Counterpoint Courses Building Excellence in Procurement and Communications Essential Negotiation Skills Find it in Worcestershire – 16 June 2014 Ros Howard and Steve Mallaband 16 June 2015 4
There is no right answer MDO As cheap as LDO possible Buyer 258 Seller ZoMA LDO 40 218 MDO 348 How do you decide the price within this range? MDO = Most Desirable Outcome LDO = Least Desirable Outcome ZoMA = Zone of Mutual Agreement 16 June 2015 5
An agreement may not be possible MDO As cheap as possible Buyer Seller LDO 100 No ZoMA MDO Have cheaper supplier 348 Lowest daily rate LDO 120 16 June 2015 6
Knowing when to walk away As a Supplier you should know your LDO : the lowest price you will sell at, for given terms As a Buyer you should know your LDO : the highest price you are prepared to pay, for given terms 16 June 2015 7
BATNA – Best Alternative to Negotiated Agreement There may be no ZoMA, which means you should know what your BATNA is: As a supplier: we can find other customers who will pay more As a buyer: we can find other suppliers who will charge less 16 June 2015 8
When should we negotiate? There is a belief that the problem can be solved But the parties have different interests There is a willingness to work together But the parties do not know if they can trust each other 16 June 2015 9
What can we negotiate? Buying and selling of goods, services and works – getting into contracts Termination of contracts – getting out of contracts Changes to contracts Extensions to contracts Price rises Disputes and claims “In business as in life, you don’t get what you deserve, you get what you negotiate” 16 June 2015 10
The mind of the salesperson Training Training Training Volumes Relationship 16 June 2015 11
The mind of the buyer Savings 16 June 2015 12
Fairness Or is this fair? Is this fair? Is it fair that a supplier should always make a profit? 16 June 2015 13
The negotiation process Preparation Open Exchange Info/Debate Propose/Bargain Close/Agree Implementation 16 June 2015 14
Be prepared! 16 June 2015 15
Look at the market to see where the power lies Threat of new entrants Rivalry Bargaining Bargaining among power of power of existing buyers suppliers competitor s Threat of substitute products or services Who has the power is often set by the market 16 June 2015 16
Interests Interest: An interest is what lies behind the need to negotiate Buyer Wants to buy courses at a price significantly less than public courses Seller Wants to sell lots of courses at a good daily rate 16 June 2015 17
Trainalot’s interests To sell as many similar courses as possible – preparation costs time To achieve an average income of 20 counters per day In general a course takes 2 days to tailor (and a lot more to create from scratch) If public courses then need to recover marketing and administration costs (+30%) If private course and travel involved want to recover at cost For four courses at client’s site, would want to charge at least 218 counters 16 June 2015 18
Drinkalot’s interests Currently use external courses at 10 counters per delegate (including expenses) Quick market review for in-house training indicates that discounts of up to 20% available because no need for supplier to market event and find premises Also for in-house courses Drinkalot do not need to pay expenses for delegates, only expenses for trainers Leads to expectation of 6 counters per delegate = 240 counters for 4 courses of 10 delegates, plus trainer’s expenses of 18 counters = 258 For four courses at own site, would want to pay at most 258 counters 16 June 2015 19
List your tradables Price Volumes Time of delivery Location Expenses of delegates Expenses of trainers Payment terms Travel time 16 June 2015 20
What is the value of your tradable to you, the seller, Trainalot, and to them? Value Value to LDO MDO BATNA to me buyer Price H H 40 per 60 per Find other buyers course course Volume H M 2 courses 4+ Could do 1 courses course but price higher and with preparation Don’t care Location L H Our Drinkalot premises premises Preparation M M 2 days 3 days Spread over payment course fee Payment M H 60 days 30 days Would accept terms advance payment Staged payments 16 June 2015 21
What is the value of your tradable to you, the buyer, Drinkalot, and to them? Value Value to LDO MDO BATNA to me seller Price H H 60 per < 20 per Find another course course supplier Volume M H 4 courses 4 courses Location H L Their Drinkalot premises premises Preparation H M 1 day no days Hide in payment course fee Payment M M 30 days 60 days terms Staged payment terms 16 June 2015 22
You can increase your power Thorough preparation Align your stakeholders Enlist a powerful ally Make the other party think you have the power Create some other things to trade Create a realistic BATNA You have more power than you first might think 16 June 2015 23
Preparation checklist Look at the market to see where the power lies What steps can I take to increase my power? What are the risks? What can I trade? What is my LDO, my MDO and my BATNA? What is the agenda for the first meeting? How long will this negotiation last? 16 June 2015 24
Open Preparation Open Exchange Info/Debate Propose/Bargain Close/Agree Implementation 16 June 2015 25
Positions All prices are fictitious: 348, 210, 120, 258, 200, 235, 225… Position: A position is what is actually expressed as a need or a want: “The price of two courses is 210 counters” 16 June 2015 26
Exchange info, debate, propose, bargain Preparation Open Exchange Info/Debate Propose/Bargain Close/Agree Implementation 16 June 2015 27
Seller’s strategy Get cosy with budget-holder to get sale Bid high on 2 courses to give leeway to discount on more Support higher in-house price on basis of travel time and expenses ◦ Expenses are real ◦ Travel time is not – usually travel in evenings Push hard for firm commitment to 4 courses Use “last minute nibble” to get quick payment – 30 days 16 June 2015 28
Buyer’s strategy Close alignment with budget-holder Pre- condition using “lack of budget” Get facts from market Ask for opening bid for 2 courses only, to disguise true need for 4 Support lower in-house price on basis of reduced marketing and administration Offer 4 courses in return for substantial discount Accept nibble – can live with 30 days and prefer this to advance payments 16 June 2015 29
Trading Move from signals to proposals to bargains to agreement Never make a concession without getting something in return Try to trade something that is worth little to you for something that is worth a lot to you Do not give away lightly something that is worth little to you, it may be worth a lot to the other party Use “if, then” questions and always put the other party first 16 June 2015 30
Planning concessions The negotiation process is all about trading concessions Be innovative and create options – things to trade Be sure to concentrate on needs not wants Plan how you will do this: ◦ Big steps ◦ Little steps ◦ All at once ◦ Never 16 June 2015 31
What is a concession? Generally you will move from your positions towards your interests – a movement is called a concession Seller “ If you could place a purchase order for 4 courses to be delivered in the next six months, then we could come down to 235” Buyer: “If you could reduce to 225, then we would place purchase order this week? ” Seller “OK” Concession is 10 16 June 2015 32
Trading concessions Step 1: Signal Seller “ W ould you be interested in more courses?” Step 2: Proposal Buyer “If you come down further, then I could buy four” Seller “If you bought four, then we could waive preparation time” Step 3: Strike a bargain Buyer “OK” 16 June 2015 33
Trading concessions Step 1: Signal Buyer “I’ve spoken to Eve and by juggling the budget we could find 200 in total” Step 2: Proposal Seller “ If you could place a purchase order for 4 courses to be delivered in the next six months, then we could come down to 235” Buyer: “225 if we place purchase order this week ?” Step 3: Strike a bargain Seller “OK” 16 June 2015 34
Panic, Yes, No or Trade Whenever you are asked a question you have four choices: Panic : but you won't do this if you are well prepared, will you? Say "Yes": but you may be too soft, and give something away for free Say "No": but you may be too hard, and miss the opportunity for mutual gain Trade: it may be best to trade: "If you do this for me, I will do this for you" 16 June 2015 35
Close and agree Preparation Open Exchange Info/Debate Propose/Bargain Close/Agree Implementation 16 June 2015 36
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