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Posts Tagged ‘Negotiation Skills’

50:50 may not be a fair share!

May 9, 2012 13 comments

 

Two girls are fighting over an orange – the older one says she needs to get it because she is senior and the little one wants it because she had seen it first. Dad enters the kitchen seeing this bitter struggle in progress and intervenes. He decides to play arbiter and calls the two warring sides to the table for a dialogue – asks what is the problem? Both sisters reiterate their positions and like a good referee dad decides to split the orange into two equal halves – one for each of his daughters. Thinking he has solved a major crisis dad gets up to leave the room with a smug smile on his face. Child’s play!

Problem solved? No way! Both sisters explode and this time the ire is directed at their dad.

Well, I have twisted a case regularly used in Negotiation Skills programs to bring out the drama – but such scenes are typical when groups are negotiating for their “fair” share. Most times half and half won’t get you to an amicable solution. To know that you need to understand the situation.

–          What is the little one wasn’t that hungry and she just wanted to hold the orange?

–          What if the older one just wanted the skin to add to the marmalade recipe she had in mind?

Dad would have been able to help his kids reach an amicable solution is he had studied the problem in its entirety.

Often in Negotiations each side is so busy trying to win the maximum out of the deal that they end up losing a lot – that is because they fail to understand the other side’s expectations.

The above example was quoted in a Negotiation Skills workshop I attended earlier in the day. The expert conducting the session was Prof. Ofer Sharone of the MIT Sloan School and he was brought to Cochin by the local chapter of IIPM.

Another interesting example quoted by Professor Sharone was from the 1912 Presidential Elections in USA. Teddy Roosevelt’s Campaign team had created a poster on the Bull Moose Party (Roosevelt’s Progressive Party had that nickname) theme – around 3 million copies were printed for distribution across the United States. Before the poster was released to the public some smart guy discovered that the picture used on the poster was under copyright and they had not bought the right to use it. It was felt that the photographer could sue them for up to USD 1.oo per poster and that would cost them USD 3 million.

Creating a new poster was out of question – precious time would be wasted. It needed some out-of-the-box thinking – something had to be done quickly to maintain the momentum of the campaign; the picture they had used was just right to send across the planned message, but they didn’t want to be sued for copyright violation.

The Campaign Manager came up with a brilliant idea – he called the photographer and asked: “How much are you willing to pay to have your photograph used in the Presidential campaign?”

The photographer, totally unaware of the situation on the other side, said – “I can’t afford more than 2000 dollars!”

Now, wasn’t that brilliant thinking – how a crisis was averted and the role was reversed! From fire-fighting it had turned into a brilliant coup. The photographer was funding them for the use his own photo instead of getting paid for it. But obviously the association with the campaign would have given him immense mileage.

Success in negotiation comes from understanding the situation well and by making smart use of the variables available.

Even 90:10 could be a fair deal!

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Negotiation Case Study – Responses & Conclusion

May 5, 2012 7 comments

The Case Study on Negotiations produced a lot of interesting responses; am glad that the readers took active interest and shared their thoughts on the subject. The sharing of ideas and the dialogue adds value, as was rightly pointed out by Sajan, who took time to read not just the article but the Comments too.

The highlights of the case:

Jayant is asked to quote for a bespoke training course. The HR Manager of Oasis Consultants leads him up the garden path and clinically peels Jayant layer by layer to get a deal that’s almost 50% less than the original offer and the deal is not closed yet. The customer wants more.

Jayadev Vijan responded thus:

Fix the deal before u give start to respond to bargain, like fix the number of persons, time date and other factors. Even when bargaining keep those factors constant. Any change to change the whole bargain.

My namesake is right when he said that we have to understand the customer’s requirement fully before playing our cards and that we need to state explicitly upfront that all offers are subject to conditions and would be revoked or withdrawn if the conditions are not met.

Sajan has this to say:

1. If it sounds too good to be true, it probably is – so don’t get excited and give away too much when things seem to be working out too well
2. While offering discounts it’s important to be clear of the conditions in which it is being offered and make it clear to the client.

When we are ruled by emotions we tend to get illogical and do things that we would regret later on – so decisions should be taken when emotions are under control. Sajan also indicates, like, Jayadev, that conditions need to be spelt out clearly while offering discounts. All the other readers stressed on this last point.

Vijay suggested:

Instead of quoting per individual, Jayant could have quoted the price per batch (and mentioned the minimum & maximum number of participants allowed per batch). He could have listed down what would be the deliverables from his side and what the client should provide.

Vijay makes an important point here – that we need to change the nature of our offer according to the requirement; in this case the pricing for bespoke programs should be for the course itself and not per participant – with caps mentioned for number of participants. I agree with that strategy!

For Jithin Mathew it was a different kind of insight – he said: Henceforth no bargaining. Only fixed price!

Jamy Lateef said:

I think Jayant jumped ahead before getting his ducks in a row; as simple as that! Always keep the ball in your court before you driving it home for advantage. Jayant gifted the client with a juicy full toss which the client utilised fully to their advantage

Jamy’s interest in cricket taking siege of his response – but he had couple of useful messages to share too. Again it’s about understanding expectations.

Raaj

Jayant is probably a very good trainer…
But this is what happens when one doesn’t have much experience in the fine art of negotiation. It is possible that this was Jayant’s first ‘corporate’ deal… or at least the first encounter with someone who knows a trick or two about negotiation. So he got suckered into it.

What does my friend Raaj have against trainers; I must ask him to elaborate. Jokes apart the main plank of his argument is that academic knowledge is insufficient, we need to gain experience by dirtying our hands. Jayant could do with some practice of negotiation skills is his submission and it’s probably true.

Another reader named Vijayenggster sent in the following:

Lesson 1 : Terms & Conditions to the client should be in a such a manner that ball should always come in our court.

Lesson 2 : We need to give the options to client, where all the options are smartly worked out to get the profit in our hand. (Client is always happy to see the options & sometimes it will restrict the customer to think out of our Options).

Lesson 3 : Detail discussion with the customer is always required to understand the real situation on the client side, to understand the time limits, budget & off course to understand about the competitor if any.

Lesson 4: The reputation with the client should be made in the very first meeting. (This will avoid competitors & bargaining will be less). All the clients want quality & quantity.

Extremely well thought out and useful points in this response – building credibility, understanding the prospects situation well, negating competition, reducing the prospects urge to bargain and a few points that have been offered by others.

Let me sum up with some inputs on Negotiation Skills:

  1. Prepare Well – create a list of items that can be traded or negotiated

Negotiations are done late in the Sales cycle, closer to the final order than to the beginning of the sale. So the seller should avoid making offers early on – at the same time the seller needs to define what his target price is, how low he is willing to go and list down what elements he would trade.

  1. Try to get the customer to reveal his requirements as early as possible – understand their pain points and the scope.

The customer would always push the seller for the lowest price and use every trick to get there. The seller should get the customer to reveal his cards before making any concessions. If the customer tries to play smart respond by using some stock statements such as “Clearance from superiors is needed to make any offer and so the complete requirement needs to be specified to move ahead.” Or “We have a policy of making offers only after the complete requirement is given in writing – we can’t make any offer till that’s done”.

  1. Never give away anything without getting something in return – trade every variable.

Jayant should not have given any benefit away without getting Mr. Thomas to commit something in return. He should not give everything away at one shot.

  1. Change your price strategy based on the situation; one size does not fit all

Jayant should have different pricing strategies for Bespoke and Public programs and he should not give any concession till the customer makes a firm, irrevocable commitment on order size. Any offer he makes has to have an automatic revoke or cancellation clause. The offer has to be close-ended and should specific the conditions the customer has to fulfill. By handing over complete control to the buyer Jayant had put himself in a losing position.

  1. Keep creating value

Whenever any concession is made it should be given away with reluctance and loaded with value – ensure that the customer is made conscious of the benefit he is receiving. Nothing should be given away lightly, get them to sense that you have given away an awful lot for their sake. Drive this point home repeatedly without sounding like a stuck record.

These are some of the points covered in my training programs on Negotiations. Am happy to note that the readers have understanding of the ground rules and most probably are practicing it too.

The Jayant case is an altered version of a negotiation I had done some time back – I had altered the specifics and the direction by creating elements that could be debated. I am sure you have benefited from the deliberations.

The actual case went differently and I achieved a close where the customer had won and I achieved my victory too.

Do get in touch if you have some more thoughts to share on the subject and I look forward to hearing about your success too.

Dirty deal?

May 4, 2012 20 comments

What are your first words when you walk out of a customer’s room after closing a deal – “Damn!”, “Phew!” or “Bingo!”

Jayant regularly conducts a preparatory training course for IT professionals – the 4-day program prepares them for a Credential Exam. The application process for the exam can begin only after participants take part in prep course. Getting the Credential adds huge value to the IT experts – it can lead to better jobs, increments and promotions; so the course is valued.

Jayant regularly sends out mailers to give publicity to the Public program he conducts each month at locations across South India. He charges each participant Rs. 12000/- for the 4-day program, inclusive of cost of handouts and the food and beverages given during the program. There are some discounts given to Early Birds and for group bookings.

Occasionally he is asked to conduct a bespoke, or exclusive, program for the employees of one organisation. In those cases his price would be lower due to larger group sizes and reduced program administration costs. He does not have to hire a venue and equipment in such cases because the organisation would provide their in-house facilities. Only the trainer’s travel and accommodation costs need to be factored into his pricing.

Recently, Jayant received an email from Mr. Thomas, the HR Manager of Oasis Consultants, asking him to send a proposal for an exclusive session. Mr. Thomas said that Oasis will take care of the trainer’s travel and accommodation and the training venue related expenses; Jayant only had to quote the training charges. Furthermore it was said that there would 12-15 participants in the program.

It was an attractive deal and Jayant carefully considered the options – the trainer’ fee and printing costs cannot be altered, but his own profit could be reduced due to the higher returns possible based on number of participants. For his public programs he usually got 8 to 10 participants after a lot of follow-up by way of emails and telephone calls. Here he would get close to 15 participants in a single deal. Taking these factors into consideration Jayant sent Mr. Thomas an offer of Rs. 7500 per participants (37.5% off from full fee).

Mr. Thomas then asked for details about the trainer, client list, number of programs conducted, success percentage of participants who took the exam after the course – here it has to be noted that it was not mandatory to take the exam after the course. A lot of participants take the prep course and then delay taking the exam for a number of reasons – ranging from work pressure to lack of funds. After Jayant had provided all the information Mr. Thomas slipped in another sweetener – What if we can provide you 20 participants for the program?

Jayant was floating on air now – this looked like a great deal. He decided to go all out to bag this order. So far he had not even cared to find out who else has quoted for this opportunity or whether anyone had offered a rate lower than his. Jayant made a revised offer to Oasis Consultants offering Rs. 7000 per head for the first 15 participants and Rs. 5000 for the next 5 – his thought process was that the trainer’s workload was the same be it 15 or 20 participants and only some additional workbooks and test papers had to be printed.

What Jayant had not notice was that by quoting in this fashion he had opened another bargaining point for Mr. Thomas – Jayant had reduced the price further with his offer the HR Manager bargained hard using that point. Mr. Thomas played a new card – he said that when the matter was discussed with his Managing Director he was told not to send all 20 participants for training in a single batch and so it had been decided that they need 2 programs to which participants would come in batches of 10.

Fine so far – but here comes the sucker punch: Mr. Thomas had worked out the price based on Jayant’s offer and arrived at a figure of Rs. 6500 per participant (46% discount on full fee). Even this was OK! The next bit really takes the cake: Oasis Constructions wanted Jayant to do 2 programs at that price.

Which means that Jayant would not only have reduced his fee from Rs.12,000 per participant to Rs. 6,500 but he also had to provide the trainer for 8 days instead of 4. And the trainer was under no obligation to Jayant or Oasis Construction – he is an external resource hired on need basis by Jayant – he would charge double for 8 days, maybe a little less if Jayant bargained but definitely not 46% lower than his full fee.

What would be his feelings at the end of this deal?

What are the lessons to be learnt from this case? Let us debate it before I provide you my point-of-view!!

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