In our workshops, we teach the concept of a “Principled Concession™”. Many people hear this and confuse it with the related but different concept of trading concessions in a negotiation. They think of common examples like these:
- “If you buy 2, I can discount the second one by 50%.”
- “If we reduce the scope by providing service 12×7 instead of 24×7, we can lower the price by 20%.”
- “We can finance your total $100M payment for this project, at a cost to you of $1M.”
These “offers” follow the least-acceptable form of changing your position. It is a more acceptable form than this one:
- “I’ve sharpened my pencil, and I can offer you an additional 12% off the price.”
It is easy to see that the first three are preferable to the last one. The 12% price reduction in the last example implicitly contains a message that your profit margin is high enough to offer a discount. The buyer is now challenged to take that information, and try to find out how much margin, through extended negotiating. Instead of the goal which the offer is usually intended to achieve (faster closing), it actually creates buyer uncertainty, loss of confidence, and delay.
Let’s reframe the first three in the form of Principled Concessions™:
- “If you buy 2, I can discount the second one by 50% – and you’ll be able to use both at the same time when needed to perform (whatever desired outcome you bought them for).”
- “If we reduce the scope by providing service 12×7 instead of 24×7, we can lower the price by 20%. However, your mission-critical revenue-collection application will take longer to restore during the unsupported hours, and your revenue could be impacted by $25,000 for each hour of delay.”
- “We can finance your total $100M payment for this project, at a cost to you of $1M. This will allow the project benefit stream (in $) to pay for the continuing costs, and you will avoid significant out-of-pocket costs, thereby freeing up that money for other investments.”
In each of these cases, we are describing the exchange in terms of outcomes to each side. For the seller, this is money. The buyer gets simultaneous use (for whatever purpose), risks losing revenue, or will free up funding for other projects. In each case, the outcome description provides a business basis for the concession, and allows the buyer to make the decision on the basis of business value. In the real world, the outcome descriptions would be even more robust, but these examples convey the intent.
So here is the formal definition of a Principled Concession™: A concession given with a specific connection to business value. The alternative form is this: A concession expressed as an exchange of outcomes. (td)