Negotiation – A Profit Strategy

Negotiation is the most important business skill we’ll ever master, yet it is often among the missing in our profits tool box. We think of labor productivity, equipment, and techniques, as our stock in trade. Certainly, all these are mandatory resources to prosper in the business, but none have the single largest impact on profits, cash flow, and long term viability as negotiation does. 

Negotiation is a mixture of business arts and sciences that works best when viewed as a set of economic principles. This cost centered philosophy rejects the price obsession that characterizes the business world. 

Negotiation is not an argument over price 

The financial reality is that a buyer will pay a higher price if it buys a lower Total Cost of Ownership (TCO). Disagree? Let’s first distinguish between price and cost from the customer’s perspective. For example, suppose you can buy one of two units priced at $750 or $500. If low price is the deciding criterion, no question, the $500 unit wins. However, if the higher priced $750 unit lasts for 2 years and the lower priced $500 unit lasts for one year; the $375 TCO of the higher priced unit clearly makes it the better buy. Lowest TCO is by definition the best value.

Quality, Service, Delivery, and Price (QSDP)

Our negotiation mission is to consistently demonstrate how our lower TCO provides better value to customers. The four elements of cost always present in our negotiations are QSDP. Any cost impact can be slotted in one of these categories. A better trained work force is Quality cost advantage. Superior warranty due to better materials and design are Service cost advantages and a better schedule due to planning and personnel cost advantages constitutes Delivery savings to the owner. 

The most frequently cited, yet most elusive goal is to remove price a bargaining point from the negotiation table. It will happen when we focus our negotiation efforts on the lowest TCO for the customer.

Hot Potato tactic  

Instead of stressing lowest TCO in the work-a-day world, we fall prey to our own lack of negotiation skill. Here is how the customer out-negotiates us with the Hot Potato tactic. He invites you to his office to “negotiate”. He makes you comfortable, shares a little small talk, then looks into your eyes while intoning insincerely, “Your Quality, Service, and Delivery are all top notch or you would not have a seat at the table – so it call comes down to Price. What can you do?”   

In one smooth maneuver, the customer has buttered you up and crammed the Hot Potato of Price down your throat. If you swallow it whole, you may convince your self that the customer appreciates your higher value and “in this Price competitive market“, you must lower your price.   

He won everything, getting the lowest cost and a lower price. Negotiation is never just a matter of Price. Furthermore, for the same reason that we do not buy heart surgery from the lowest bidder (who even compares prices), the other cost advantages of QSDP are more important. Any professional buyer knows for an absolute certainly that she can always get a lower price. He also knows that a low price often come at a high costs.   

Strategy over Tactics

The uninitiated think of negotiation as the deft application of tactics and parrying of counter tactics. Certainly, that is part of it. But the focus on TCO yields far better results for these reasons:  

1.     The customer is best served by the lowest TCO

2.     TCO puts all four cost balls in play at the same time, giving us quadruple the negotiating power

3.     Everyone knows that higher quality comes at a higher cost – just ask that cardiac surgeon

Some customers will not care about lower costs and only want low prices. You must decide if you want this type of business for what ever strategic reasons you have. There will be customers that you do not want to serve. There is nothing wrong with that and indeed everything right with it. When we delude ourselves into thinking that we need the sale, or the cash flow, or other ways we convince ourselves to take a sale at a loss, no negotiation skill will rescue us from our selves. 

Presentations to Planning Commissions for Car Washes

If you are planning to present to the planning commission in your community your plans for a carwash there are a few things you should know. There will be complete nut cases who show up with bogus environmental claims and totally bizarre reasons why you should not build your carwash.

It is truly amazing when you go into a community and you’ve been asked to by the economic development association and the president of the Chamber of Commerce and the mayor himself and then you find yourself battling to stay above water after you’ve made an investment in the community and are bringing jobs.

Nevertheless if you fail to bring a good presentation to the planning commission for your carwash that project will be attacked or it will be curtailed to the point where are you cannot make a profit because they put too many stipulations on the building of your carwash. Even worse they may postpone the planning commission meetings and you will get in a loop discussing the objections of one person from the EPA or Sierra Club over a little issue, which is completely irrelevant.

The important thing is to find out all the objections and handle them at the business presentation to the planning commission and find out exactly what that Sierra Club ’60s hippie lady is going to come up with first. Consider this in 2006 and save the spotted owl, desert turtle and unborn gay whale?

Create Emotional Plans Before Negotiating Forcefully

Before you begin to negotiate, create an emotional plan to assist you in progressing towards the goals of the negotiation. In essence, your plan will become your roadmap and the mental makeup you might possess during the negotiation will impact the overall outcome of the negotiation.

The purpose of developing a negotiation plan offers many benefits. When you incorporate the emotional state you might possess during the negotiation, along with that of the person with whom you’re negotiating, you enhance the plan’s viability. A few of the benefits are …

1. A negotiation plan that incorporates the emotional state you might find yourself in during the negotiation helps you stay focused on the overall goals of the negotiation. Assessing and incorporating the emotional state of the other negotiator can uncover potential nuances he might project into the negotiation.

2. If unforeseen occurrences creep into the negotiation, (i.e. loud outburst, sedateness) or something that’s awe-inspiring, an alarm should occur within you, due to the fact that you had not considered that aspect of the negotiation. This in turn should serve as a reminder to call a ‘time out’ (not address the new occurrence until you’ve had adequate time to evaluate its consequences).

3. A plan should allow you to maintain control of your emotions, if you know you’re the type of person that is easily influenced or manipulated by others, or easily persuaded to action by your emotions.

Most people make decisions based on the emotions they possess at the time of their decision. Then, they justify their decision with logic. If logic does not allow them to rationally justify their decision, and the emotion is strong, that person will discount the value of logic and pursue the course they’re on. Too many times after negotiating, people find themselves in a quandary. As the result of not being completely satisfied with the outcome of the negotiation, they beat themselves up and curse the outcome when the emotions that lead to their actions have subsided.

You have to know yourself and take into account the mental perspective you possess and the perspective you’ll have prior to sitting down at the negotiation table. You should also mentally project yourself into the mindset you think you’ll possess during the negotiation; by doing so, it will serve as a dry run and better prepare you for the negotiation (This is an exercise I have each and every client go through prior to any negotiation session they enter into).

In addition to assessing your emotions, you should also give careful thought to the emotions of the person with whom you’ll be negotiating. If you don’t know what the other person’s emotional level, makeup, or dispersion might be, go through several scenarios, so as to ‘estimate’ where their emotions might lie; the purpose for doing so is to create an emotional sparring partner from which you’ll be able to create greater emotional control within yourself during the negotiations.

When you negotiate, don’t search the ether for emotions that should be kept under control. If you maintain control of your emotions throughout the negotiation process, you won’t find yourself being held captive by an unforeseen force that causes you angst about what you really want from the negotiation. By maintaining control of your emotions during the negotiation, you’ll be in control of yourself and increase the chances of a favorable negotiation outcome … and everything will be right with the world.

The Negotiation Lessons are …

· Don’t allow your emotions to lock you into a cement trap from which your negotiation position becomes immobile. Engage in negotiations from a non-emotional perspective and mentally you’ll be more fluid in the options you evaluate during the negotiation.

· When developing a negotiation plan, try to envision what your emotions might consist of throughout the negotiation. If you plan to negotiate forcefully, try to sense and really feel the emotions you might possess. The more you can experience your emotions before sitting at the negotiation table, the more equipped you’ll be at dealing with negative emotions that could distract you during the negotiation.

· From time to time, practice altering your emotional state of mind to seek understanding of what ‘sets you off’. By identifying traits you possess that cause you to become upset or very excited, you’ll gain knowledge of how to control those emotions. Then, during negotiations, you’ll have better control and command of those emotions.