How to negotiate effectively

Sales Startups Strategy

Posted by Enrico on Sep 27, 2016 1730

Negotiation is a process where two or more people or parties interact in order to reach a common accepted understanding. It is done to resolve points of difference, where each party involved in negotiating tries to gain an advantage over the other. Negotiation can be around different themes such as salary and pricing, and so on.

"When you have nothing to say, say nothing." - Charles Caleb Colton

In sales negotiations, we often come to a point were the client says: "It's too expensive". When this happens, it's important to know the motivation behind the objection. The four main reasons are: the presence of competition, a tight budget for the client, the need for explanation, and the interlocutor is a player.

The resulting negotiation will be different depending on the counterpart’s reason(s) for negotiating. The first part of the negotiation will be focused on collecting information in order to understand the reason why the counterpart is negotiating. The structure for obtaining information can be:

  1. Forced silence:
    A few seconds of silence generally make the interlocutor talk again, giving us more information.
  2. Acknowledgment:
    We have to acknowledge the fact that we know that we are expensive. For example, "I know that it can look expensive. It's something that we hear very often but not from our clients, since, if you had worked with us, you would know that the return on equity is very high when working with us."
  3. Dig behind the objection:
    Ask questions in order to understand the reason for the objection. For example: "Compared to what are we expensive?", "Compared to who?", "What price do you have in mind?"
  4. Isolate the objection:
    In this phase, we can use questions to gain a positive answer. For example: "Is the price the determinant criterion for you?" If the client says “no”, you have the chance to focus on something other than price.

At this point, you should have enough information to understand the reason that led the client to start the negotiation. A series of possible actions depending on the reason for negotiation are reported below for the different kinds of competitor:

  • Competitors (Logical)
    In this configuration, the client wants to negotiate to reach his or her target. We have to understand how large the discrepancy is between our price and the competitor's. One can solve the problem by comparing, point by point, all the different aspects included in the contract, for example, product quality and insurance. The goal is to give the feeling that, overall, our proposal is better.
  • Budget (Logical)
    This is the case were the client wants our product but cannot afford it because his or her budget is less than the price. In this case, we have to help the client find a solution.
    It is similar to the example of car options where, if we have a limited budget, we can cut out some of the extra features. It is the same in business. In this phase, we can be creative.
    For example, we can present a special financial model where the client pays in installments.
  • Need for explanation (Psychological)
    In this case, we have to explain why we are proposing such a price. We should do that while giving validity to all the different aspects of our proposal. If possible, we could do that by calculating the ROI (return on investment) in front of the client.
  • Player (Psychological)
    This is the case where the interlocutor does not have any specific reason for negotiating. He is just playing. In this case, we should be able to recognize that and enter the game.

Different styles of negotiations are also possible. The four main kinds are reported as follows:

  • Exchange
    This is the style of the person who wants to find a win-win situation through the exchange process. The principle is we exchange things until we find common agreement.
  • Power
    In this style of negotiation, we try to use our power to get as much as possible. We can also threaten the interlocutor if we have enough power. For example, “We won’t buy any more from you in the future if you do not accept our prices now.”
  • Fight
    This is the case where we can create conflict to put pressure and stress on our opponent. We can do that by always saying “no” to the opponent’s propositions. This mode is very dangerous. If we use it, we should know that the result can be a breakdown in the negotiation and we could also endanger the future relationship.
  • Retreat
    In some cases, it is useful to say “yes” and accept the opponent’s proposition. It is synonymous with obeying, accepting and making a concession.

A good negotiator is able to play with all those different styles at the same time. Nevertheless, it should be clear that in order to negotiate successfully and counter the client’s objections, we need arguments. This is the real key to all negotiations. In order to have arguments to offer, it is of prime importance to prepare for the negotiation as much as possible. The following paragraph gives a tool for doing this in a structured way.

Preparing for the negotiation

The winner of the negotiation is the one who brings the most convincing arguments, not the one who talks better or more. Arguments have to be clear for everybody. Confusion is never good.

To prepare for a negotiation, one can use the Strategic Proposition Guide tool (called the SPG hereafter).

The SPG is a matrix where we set our highest and lowest limits of negotiation. We do that for the first proposal (that would be our best solution) and we complete the SPG with a few openings (the more openings one has, the better the chances of winning the negotiation). An example of an SPG is given in the following table.

The braking line corresponds to the limit that we cannot cross. It is important to remember that in negotiations we have to be able to say “no”. This has to be done when the interlocutor asks us to go over the braking line. This can lead to losing the negotiation or the contract but, in some cases, constitutes the best thing to do.

Points of negotiation can be different depending on the context of the negotiation. Here are some standard points of negotiation reported for specific types of negotiation.

Classical areas of negotiation

  • Classical projects
    Pay (fixed + paid holidays + prime + evolution), overheads, absences, following-up, risks, indexation, length, payment, etc.
  • Export projects
    Provisions for charges, relocation, various types of insurance, taxes, etc.
  • Civil works
    Project insurance, protective equipment, training, etc.
  • Multi-site projects
    Provisions for charges, weekend displacements, etc.
  • Nuclear sites
    Project habilitation, dosimeter control, etc.
  • Competence sites
    Project buying of software and materials, lawyers, etc.
  • Salary negotiation
    Salary, bonuses, holidays, benefits (car, gasoline, PC, telephone, etc.), annual evaluation, training, etc.

Tips and tricks

  • Always negotiate with the person who can take the final decision. Otherwise, the risk of having to negotiate twice will be significant.
  • When negotiating, we should always be thinking in the long term. Whatever the outcome of the negotiation, the most important thing is to preserve the future relationship.
  • Keep in mind that the negotiation can lead to an unacceptable deal. This is normal. Thus, no matter what the result, one should always have an argument to close the negotiation in order to keep the relationship.
  • Keep in mind that the best negotiation is the one that leaves everyone feeling that the solution was win-win, since it preserves a positive atmosphere for future negotiations.
  • One of the most important things during negotiations is the ability to handle our frustrations. This means that whatever happens during the negotiation, we should keep focused and calm. Again, this is done by preparing for the negotiation in advance. If we are prepared for all scenarios, we will have no problem in reacting to the interlocutor’s objections.
  • Never negotiate with yourself. If we think too much during the negotiation about different possibilities, one risks losing control.
  • If we give something, always ask for something in return. This is a very common and practical rule.
  • If we do not know what else we can do to close the deal, as a last resort we can enter the emotional level. For example: “Mr XXX. I'm really sorry but I really need to close this project. I might have issues with my management if I don't close this deal”.

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    Enrico Tam

    MBA, PhD, tech entrepreneur, maker

    Hi, I’m Enrico and I started hacking at 9 years old back when it was Visual Basic. After trying to become a professional tennis player I somehow got entangled in a PhD in engineering, an MBA programme and a big consulting fir... (continued)

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