You walk into a boutique with watches starting at $150. You recognize that they are way over your budget, but when you check out their sale section and see a nice watch for $85, it suddenly seems like an attractive offer.
This is where the start high, negotiate down principle comes into play. When making the first bid, start with high yet justified demands. The idea is to not have your back against a wall, leaving yourself room to work with during the negotiation.
Once the first offer has been made, keep the following points in mind:
Take time to review before accepting concessions
Every request for a concession should be met with an argument. Not in a combative way, but as a way to reaffirm your position and emphasize the sacrifices it will cost your side. If possible, avoid a concession by zooming out and presenting the other party with multiple alternatives that focus on creating value and “widening the pie,” for both parties.
Example: In the case of our health company and manufacturer scenario described above: if the manufacturer requests longer lead times in order to meet the health company’s innovation demands, rather than giving into that request right away, the health company might suggest shifting some production to another one of the manufacturer’s factories in the region that isn’t working at full capacity.
Avoid making concessions without compensation
If you have to back down on one of the outcomes, make sure to make up for it with higher demands for another outcome – and invite the other party to make a concession before you make yours.
Example: If the manufacturer insists that longer lead times will still be necessary, the health company could then counter with, “If you give us a 5% discount in price, then we can agree to longer lead times.”
Make concessions in gradual stages
If you do have to make a concession, do so gradually. Don’t give up all your chips right away.
Example: If the manufacturer is ultimately willing to offer a 10% discount in price, they should get there step by step, starting with 5%, perhaps raising that to 8%, and then finally, if need be, offering 10%.
Check that you are on the right path
At each stage of the discussion, it’s good to check in to see if both sides feel that they are on the way to a positive conclusion.
Example: After agreeing to an 8% price discount in exchange for longer lead times, the manufacturer might ask, “Does this compromise bring us closer to an agreement?”
Even though concessions are made, that doesn’t mean you haven’t reached a win-win. The trick is finding concessions that mean little to you but that the other side values highly. Ultimately, achieving a “win-win” situation requires more than sacrificing a short-term bonus for long-term credibility. It means motivating the other person to do the same and signaling your willingness to cooperate through each stage.
Conquering complexity in negotiations
Of course, on paper, it is easy to understand the principles of successful negotiation, but the challenge comes in applying them in the heat of the moment while dealing with any complexities that may arise.
That’s why we believe practical exercises before a negotiation are essential, as well as keeping tactics in your arsenal that can help you attend to the needs of the moment while anticipating the future.
Here are a few to keep in mind:
Take time to ask and explore
If your counterparts are not forthcoming, make multiple offers simultaneously and ask which one they like best and why. Pose the question, “What would happen if…?” If the other side refuses all of your offers, ask which one they liked best. Their preference for a specific offer should give you an indication about where you might find value-creating trades. For example, sometimes negotiators have different time horizons that enable wise trade-offs.
Take time to explain your needs
If your counterpart seems to be misunderstanding you, take a moment to regroup. Let the other party know what’s important to you – including your values. Highlight how you view negotiations in general and the importance of trust and flexibility for win-win outcomes. Whenever you make a noteworthy concession, tell the other party how much you’re sacrificing and what this sacrifice means to you. What would you normally have done? How do you usually deal with other clients’ requests? Why is this an exception?
Study body language
Good communication is not all about words – one study shows that an amazing 65% of communication is nonverbal. In a negotiation, it’s helpful to develop awareness of the signs and signals of body language. This makes it easier to understand other people and communicate more effectively with them. As body language is mostly subconscious and unintentional, it can help you anticipate what’s going to happen before any word is said and regulate the silent messages you’re sending out.
Visualize the ideal future
If you have reached an impasse, a useful tactic is to ask the other party to describe what the end of the negotiation would look like to them. What’s the best case scenario? How do they expect to evolve? This allows you to explore unspoken needs and take a step back from the smaller details that may be distracting from the big picture.
Establish contingent agreements
When negotiating contracts, consider including a contingent agreement. For example, if the manufacturer is not able to meet production deadlines, the health company will receive an additional discount of 5%. Or, if the manufacturer is able to increase efficiencies for the company, they will earn a pre-determined bonus for their commitment and hard work.
This “what will happen if…?” approach offers a way for parties to agree to disagree while still moving forward.
As daunting as negotiations can seem at first, if you focus on proper preparation, mastering several key tactics, and anticipating complexity, then securing a win-win outcome is achievable. Start by doing thorough research into the other party’s best alternative outcomes and underlying motivations in addition to defining your best alternative to a negotiated agreement and walk-away point.
Before the negotiation, build a positive relationship with the other party and make sure you understand the nuances of their culture, if it’s different from yours.
Next, master techniques for making concessions and addressing any conflicts or impasses should the conversation not go as planned.
At the end of the day, remember that “fair” is a matter of perspective and a willingness to search for solutions outside of an “us vs. them” mindset leads to better outcomes for everyone involved.
Learn more about optimizing your negotiation skills and get personalized feedback in Krauthammer’s Negotiation Training.
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