DEVELOPING MULTIPLE EQUAL OFFERS

Note that I’ve used the word offers because, in fact, the end result of this step will be not one offer that you can make to your customer but rather two to four of what we call Multiple Equal Offers (MEOs). These are essentially offers that are of approximately equal value to you but should be of varying value to those on the other side. These offers are also custom made because they’re based on the CNA and Wish Lists you’ve estimated and validated for both sides in each deal. And they are all designed to provide each side with something better than its Consequences of No Agreement, and to include as many trades as possible, so as to increase the value to both sides.

Although Multiple Equal Offers may sound somewhat like “bundles,” they’re actually different for several reasons. Bundles are typically offered “off the shelf” rather than customized for a particular deal. They are also typically not packaged to benefit both sides but rather to benefit the seller by loading in high-margin or slow-moving items or services. And, finally, when a bundle is offered, there’s usually only one rather than two to four, as is the case with MEOs.

But exactly how do you develop these offers? You do it by using the data you’ve gathered in the two previous steps on your own and your customer’s Wish List and Consequences of No Agreement.

Using the Wish List Estimation

By now you will have gathered a great deal of information about both the items on your Wish List and the items on your customer’s Wish List and the relative importance of those items to each of you. At this point, in order to use that information to create joint value, you have to look closely at those items and determine two things. The first is which items are on your list but not on your customer’s, and vice versa. The second is the relative importance to you and to your customer of the items that are on your lists. It is these differences that make it possible for you to trade and, in the process, create value. For example, your customer may want you to warehouse their purchase, something which may be of little importance to you. When you develop your offers, then, you can include that item in one of them. But because this is about trading, if you offer warehousing to your customer, you will also include something in the offer that’s important to you, such as a longer contract.

Trading is not, however, only about adding items. In the course of gathering information you may, for example, learn that your customer doesn’t want a certain clause in the agreement, such as a raw materials clause, which makes them responsible for increased raw materials costs. In that situation, it would be taking something out of one of the MEOs that acts as a trade. Again, though, if you take that clause out, you will add something of greater value to you, such as increased volume or an introduction to a new division. The point here is that it’s essential that you look closely at the items on your Wish List and your customer’s, determine where the differences lie, and make use of those differences to build value by embedding trades into your Multiple Equal Offers.

You don’t necessarily, however, have to restrict yourself to items on the lists. There may well be additional items that are not officially on the table but that you can introduce in order to create even more joint value. You’ll recall the story I told earlier about the insurance company and the home improvement retailer who were negotiating the price-per-yard of replacement carpeting to be used by the insurance company’s policyholders. The buyer and seller were negotiating hard over price and, despite having considered a large number of possible trades, had almost reached an impasse. By creatively brainstorming every conceivable trade, however, they eventually landed on “trading tapes” of their consumer databases and creating some joint marketing. This very creative trade not only saved both sides money by eliminating the necessity of purchasing additional databases, it also resulted in new revenue streams for both.

This example explains why I would encourage you to look for trades beyond what’s on the table now. In exchange for something your customer considers important, you might, for example, ask for access to the customer’s business in countries where you don’t now have access or ask for the opportunity to sell a product or service that the customer isn’t currently buying from you. Suggesting such items can be particularly helpful when you learn from your validation that the customer is looking for something very aggressive from you, such as free service calls or deeply discounted pricing. In fact, it’s often this kind of creative offer that can make the difference between impasse and agreement.

Using the CNA Estimation

In the same way that you embed information from your Wish List Estimations into your MEOs, you should embed information from your CNA Estimations. Doing so, at least for your own side, isn’t particularly difficult. Because your most likely CNA is to lose the business, the effects of the CNA are that you will either have to replace this business with a new customer or get more business from an existing customer. Your CNA will accordingly look better or worse depending on the market demand for your product or service and the average market price for what you sell. For that reason, you should make sure when you develop your MEOs that they provide you with something that’s greater than your CNA. In fact, the only time you should go below the current market yield for your product or service is when there is what one of our consultants calls “a compelling trade,” that is, a trade that has value in excess of what you’re giving up. As I mentioned earlier, we have on occasion traded heavily for nontraditional items, such as experience in a new market, when doing so provided us with something that was of greater value to us, such as, in this case, creating a new revenue stream.

Making use of the other side’s CNA Estimation is, however, somewhat more difficult. But it can be done, and you do it by looking at what we refer to as the Gap. The Gap, which you typically find after completing the CNA estimation and validation for a customer, is the difference between your understanding of what the customer needs and wants and what the customer can get by going to one of your competitors, doing it themselves, or doing nothing at all—that is, their CNA. If there is no Gap, the negotiation is going to be difficult for one very good reason—if you can’t tell the customer why your offer is better than their CNA, how can you expect them to choose you? In fact, if you find yourself in that kind of position, you’ve either not done a very good job of analyzing the situation or you have a value proposition problem. Fortunately, assuming it’s not a value proposition problem, the analysis can be done again. But it is, in any case, your responsibility to find that Gap. In fact, the Gap is the Holy Grail of CNA analysis! It’s the entire reason you take the time to do this work and probably the most important aspect of any negotiation.

In every successful negotiation we’ve ever been part of, we have found and—even more important—exploited a CNA Gap. For example, earlier I told you about one of our clients that specialized in data management services. They found themselves in a situation in which one of their customers believed that its CNA—building its own database— would be better, faster, and cheaper than buying what it said were the outrageously expensive services of our client. When we did the CNA analysis, however, we found huge gaps between what the customer needed and wanted and the customer’s CNA.

For one, although the customer believed that building their own database would be better because they’d be able to customize it, we realized that, by doing so, they wouldn’t be able to integrate their new database into the old one. We also realized that even though they thought they could do it faster themselves, it would actually take twice as long as they anticipated because they hadn’t considered many of the steps that had to be taken. Nor would it be cheaper, even though they thought it would, because they had neglected to take into account the cost of the ongoing maintenance of the database. In addition, building their own database would expose them to enormous risks. If it took longer, was more expensive, and/or didn’t provide the high-quality reports they needed, they couldn’t blame it on a supplier and would therefore have to take the heat themselves. Needless to say, when our client presented its customer with its offers, they made sure that the client understood how its offers were better than the customer’s CNA. Of course, you may not always find the kind of huge Gap we did here, but there has to be at least one or the negotiation will stall.

One place where you might be able to exploit a Gap is in the area of incumbency, a huge issue in CNA analysis, as noted earlier. Although I hesitate to state the obvious here, if you’re a successful incumbent and the customer will have to remove you from their organization if they choose someone else—a cost associated with their CNA—you already have a huge power advantage. But the reverse is also true. If you’re negotiating against a successful incumbent, one benefit of the client’s CNA— staying with the incumbent—is their ability to avoid the hassle associated with switching suppliers. On the other hand, if the incumbent has not been servicing the customer well and you can offer better service, you can exploit that Gap and help both the customer and yourself. Remember, if you can’t clearly show the customer how your offer is better than their CNA, closing will be difficult, if not impossible.

Let me give you an example of what I’m talking about. One of our consultants, Steve Thompson, is a former naval officer who lived in Chicago when he was single and enjoyed sailing his 30-foot boat on Lake Michigan. But when Steve and his girlfriend, Jan, decided to get married and move to Atlanta, he realized that he had to sell his sailboat to make a down payment on a new house. So he listed the sailboat in the papers and at the local sailing clubs in Chicago with an asking price of $32,000. The price included an extra, beautiful teal blue sail as well as a hand-crafted stainless steel storage rack for an inflatable safety boat (also included), which Steve had designed and built himself.

Several buyers came and went until, finally, two couples—two brothers and their wives—came to see the boat and were serious about buying it. They particularly loved the look of the extra colorful sail because it made the boat stand out. There was, however, a problem: the absolute maximum they could pay for the boat was $25,000. Having already blueprinted the negotiation, Steve was prepared to come down to $27,000 if he could keep the extra sail and safety boat and rack. He knew that he would get another boat once he got settled in his new life and he’d be able to use them.

So during a meeting on the boat with the two couples, Steve suggested the lower price. Unfortunately, even though the couples agreed that it was fair, they had two problems with it. First, it was still $2,000 higher than their budget and, second, although they didn’t care about the safety boat and storage rack, they loved the colorful sail. Steve, in turn, offered to sell them the boat and the sail for $28,000, but, much as they were clearly tempted, it was still over their budget. Reluctantly, both sides agreed to accept their CNAs—Steve to find another buyer and the couples to find another boat.

But it was a beautiful Sunday afternoon and because they were all on the boat anyway, Steve invited them for a sail. While sailing, Steve realized that none of these people had sailing experience. In fact, they told him, the reason they only had $25,000 for the boat was that they had saved $30,000, but $5,000 of that was budgeted for sailing lessons! Obviously, a boat’s not much good if no one knows how to sail it. But that was the piece of information Steve needed. Not only is he a former naval officer, but he’s also a licensed sailing instructor. So he offered to sell them the boat with the colorful sail and four sailing certifications for $29,000, and they immediately accepted. In the meantime, Steve got to keep the safety boat, which, while not important to the couples, was important to him.

What Steve did, then, was to give the buyers several choices:

• The sailboat with no extra sail and no safety boat ($27,000)

• The sailboat with the extra sail but without the safety boat ($28,000)

• The sailboat with the extra sail and four certifications but without the safety boat ($29,000)

• The sailboat with the extra sail and the safety boat ($30,000)

All of these deals were acceptable to Steve because they were all equal to him in terms of his return. But the third deal was the best for both sides. Steve got to keep the safety boat and storage rack as well as making $1,000 more than he had anticipated. The couples got the boat, the extra sail, and the certifications they needed for $1,000 less than they’d anticipated. In other words, all the parties, by trading, were able to increase the value of the deal and then divide it between them. (In fact, Steve got an added benefit. He was selling the boat at the start of the season because prices and demand would drop had he waited until the fall. But that meant that he’d have to spend his last summer in Chicago without a sailboat. Now, giving the couples lessons, he would be out sailing almost all summer on a boat someone else had to maintain!)

Structuring the Deal

But exactly how do you structure Multiple Equal Offers? Here’s an example of how we do it in our own business. When we’re trying to sell our negotiation solution to a prospective customer, we often hear from buyers that what they’re most interested in is the lowest price per head. At the same time, when we talk to higher-level executives in the buyer’s company, they often say what they want is a negotiation process that’s customized and truly integrated into their organization. In order to accommodate both parties, what we usually do is provide three Multiple Equal Offers:

1. A high-priced, high-value custom solution

2. A very low-priced, off-the-shelf package

3. Something in between

Of course, if a customer says they only have $50,000 to spend, we always offer them a $50,000 solution. But it’s typically the lowest priced off-the-shelf solution we offer. At the same time, we offer a fully customized solution with all the bells and whistles. Perhaps not surprisingly, when we present these different options to the buyer and someone at the executive level, more often than not the executive quickly discounts the low-priced, stripped-down version as something that won’t work for their organization and takes it off the list for us. In fact, we usually end up throwing out both the highest-priced and the lowest-priced solution and settling on the middle deal, which is typically the best for both of us.

Typical MEOs would look something like this:

Sample Multiple Equal Offers
Item	Option 1: Long-Term Strategic Alliance	Option 2: Long-Term Strategic Relationship	Option 3: Short-Term Flexible Relationship
Price	$14/unit	$12/unit	$10/unit
Length	3 years	1 year	Quarterly commitments
Volume	4,000 units	2,000 units	1,000 units
Support	7 days/week in person	5 days/week in person	5 days/week by phone
Payment Terms	45 days	30 days	Upon receipt

You’ll note that as the unit price, length of contract, and number of units go down from the first to the third option, so too do the value-added services and support we provide. Looking at it from the opposite side, you’ll see that as unit price, length of contract, and units go up, so does our commitment to more service. In addition, as potential revenues increase from the third to the first option, we are also willing to take on more risk in payment terms.

You should also note that I’ve labeled each of these offers in terms of different relationships. In today’s business environment, it’s much more likely that you’re selling business relationships than price and product. By presenting these offers in terms of relationships, then, you’ve shifted your negotiations to bring them into line with your sales process. In other words, you’re selling and negotiating your value proposition in the form of different business relationships. You’ll also note that it’s usually best, as we do, to offer three different relationships. Except in very simple deals, two relationships don’t really provide enough flexibility, and four can get too confusing. Three seems to be the optimal number.

Finally, just as it’s important to consult with others in your organization during the estimation and validation steps of blueprinting a negotiation, it’s also important to consult with them during this step of the process. If you work in a company in which you have to interact with lawyers concerning legal terms, finance people concerning payment terms, product managers concerning product pricing, and/or service managers concerning service pricing, all of them should be included in the construction of these MEOs. Let’s say, for example, that your lawyers want to shift all the legal risk to the other side—which is, of course, what lawyers are paid to do—but you know that your customer is extremely risk averse. In that case, you can work with the lawyers to develop two or three different offers in which you can decrease your customer’s risk while increasing your return. Working with all the stakeholders in your organization provides you with two very important benefits. First, it gives you the option of trading and creating value internally. And, second, it enables you to gain the trust and respect of internal stakeholders, which can be important in advancing your career.

Structuring Your Own Multiple Equal Offers (MEOs)

Now that you understand how MEOs are structured, it’s time for you to develop drafts for three Multiple Equal Offers for your own negotiation. At this point you may not have yet had the opportunity to validate your CNA and Wish List Estimations, so if that’s the case this will be a practice run. You can start practicing by going back to the Wish List Estimations you developed for both yourself and your customer in Chapter 5 and looking again at, first, which items are on your list and your customer’s, second, the relative importance to you and your customer of those items, and, third, the desired ranges for each potential trade.

The Wish List item that is most important to each side should give you a sense of the two “outer” offers, one in which you get your lead item and the other in which your customer gets theirs. You can then develop a third option that’s somewhere between the two. You should also look at the differences in the high and low ranges for possible trades. If, for example, there’s an item on which you and your customer are far apart, you can build one offer that provides your customer with what they want and compensates you, and another offer in which you get what you want and compensates your customer.

Once you’ve finished your analysis of the Wish List Estimations, you have to go back to the CNA Estimations you developed for yourself and your customer in Chapter 4. Look at them closely to see if you can find the Gap between what you can provide your customer and what they can get from going to one of your competitors, doing it themselves, or doing nothing. If, for example, you know that your ability to customize your solution makes what you have to offer better than the customer’s alternative to reaching agreement with you (their CNA), you can build one offer that’s called “Highly-Customized Relationship,” and build that customization into the trades. You should pay attention, too, to your own alternatives, particularly things like market demand, pricing, and profitability. By doing so you’ll be able to develop offers that close the Gap for the customer and, at the same time, provide you with more than you can get elsewhere. Finally, once you’ve analyzed both the Wish List and CNA Estimations, you should complete the development of your MEOs in the space on page 140.

Rehearsing Your Presentation

Now that you’ve developed your MEOs, before you go on to present them to your customer, it’s important for you to rehearse your presentation with all the people on your side who will be attending the meeting with the customer. There are essentially three things to focus on when rehearsing:

1. Providing an overview of the MEOs. This means naming each of the offers in terms of different relationships and briefly explaining what each includes before going into details. This presentation provides your customer with a good general idea of the alternatives and the differences among them. Setting up the three MEOs is probably even more important than the details of each.

2. Making certain that you’re clear on the CNA Gap. This means having no question in your mind about why what you have to offer is better than your customer’s CNA, as well as your own. If you’re unsure about this in any way, you might not be able to make the kind of forceful argument you may need to make in order to close the deal. Keep in mind that a customer will take your offer so long as it’s at least marginally better than the alternative, so the first thing you have to do is diplomatically educate the customer on exactly how it is better.

3. Making sure your customer can see that you’ve used the information you gathered in the validation meeting to build joint value. Making it clear that you’ve done all you could to ensure that you will both get a deal that’s better than your CNA and one that includes as many important trades as possible will go a long way toward making your customer receptive to your offers.

   YOUR MULTIPLE EQUAL OFFERS
   Item	Option 1: _____	Option 2: _____	Option 3: _____
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