Negotiation lessons from the street8 min read . Updated: 11 Aug 2015, 10:16 AM IST
Observation, experience and practice are the best teachers, whether in the corporate world or in daily life
Though opinions may be divided on just what is the oldest profession in the world, undoubtedly the oldest skill that emerged as a consequence is negotiation—a skill bordering on art that can be learnt, just like singing. Observation, experience and practice are the best teachers, whether in the air-conditioned environs of a corporate setting or the little dramas of daily life that play out around us.
In essence, every negotiation is a conversation. Two parties engage with the intent of coming to an understanding on some issue. They are willing to give something to gain something in return.
Like all conversations, negotiation too has a basic structure—an objective, a beginning, the main body and finally the wrap-up. Causal examples observed on the street and in daily life help illustrate the time tested, instinctive techniques that we use, and their echoes in corporate life.
Set the stage
If every negotiation is a conversation, then its foundation is a relationship—even if transactional.
As a child growing up in the suburbs of what was still called Bombay, I would accompany my grandfather or aunt to the market every week.
Every visit, whether to our regular vendor for the hundredth time or to a new one for the first time, meant a warm greeting. Queries about the family from the regulars and the weather from the first-timers. No jumping to the matter at hand of buying produce. Refreshing the relationship created a conducive environment for talking price and terms.
It was the same every time I walked into one of the little family-owned sari shops with my aunt. After the initial pleasantries and offers of water and tea, we would be asked what we were looking for. My aunt’s usual answer was that we were just looking and weren’t sure if we would buy anything. The smiling reply would be immediate: “Sure, look as much as you want...who’s asking you to buy." With that pressure supposedly off us, we would be inundated with sari samples by the helpful sales staff. Every query would bring forth more samples. At all stages the staff appeared polite and unhurried—all key attributes of a good negotiation.
The scores of samples unpacked and spread all around us would soon lead to intense moral pressure to do the right thing and buy something. Anything. The vendor didn’t need to make a pitch.
Relationships are powerful negotiating and sales-inducing tools. All else being equal, people like to do business with people they like. Our rational minds will even find a way to justify marginally higher price from a vendor with whom we have a better relationship. Patience and positivity in the course of lengthy negotiations lead to a better chance of a favourable closure.
In lengthy corporate negotiations stretching over several weeks, patience and staying positive are often the winning edge. The negotiator who tires first is likely to give away more in the interest of an early closure. Impatience can be used as a negotiation lever too, if one knows the other side is under time pressure to close out and can’t afford to prolong.
Thrust and parry
With the initial pleasantries out of the way, the stage is set for the conversation to move on to its main body. Here are five points that good negotiators always keep in mind.
—Clarity on need: Silly as it may sound, it’s vital to be clear on the outcome you are seeking. It is easy to lose sight of in the meandering course of a complex negotiation.
Accompanying my aunt on footwear shopping trips was a lesson in precision. She would look for current designs at affordable prices even if not of the best quality. The vendor would show her pricier, higher quality samples, but she would stick to her price point. Her rationale: designs in ladies footwear change rapidly so she would be happy if her purchase lasted for four-six months, after which she could pick up a more current design.
In corporate situations, in a perfect world, a buyer would expect the best quality product, delivered immediately and free of charge. In the real world, he will have to prioritize—which elements are must-haves, and which can be given away?
In fact, smart negotiators will often introduce sacrificial elements in their charter that can be given away in the final countdown.
—Competitive intelligence: While relationships do help, it’s also true that most commercial negotiations focus on price. Knowing about the product, market and competition is important to help form one’s baseline on price, whether as a buyer or seller.
While my grandfather made it a point to buy groceries and vegetables from his known vendors, he would casually ask other vendors en route about prices. By the time he reached his desired vendor, he had a feel for the spread of prices for a given commodity. With that starting point, the relationship helped to drive the desired price.
Experienced buyers in the corporate world utilize the same skills, though with more advanced intelligence-gathering tools, to form a view on what the seller’s cost could be. While working at a large industrial parts manufacturer, a large part of our procurement spending was dependant on the price of underlying commodities and currency rates, so we tracked these indices. We also reached out annually to various vendors for their offers.
Similarly, seasoned sellers make it a point to learn about the buyer’s true need before making an offer.
—Aggressive opening positions: Opening positions are the benchmark against which all further discussions will play out and it’s important to leave enough headroom to allow the give and take that must naturally follow. The challenge often is to overcome one’s own hesitation at not wanting to be seen as unfair or unrealistic. The reality, however, is that an aggressive primary offer or counter-offer allows more flex.
As a dutiful nephew, I have been an embarrassed, squirming accomplice to my aunt’s negotiations with the vendors on Bombay’s streets. At 30-50% of the asking price, her counter-offers were often so ridiculously low (to my inexperienced self) that I was sure it would lead to an outburst. Amazingly enough, the sales personnel didn’t ever throw us out and at the end of the negotiation, we would emerge with a successful deal at perhaps 60% of the original offer.
In corporate scenarios, there is certainly more arithmetic involved in deciding offers and counter-offers. So, for example, pricing a product below the cost of underlying commodities is unrealistic, but clever negotiators will overload their primary demands, on price and terms and conditions, rather than keep them lean and minimal. This allows them to give away certain points while retaining their must-haves.
—The fine art of saying no: The key to negotiation is to come as close to one’s desired outcome as possible. It’s vital to practice the art of giving away something, but always gaining something in return. It boils down to how one says no and yes. These words carry an air of finality, but experienced negotiators modulate their delivery such that they leave room for the conversation to continue.
As a silent spectator to my aunt’s negotiation, it was interesting to see that though the vendors clearly didn’t like her counter-offer, they wouldn’t react with an outright no. Rather they would offer a similar product with lesser features or quality at her price point. Or they would say her price point was possible if the quantity was double. In essence, it was an implied no and then quickly adding a new element to their offer. This allowed the engagement to continue.
Managing highly talented, productive and ambitious team members was one of the most challenging tasks I faced. It was not unusual to be confronted during the assessment cycle by someone who would want to know why they hadn’t been promoted or got a bigger increment. Often the reason was that someone else had performed better or their current responsibilities did not call for a higher position and salary. In essence, I had to say no to their demand—a loaded situation as the team members were good performers. What worked best was to explain to them that their current delivery in scope and level did not warrant a better reward, however, they would have a better chance at achieving that if they took on more responsibility and did better. In my experience, most people took it as an aspirational challenge to do more.
—Walking away and the power of touch: This technique is a classic—physical movement to indicate the supposed end of the negotiation.
At times when my aunt and a vendor couldn’t come to an understanding on price, she would call to me and indicate that we were leaving. She would also add to the vendor that the deal wasn’t happening as he was being unreasonable. In her wisdom, she would keep her hand on my shoulder to slow our exit and allow the vendor time to reassess and make a counter- offer. In nine out of 10 cases, the vendor would hail us with a far better price.
From a seller’s point of view, a potential buyer turning away is an indication to move quickly or lose the sale, and a classic way of re-engaging is touch—either physically or vocally. A light touch on the shoulder or calling out is often all it takes to recall the buyer and continue with a counter-offer.
As the procurement head of an engineered products organization, my negotiations mostly happened in an office, so physical disengagement wasn’t always possible. What worked equally well was a move signalling the end of the conversation—a firm moving back from the table, standing up, shutting laptops and diaries—followed by a clear statement that we didn’t have a deal. In most cases the other party would react with a move that would allow the engagement to continue. This was typically indicated as, “We hear what you say; will check and revert," followed with a date for the next discussion.
The illusion of an end to the discussion can be a great catalyst to accelerate agreement in a negotiation. As a buyer, use it as an ultimate technique, but be prepared with a fallback plan in case you don’t hear that voice calling you back.
Every negotiation is an experience of human nature. Be an astute observer and you will learn lasting lessons that will prepare you for a better conversation the next time around.
An unabridged version of this article is available on www.foundingfuel.com
Sanjay Handu is a corporate consultant focusing on supply chain strategy and business transformation. His most recent role was with TE Connectivity, where he led the aerospace, defence and marine business unit and prior to that was the global head of strategic sourcing across several emerging economies.