Chapter 11: Putting It AllTogether: Sample Negotiations

Congratulations! You now have all the tools you need to become a world-class, cutting-edge negotiator. As you begin to put those tools to use, you’ll find that using the Strategic Negotiation Process to blueprint business deals is not only an amazingly effective means of attaining success in negotiations but also an extremely efficient one. It may not seem like it at the moment, but, if so, that’s only because the process is still new to you. The more you use the process, the more practice you get and the easier and more effective it will become.

Just to make sure, though, that each step of the blueprinting process is clear to you, and to give you a little additional practice before you go out into the real world, in this chapter I show you how to blueprint two sample negotiations. The first is an ad hoc negotiation with an existing customer, and the second is a large and more strategic negotiation with a new customer. And to show you that our process can be used for any kind of negotiation, as an added bonus I show you at the end how to blueprint an entirely different kind of negotiation.

SAMPLE ONE: USING THE BLUEPRINTING PROCESS IN A SMALL AD HOC NEGOTIATION

It’s Tuesday afternoon, you just got back from lunch, and you find you have a voice mail message from one of your customers. You closed a deal with them about six months ago—agreeing on price, terms, service, volume, and length of contact—and the deal’s due to be renegotiated six months from now. But in his message the customer says that he’s being pushed hard by management to reduce costs and he wants an additional 5 percent off the price. He also says that he needs an answer from you for a three o’clock meeting with his boss, which means you’ve got two hours to blueprint this negotiation.

Establishing a Negotiation Goal (Five Minutes)

The first thing you do is remember that your goal in any negotiation is to “create joint value and divide it given concerns for fairness in the ongoing relationship.” What that means more specifically in this situation is that, despite the fact that your customer is demanding a zero-sum concession, you want to find a way to create joint value without hurting the relationship you created when you made the original deal.

Estimating the Blueprint: The CNA Estimation (Ten Minutes)

Your side (five minutes).  First, you complete a quick overview of your own CNA. You recognize that if you don’t reach agreement with your customer on this, there’s a very good chance that he’ll get emotional and try to get out of the contract. Your CNA, then, is to lose the business. In this case, losing the business means losing about $75,000 in revenue you’ve forecast for this customer in the short term, the remaining six months of the contract. But because you’d also like to renew the contract for another year, losing the business means a potential loss of another $75,000 to $100,000, for a total CNA cost of up to $175,000.

On the other hand, a contract is a contract, and there may be some benefit in not giving in to their demand and sending the message that they can’t continue to do this to you. At the same time you know that if you have to take legal action against them to enforce the contract, there will probably be some hard legal costs associated with it, some soft costs in the form of the hassles associated with suing a customer, and, of course, the hard costs of losing the customer once the contract expires.

Their side (five minutes).  You estimate that they will either keep the agreement “as is” or try to switch to your nearest competitor, Operations Consulting. Knowing the emotional volatility of this customer, you guess that their most likely CNA is to try to dump you and take their business to the competition.

Going to your competitor would be of some benefit to your customer because Operations Consulting is much smaller than your company and your customer would accordingly be a bigger fish in a smaller pond there. In addition, Operations Consulting would probably offer your customer lower fees—at least in the short term—to attract them over. On the other hand, Operations Consulting doesn’t have global offices as you do, which means the customer will have to sign up subcontractors in several sites around the world to handle their consulting needs. This represents a lot of risk for your customer as well as the hassle of finding, signing up, and starting the learning curve with several new firms. In addition, they have to start all over domestically with Operations Consulting if they kick you out.

Power analysis.  On the basis of your CNA Estimation, you think that you have slightly more power in the negotiation than your customer does because of the Gap between their needs (a global solution) and their CNA, which is a domestic firm, and the fact that you already have a contract with them.

Estimating the Blueprint: The Wish List Estimation (Five Minutes)

Your side.  Certainly, lowering your price would be the last item on your Wish List. But as you sit at your desk and look at your sales plan for the account, you come up with a few items that you would readily trade in exchange for the price discounts:

• Agreeing to another year now instead of six months from now

• Access to a division of your customer’s business that you don’t have today

• Selling them your new operations management software

  

Their side.  Even though this customer is quite pushy, you know that they like working with you because you’ve had a positive impact on their operations. You also know that although their lead issue is price, they are actually concerned about several things at the moment:

• A discount of an additional 5 percent, and you doubt if you’ll get them lower

• A possible interest in your new software, which will be just a simple yes or no for 100 licenses

• The ease and low cost of introducing you to their other divisions, and, depending on the value of a discount, there’s a range of two to three divisions you’d like to get into

• A possible willingness to extend the contract, and you think a range of 6 to 12 months is possible

  

Validating the Estimation (20 Minutes)

Based on your estimation, you prepare some quick questions, then call the customer, and say:

• “Bob, I understand your company is under profit pressure, and you’d like us to help you achieve your goal of a 5 percent cost reduction. Is that right? I may have some creative ideas for how we can get there, but I need some help brainstorming for a few minutes. Can I run a few questions by you?”

• “Have you received the direct mail piece announcing our new operations management software? How did you feel about it?”

• “I’d very much like to gain access to your Latin American Division. How are your contacts there?”

• “We’re about six months into our contract now. How happy are you with us overall?”

• “Do you think that at the end of this contract we’ll be asked to bid on your business again?”

• “I’ve heard that Operations Consulting has been pushing you hard to bring your business to them. Is that right?”

• “They’re small, and I’m sure they’d love to have you as a customer. Have they added global operations yet?”

• “Great! I really appreciate your time. I’m going to e-mail you some ideas for your consideration, and then I’ll call you back in about half an hour. My goal is to come up with a way to get you your discount and keep our end of the deal as valuable to us as it is today. We really value your business, and I don’t want to do anything to lose it and have to find a new customer. I also don’t want you to have to go through the hassle of replacing us.”

  

Using the Blueprint to Create Value (15 Minutes)

As soon as possible after you get off the phone with Bob, you prepare an e-mail to him that says the following:

Dear Bob,

Thanks for agreeing to our earlier phone call. It helped me go a long way toward fulfilling your request. As you’ll see below, I have several ideas that are intended to increase the value of our relationship for both of us. I’ll phone you shortly, and I hope we’ll be able to agree on one that you can present at your three o’clock meeting.

Item	Option 1: Existing Relationship with New Added Value	Option 2: Broader Relationship Relationship	Option 3: Longer and Broader
Price Discount	3%	5%	8%
New Software	100 licenses @ $29.95	100 licenses @ $29.95	100 Licenses @ $29.95
Introduction to Mgt. at Latin American Division	__________	Yes, with reference	Yes, with reference
Contract Length	__________	__________	Agree to 12-month extension now

Using the Blueprint to Divide Value (15 Minutes)

When you call Bob to follow up on your e-mail, he tells you that the first offer doesn’t meet their needs, so you agree to cross that one off. He is, however, very much interested in the possibility of being able to bring not only a 5 percent discount but an 8 percent discount to his three o’clock meeting. He tells you that he’ll look like a star in front of all the other buyers if he can pull that off. So you do a little trading and finalize this deal:

FINAL AGREEMENT

Price Discount: 7 percent

New Software: 100 licenses @ $25 per person

Introduction to Management at the Latin American Division: Yes, with reference

Contract Length: Agree to a six-month extension now

This example should give you a pretty clear idea of exactly how effective and efficient blueprinting a small, ad hoc negotiation can be. You started with a difficult situation—a customer asking for a zero-sum concession—and even though you did give some on price, what you got in return was sales of a new product, an introduction to another division of your customer’s company, and a six-month extension of your contract. Not bad for a little more than an hour’s work!

Again, as you can see, you started off by estimating your CNA and Wish List as well as those of your customer. Then, in a validation phone call you were able to confirm your estimates, let your customer know that you’d thought through his likely CNA and its effects, and subtly anchor on multiple issues. You then presented three Multiple Equal Offers, ignoring the single-item anchor of a 5 percent price reduction, and you used the opportunity to offer them more than they wanted in exchange for more than you thought you could get. And with a little trading you created and divided value in a way that enabled you not only to go beyond “win-win” but to further solidify your relationship with the customer.

Let’s now look at how you might blueprint a negotiation on a multi-million-dollar new global account with a team of sellers on your side and a team of sellers on the buyer’s side.