K&R Negotiations engaged with a global training and consulting firm for complete negotiation training aimed at closing more business for their services, based on the K&R Win Wisely methodology. They were quite pleased (and so were we!) with what they found:

This is a strong testament to the value of investing in your staff’s negotiation skills. Our global client was not the first to report results like these. If you would like to learn more about how K&R Negotiations helps clients Win Wisely at the negotiating table, please see our negotiation success stories.

1. Omit the solution in the next agreement draft and hope the other side forgets the whole thing.
2. Tell the other side that you’ve made a mistake, but you will absorb the cost of the additional $250,000 since it was your mistake.
3. Immediately notify the other side, apologize for this mistake, and tell them that if the solution is still of value to them, $250,000 will have to be added to the price.
4. Say nothing and eat the additional $250,000.
5. Keep silent. Add the $250,000 to the price and address the issue at the very end, and only if the customer brings it up.

We conduct negotiation training exercises such as this with our clients, but sometimes not even the best negotiation training can prepare you for all the tough, pressure-filled situations you will encounter. In this instance, the third choice is probably best.

The fact is this: Almost everything we do in a negotiation effects either credibility or leverage in some way—usually both. That’s why you have to prepare and manage information thoughtfully.

Negotiation will present you with difficult issues regarding subjects you would rather not have to discuss. Yet, everybody makes mistakes. The difference between negotiations that end successfully and those that do not is often a result of how you manage mistakes. In this case, explaining the mistake is critical to maintaining integrity. And you don’t have to be “punished” for the mistake by giving away the $250,000.

In our negotiating programs, we teach that it’s usually best to admit mistakes sooner rather than later. If you focus on the merits of the deal and confront mistakes quickly, you should be on firm ground. If you make a mistake, don’t be afraid to admit it promptly. When you try to hide mistakes, their discovery later will jeopardize your credibility and a successful outcome. Making mistakes can damage your credibility in the short term. Hiding them for later discovery damages your integrity for the long term. Politicians from Nixon and Clinton to Sarkozy have discovered this; lying and coverups can be much more costly than any admission would have been.

Is the other side going to give you a hard time because you made a mistake? You should expect them to try to erode your Negotiation Capital—the term we coined to describe the amount of willingness by either side to negotiate and exhibit flexibility in bargaining. Think of it this way: Negotiation Capital is like currency. If you have a good relationship and have done a good job persuading the other side (creating leverage), you have earned Negotiation Capital. This “currency” translates into the other side’s willingness to move closer to your way of thinking. If you lose credibility or have to backtrack due to mistakes, then you use Negotiation Capital as if you were “burning” currency. This loss of currency should be momentary; after all, the other side is not perfect either. However, it is exacerbated if they also have good reasons to doubt your integrity because you tried to hide the mistake. You will have to work much harder to earn back your Negotiation Capital.

If you want people to accept your ideas, you must be respected and trusted. People don’t listen just to your words; they also focus on you. Taking ownership for errors that occur is a good way to build integrity and preserve your chances for a good deal, even when you slip up.

Of course, this has nothing to do with business value. Value is derived from outcomes, and a statement like the one above derives from price. Yet defining value is one of the most critical negotiation steps. The strength of your value argument is what ultimately decides your ability to establish a uniquely defensible position and command your own price. Our negotiator training stresses that without a compelling value argument, you’re vulnerable to continued discount requests from a potential customer and price cutting wars with your competitors.

As a basic exercise in defining sales value, use this simple equation as a test:

BENEFIT – COST = VALUE

If you fail to calculate the benefit, then the buyer will look exclusively at the cost. (And if the benefit is truly zero, they will not buy at all.) In order to get a better deal, the cost has to come down. Plus, the buyer doesn’t really know when to stop. Any lower price is better. There is no identified cost of delay. This is true even if the buyer knows the benefit. Because you have not demonstrated that you know what the benefit is, you can’t use the information in your persuasive value arguments.

Public sector is not motivated by profit. In many cases, profit is not even allowed. In that case, value is defined primarily by the absence or reduction of risk, with some additional cases where a “public” reward exists that is not financial in nature.

In every case, if there is no identified value, the buyer will not recognize a cost of delaying a decision. Most sellers want the decision made as soon as possible (to get the associated revenue).

The buyer may act, even in the case where no value or cost of delay is known…to you! That does not mean that they don’t know internally—just that you did not do the work to figure it out and use it to your advantage.

Refining Value with the ViO™ Formula

The next step past the simple value equation is ViO. It offers a clearer picture of value. ViO shows the components of “benefit” from the simpler equation.

Value = Quantified impact from Client’s Business Outcome

It starts with a client’s business outcome – what business “thing” will happen as a result of the sale? It relates to impact, which is directly connected to that outcome, and quantifies it.

As power distributes from the top at corporations (and public entities), ViO works top-down. There is greater impact when you deal with industry-level issues. These can be tied to corporate interests, line-of-business interests…all the way to a department. At one client, the ultimate impact of a department-led technical solution was to enable the company to do business worldwide instead of in a single country. If the focus was on the department implementing the technical solution, the impact was low. At the top? Huge.

In the same way, impact from a product is usually much more limited and lower-impact than solution impact, operational impact or agency/corporate impact.

Build your ViO from the top-down, or bottom-up—but make sure that it links top to bottom.

Remember…

ViO is strongest to weakest when impact relates to:

Likewise, the strongest outcomes and impacts connect multiple business levels . Looking at it in reverse, what looks relatively weak at a department level, for example—providing better usability to end users— should link to LOB measures such as lowering support expense, which in turn should link to corporate or agency measures, such as servicing more customers to gain more revenue, which will enable to company to be more competitive based on industry measures.

Department > Function > LOB > Corporate/Agency > Industry

Training negotiators to measure impact in terms of value and outcome—and understanding how the value equation applies with impacts and outcomes—sets the stage for more convincing arguments…and bigger, better deals.

Related Posts

• Negotiation Concessions & Articulating Value
• Shaping Your Value Argument
• Negotiation Leverage

How often have you heard conditions like these during a negotiation? Sometimes negotiators make every request sound as if it were mandatory. But what are the real deal-breakers? K&R’s MID™ is designed to help you identify and prioritize the issues in any negotiation. Using the MID, you can separate and deal with the truly mandatory goals (or ends) while reducing conflict over issues that may not be mandatory. The MID approach makes deals easier to close.

Means are alternate ways of accomplishing goals. The ends are the goals. Unfortunately, many people naturally talk in terms of means; they articulate the easiest way of getting what they need. This can cause negotiations to get bogged down, especially if most requests are stated as if they were mandatory.

Consider this example: Somebody says to you, “I need a glass of water.” They may say this instead of, “I’m thirsty. What do you have to drink?” What if you don’t have water? If they simply requested water, you can’t satisfy their specific request. But if you knew they were thirsty, you might have all kinds of beverages that solve the problem. In simple, real-life situations like this, we naturally make a response which tests the “need” statement. “I don’t have any water. How about some seltzer?” Eventually, one of three outcomes will happen:

1. We find an acceptable alternative (water, seltzer, wine, etc.) that we can provide.
2. We discover a different need that was not expressed (“I need to water my plants.”) and begin the alternatives search to find a solution that we can provide.
3. We discover the need, and we find out we can’t solve it with any means we have available (a deal breaker).

Separating the means from the ends is crucial to reaching agreements in negotiating. The beginning of this process is where you need the MID.

MID stands for the three main types of requests: Mandatory, Important, and Desirable. Where value can be quantified, figures (even if they’re estimates) should be included for each MID item listed. Otherwise, a “Q” can indicate qualitative value.

• Mandatory requests should be the true goals (or ends) that must be achieved by either side for the deal to work. These are the true deal breakers. Usually only ends are mandatory, although if there is only one way to accomplish the ends, means could be mandatory, as well.
• Important requests are goals or favored means that matter a great deal to the other side or to you—however, the success or failure of the deal is not likely to depend on them. They can be negotiated for other equal or more important concessions.
• Desirable requests are items on either side’s wish list but they have the lowest priority. Because the value of desirable items is not the same to each side, they can often be used as bargaining chips to be traded for something of greater importance to you.
• Conflicting requests are items that are in direct conflict. The simplest example is price: If a customer can’t pay more than $20 for an item and a seller can’t sell it for less than $22 (that is, both price limits are mandatory), then there is a conflict. If you go through a means vs. ends analysis, such as we illustrated with the water/seltzer case above, then mandatory items with conflicts will be deal breakers.

Sorting all requests into proper categories is critical. Doing this enables you to do a better job of meeting each side’s needs, because you can analyze and distinguish between the way people do business (means) and the goals they must achieve (ends). Over time, the entries in the MID will encourage communication to resolve identified conflicts into common ends with acceptable alternative means to both sides.

For every request made by the other side (especially conflicting requests) there are two important questions to ask yourself as you start to separate means from ends.

• Why is this request being made?
• What problem are we trying to solve?

Employing patience and listening, we can help distinguish between means and ends—and defuse problems which might spoil an otherwise good deal.

Using the MID chart effectively is a four-step process:

Step One

List the positions of the sides. Be as complete as possible. Remember that “Terms Cost Money,” and there will be interactions between the positions. Don’t try to resolve them yet.

The classification as “Mandatory/Important/Desirable” is your best judgment. It isn’t a science. Bear in mind that as the negotiation progresses, better information may lead you to reclassify – that’s fine.

Step Two

Look for conflicting positions and identify whether they are “means” or “ends.” For “means,” look for alternative solutions that may work for both sides. When you do this, remember to look at both of the conflicting positions—you may have also stated your position as a means. Don’t overlook alternatives you may have as part of the process. For “ends” that conflict, if they aren’t both mandatory, a solution is still available.

Step Three

All positions on the MID have a value—try to assign a value to each, marking “Q” for qualitative if you cannot assign a figure. It’s OK if some of these values are estimates.

It is important to remember that each side may view value differently. When you identify something that is very valuable to the other side, it will give you leverage in the negotiation—even if that item is not expensive to you.

Step Four

Remember that “terms cost money”? Sometimes it is hard, but terms can be converted from their original statement to a financial impact statement. “3 years of price protection” has a value to a buyer, and a cost to a seller. Since you are going to be making value tradeoffs, you need a common metric, and money is often (but not always) the one used.

Not all deals can be made—or should be made. The MID analysis forces you to figure out what problem you are really trying to solve. If there are no mandatory conflicts, the deal should get done.

Even the best products are one development cycle away from being leapfrogged in the marketplace. Competing on price is the path to becoming commoditized and to being robbed of the ability to present a unique value proposition. Ultimately, it’s your sales people—and their skills and experience—that will help you differentiate yourself, your solutions or your company in a highly competitive selling environment.

Sales professionals who know the art and science of negotiation can make a tremendous difference to your bottom line. Successful negotiating begins with understanding your customers and the context in which you can provide them with value. Ultimately, what the customer values is the outcome to their business (or person) brought about by your solution. To have the greatest impact, the outcome should be measurable. That is why we talk about value-based negotiations being dependent on ViO—value, impact and outcome.

Our latest white paper on Successful Sales Negotiations in Highly Competitive Environments will help you turn sales negotiations into a value-based dialogue that generates better deals, bigger margins and improved close rates. The result is an opportunity for increased revenue as you build long-lasting relationships. You’ll learn how to:

• Focus the discussions on the ViO to the client so you can get out of the price-cutting wars and into value-based sales
• Position yourself to create leverage as a high-value partner instead of an interchangeable commodity
• Avoid the most common negotiation pitfalls
• Apply best practices to increase deal size and margin based on ViO

Click here to instantly download Sales Negotiations in Highly Competitive Environments: Value-Based Selling Approaches that Make You Indispensable and Your Competitors Obsolete.

Here is an example of how one of our seasoned negotiation consultants, “Hank,” handled a very difficult situation with a member of his own team before joining us at K&R.

Hank’s client had put together a strong team to negotiate a deal with an Israeli company. This was one of his client’s biggest deals ever in the country; huge commissions were riding on it. The client had a local negotiator in Israel who was very talented, but also very strong-willed. We’ll call him “Attila.” As a result of his inability to be flexible when necessary, the deal was stalling. Hank was called in to take over the lead negotiator role.

Hank met with the entire client team in Israel. After assessing the situation, he formulated an updated negotiation strategy. It was clearly explained to Attila that Hank was now in charge and that Attila would take the important second chair. When conducting our meetings with the customer, all information was to be funneled through Hank. Attila agreed to this approach. On the way to the first meeting, Attila was reminded that he had an important role—to cover the financials—but that Hank would take the lead. It was repeated four times. Attila agreed four times.

We walked into the meeting room and Attila sat four seats away from Hank despite the explicit understanding that Attila was to man the second chair. Hank’s team sat down anyway and explained the roles of everybody from their team.

Just a few minutes after the other side’s lead negotiator began speaking, Attila interrupted him. Hank stopped him after a few words, politely explaining that our client was speaking and not to interrupt him. A few minutes later, Attila interrupted the client again. The third time he did it, Hank stopped him at the first word. Attila jumped up and stormed out of the room. Attila did not yet know Hank’s approach or skills well enough; he also had a huge commission riding on the outcome. Nonetheless, we had to manage this internal conflict to not only keep order and focus, but maintain credibility with the other side and the rest of our team.

The team across the table smiled when they saw that Hank and his team were going to proceed without Attila. As negotiations unfolded over the following days, Attila was kept in the loop as to the latest developments, but out of the meetings. Over this time, Attila realized he was wrong and overcame his misgivings about Hank’s approach to the process. The following week, Attila was ready to rejoin the meetings. He lent his particular expertise and helped the team close the deal.

While this situation was awkward, we had to stick to rules and expectations as communicated. This preserved our credibility with the client. Even Attila became our ally when he saw that we were negotiating wisely.

It is the lead negotiator’s job to set rules while reconciling individual and team goals. As this story illustrates, you must negotiate to individual motivations both internally and externally. It is essential that you and your team present a unified voice to the other side. Get those internal conflicts resolved first, or you are not ready to engage the other side in negotiation.

As noted before, your charge as an international negotiator is to conduct thorough background work on everything that could impact your potential deal. This includes trying to account for cultural influence on business behaviors, regulations unique to that country, and more. Here we will suggest information sources that will widen your knowledge base and make you a more credible negotiator. In some cases, access to these sources may be limited due to considerations of distance or protocol.

International business and travel books (and online research)

Every culture has business customs that can drive success or failure at the international negotiations table. We keep the door open for fruitful deals by first avoiding the obvious blunders that will create mistrust, loss of face and bad feelings. Should you be direct or indirect? Will the teams operate on consensus or more independently? Should you bring a gift? Should you make small talk? Should you address a junior member of the other team? For each company and country, there can be a different answer. These are things to think about with our own cultural blinders taken off. Just as we examine the strengths and weaknesses of the other side’s business to sharpen our value arguments, we should also examine their culture to build our credibility and leverage at the negotiating table. One simple series, the “Doing Business in…” pamphlet books from Peggy Kenna and Sondra Lacy, is a solid resource. Though from the 1990s, it is a quick guide of the basics associated with business, communications and negotiations in a number of cultures. Of course there are many other works available both about international cross-cultural business considerations as well as those specific to doing business in certain countries.

Local and regional coverage

What kind of coverage has the company garnered in local and regional media? This can yield important clues to what the business culture values in general, as well as clues about the company’s market position, deals, and more.

Past deals and contracts

If you have a history with the client, past deals and contracts can give clues to what the other side may request in the next round of negotiation. If those deals or contracts were not done by you personally, find out who did them. Discover what information those people can share with you to help in your negotiation.

Consult with fellow employees, past and present

Has anybody in your organization spent considerable time doing business in the industry or country where you will seek your deal?

Read the company’s annual reports

If available, annual reports can reveal an astonishing wealth of information. You can use these to spot trends, to see a list of top company priorities, to understand company values, to gauge what the company sees as its strengths and weaknesses, and to make educated guesses about what kinds of information are emphasized.

Company web pages

Using what you’ve learned about the culture as a filter, you can use the information on company websites to get a clearer picture of company strengths and weaknesses. You can also see what things they value, by reading such entries as success stories.

General business reports

How the company is perceived by the general public tells you a lot about their strengths and weaknesses. That kind of information comes from business news sources such as the Wall Street Journal, Dun and Bradstreet Reports, Harte-Hanks Reports and more. Specialized global reports by experts and analysts can often be necessary to supplement your investigation.

Wine and dine the other side

More informal environments with all parties at ease can be extremely helpful. In some countries, it may even be viewed as a necessity to closing the deal! Listen closely during these occasions, taking into account the cultural sensitivities of the other side. Make sure that your team understands these sensitivities beforehand – the other side is not alone in operating informally at such events. You can lose as much as you gain if your team is uncontrolled.

Make a personal visit

While travel expense is a consideration, there’s no substitute for taking your own measure first-hand. Seeing the company offices, facilities and having the chance to talk with their employees can be invaluable. Before making your request, do your research to determine whether or not the other side may find it intrusive or unseemly.

Become their customer

One way to scope out a company’s strengths and weaknesses is to become a customer of their product or service. Seek the opportunity to try out their products, visit their stores (if they have a retail operation) or attend education sessions they provide for customers. What they stress is a key to what is important to their customers. You may also get the opportunity to interact with customers and get their perspective.

In our next post, we’ll discuss two important universal tools for defining desired outcomes and negotiation goal-setting.

Understanding that our clients at Friendly were inclined to maintain harmony, we discussed the potential problem with them beforehand. We asked them to let us handle any adversarial moments.

Not long after negotiations began, the lead negotiator for Adversarial announced, “We are going to use our contract, and if you don’t like it, you can leave!”

The Friendly team leader became visibly uncomfortable, but deferred to us, according to our preparation. We told the Adversarial negotiator that we wanted to meet in a separate room while we considered whether or not to get back on the plane. During our 45 minutes in the room, the lead negotiator for Adversarial interrupted us several times, looking more nervous with each visit. It was a difficult decision for us, and it took time. We wanted to send the message that his arrogant and threatening behavior could have serious consequences.

We returned to the meeting with a suggestion for a joint contract. While difficult to implement, it was workable. Nearly as importantly, our method elicited more reasonable behavior from Adversarial for the rest of the process. Taking the time to understand the culture of our client and researching the habits of the other side had paid off. We were not surprised by the aggression, and could react appropriately, even though we did not know in advance the exact form it would take.

Many deals succeed or fail just on the strength of a team’s level of preparation. How much you know about your market position. How well you understand your pressure points and business challenges. How well you understand your business culture—plus a mirroring set of information about the company represented on the other side of the table.

The first and most critical step in negotiation is information gathering. Negotiators who take shortcuts on this step are jeopardizing their deal and a long-term respectful relationship.

Before you can make a credible value argument that will resonate with a potential client, you have to get the facts about:

• The national or regional culture where each team lives or does business
• Each company’s organizational structure
• Decision makers within each company
• The lines of business: where will the impacts of your proposed solution be felt?
• Stakeholders (investors, for example) and anybody in the equation who has potential influence on the deal’s outcome (e.g., close advisors or independent consultants)
• Clients and end users: who will ultimately use the product or service

Remember, you’re not making one deal; you’re setting up a relationship. The more you know about your clients’ people, culture, and business challenges, the better. Of course, not all information has the same value, but every bit of information you gather is important in its own way. Having information helps you reduce the other side’s alternatives; not processing information reduces your own. As you prepare to negotiate, you need to discover:

• The customer’s weaknesses in the business and industry
• How decisions are going to be made in each company; not only should you know about the people and structure, but about how their culture may impact their decision making and negotiation style
• External factors; among other things, these could be regional economic pressures or regulations unique to the country

Knowing how each team is evaluated (how they get bonuses or commissions), the company’s financial status and stability, purchase timetables and company history will also help make you an informed, credible international negotiator.

Is there any information you don’t want? Other than information which, if disclosed may violate laws or agreements, all information is fair game—whether you think it’s immediately relevant or not. We’ll discuss ways to gather and manage information in our next post.

The video features a talk conducted by K&R Negotiations CEO Mladen Kresic, whose firm has helped companies across the globe close hundreds of millions in deals using practical and proven methodology. Watch from the comfort of your home or office as one of the world’s negotiation experts shows you the foundational principles that have resulted in shorter close cycles, bigger deals, more repeat business and long-lasting, profitable relationships for K&R Negotiations clients.

In a short amount of time, you will learn these secrets of successful negotiation:

Like the negotiation classes that K&R successfully delivers all over the world, this one-hour video will help you to find agreement in a way that helps both parties discover and gain the most value, together. Join global negotiations expert Mladen Kresic as he introduces you to the concept of value-based negotiations leverage, and why it is a powerful tool for moving conversations to an agreement. Follow the link to get this powerful negotiation seminar in a box. It’s complimentary and it will illustrate principles that you can start applying today to drive bigger, better deals for you and your clients.

Summary: Negotiation seminars in a box: complimentary video offers powerful and effective primer in successful negotiations.

Every term in contracts and negotiations should be of some value. And each term has an associated cost. As a negotiator, knowing the rationale for a term enables you to articulate the value and identify its cost. The value of the total deal is the aggregate impact of all the terms. If you don’t understand the rationale behind the terms, not only is your credibility impacted, but so is your leverage.

Suppose you are negotiating a private label distribution OEM (original equipment manufacturer) deal, representing the seller. The seller’s standard agreement has a term in the contract that states: “In the event any part fails within the warranty period, the customer may return the part at customer’s expense and supplier will send a replacement part within three business days.”

When the customer sees this, she indignantly raises her voice: “I can’t believe you would expect me to pay for shipping…my people test the parts and it’s your part that fails! I won’t pay shipping costs for defective parts!”

A poor negotiator might make the following response: “Hmm…you are right. This doesn’t make sense to me, either.”

How does the customer feel about that reaction? One possibility is that it creates the impression that the deal is filled with such “throwaway” terms, and that you really don’t understand your own contract. Every part of the deal will now come under greater scrutiny, which will prolong the negotiation and cause further erosion of your terms and prices. In cultures such as Japan or Mexico, where your potential customer highly values the relationship aspects of deal making, they assess credibility early in the cycle. In this instance, surrendering credibility at square one could cause the potential buyer to walk away completely.

When challenged on any term by the other side, first explain the rationale for the term to assure them that the contract is rational and credible. This means that before you offer any terms, you must first understand why the terms are in the contract. In the above scenario, you as the negotiator might say, “Let me explain why this term is in here. The good news is our parts fail infrequently, but if we were to issue credits for shipping, we would need to change our entire receiving process to one that is less efficient and requires an additional person from procurement to issue shipping credits. You get the benefit of a leaner process that lowers costs, but will need to pay for shipping the few times this happens. I could find out what the cost of changing the process would be, but in the past that wasn’t cost-effective, and that cost would affect your overall price. Please let me know if you would like me to look at it again.”

The customer may not be persuaded, but with this approach at least you will keep your credibility. These kinds of issues are especially important in the international context. The responsibility for costs can mean the difference between profit and loss. Increased costs of doing business internationally – shipping or the degree of governmental regulations – should also be part of your value equation.

Remember, there is no “free lunch.” Changing any term has an impact that is usually quantifiable to you or the other side. If you can’t articulate that impact, the other side’s logic should prevail. If that is because of ignorance, the change you make will cost you something. The aggregate effect of making these kinds of changes could ultimately change a profitable deal into an unprofitable one. Just ask the company that was eager to win some outsourcing business with an international financial institution. In competitive negotiations the bank requested that the vendor’s operations support it and its affiliates and subsidiaries, striking the word “named” before affiliates and subsidiaries. The vendor did due diligence and felt they were covered. After the contract, when it turned out that the bank had subsidiaries in certain African countries that were not known to the vendor, the costs of providing that support cost the vendor millions, as did the dispute that ensued. It was a term that cost a lot of money.

With this in mind, it is also important to recognize the two-sided nature of value:

In the bank example, the change in the term was worth something to the bank that they would have been willing to pay for to ensure coverage. Likewise it had a value (cost) to the vendor.

If the other side perceives that you are giving up something of value, they are more likely to treat a concession you offer as something of value to them. If you are not treating the conceded term as anything of value to you by at least explaining your rationale, the customer will not treat it as anything of value to them in the concession process. As a result, they will not give you something of value in return. A principled concession based on your knowledge of the value of the conceded terms impacts leverage in your favor.

Summary: In international negotiations, it is critical to understand the cost and value of all terms in the deal to both parties.