LBD showed me her art, invited me to the upcoming art auction, introduced me to her boss (who could make things happen, she promised), and told me she could give me a special deal if I was serious about any of the Maxes. She even slipped some coupons good for additional discounts under my cabin door that night. She was working hard.
I went to the auction but kept a low profile. There were a lot of big names among the artists represented, but sales were sluggish. LBD seemed to be taking bids out of nowhere. Could this really be the world’s largest art gallery? Well, if your business model involves having your inventory on dozens of cruise ships around the world, you might be able to make such a claim. The idea of buying fine art on a cruise ship, however, seemed like a disconnect and there were a number of other nagging doubts in my mind, including the fact that it was not a good idea to bid at an auction unless you had a thorough knowledge of the subject. I did not know much about this art or what a good price would be. So long, Max.
When I got back to dry land (and an Internet connection), I did some research. This gallery with the New York sounding name was actually in the Midwest. It was afflicted with a lot of complaints, legal actions, and just plain bad luck. It also turns out that auctions conducted on the high seas are not subject to the legal niceties of doing business in a land-based jurisdiction. Peter Max, the iconic pop artist, was still alive and creating art. Lots of art. Mostly painting a few details and his signature onto mass-produced works. I saw loads of them on eBay, most at asking prices below those of LBD’s.
What can we learn from this voyage?
• Don’t succumb to flattery. Don’t flatter yourself either, but know yourself.
• Never rush into a major purchase. Do your homework and shop around.
• There are always good deals to be had, but it takes work to find them. They don’t scream “GOOD DEAL” in flashing lights, and they don’t usually come with coupons.
• When you are isolated at sea without phone or Internet access, you are at a serious disadvantage. You can also negotiate in the dark on land. Negotiate only when you have adequate information.
• Nobody goes on a cruise to buy fine art, so don’t buy any on a cruise. You can buy cheap art anywhere, if you like it.
• Beware the LBD—they wear them for a reason.
REWARD AND PUNISHMENT
We negotiate with someone because we believe he is in a position to help us or hurt us. We want him to help us, or to refrain from hurting us, and we negotiate to try to influence that outcome. We are also in a position to help or hurt our counterpart. Therefore, we each have some measure of power to reward or punish the other.
Whether a party will use that power to reward or punish is a matter of perception. So is the more basic question of whether a party even has such power, and how much. If you feel they have power, then they do. And if they feel you have power over them, then you do. Do not wield your power like a club. Let them think you have power, and never disabuse them of that notion, whether it is accurate or not. It is better to keep them guessing than to limit yourself by minimizing their perception of your power.
COMPETITION
Competition is another form of negotiating power. If you have ever bid on a government project, you will know how powerful competition can be. The thought that someone else will offer to do the job for less presses you to lower your bid. Since the number of jobs available is relatively scarce and many bidders are competing for them, the government benefits.
Whenever there is competition for what you are offering— whether it’s money, products, services, or time—others will value it more. Remind your counterpart that he has competition, or that you have other alternatives. Never appear too eager for a deal. Always have a Plan B, as discussed below.
RATIONALE
A rationale is an external, objective standard for evaluating possible negotiating outcomes. “Because I said so” is not a rationale, nor is “That’s my bottom line” or “Take it or leave it.” Your rationale provides an objective standard against which you can measure the reasonableness and fairness of a proposed outcome. Possible standards include market value, custom, precedent, previous course of dealings, expert opinion, cost, efficiency, industry standards, indices or benchmarks, etc.
Having a persuasive rationale is a strong form of negotiating power. It shows you are being fair-minded and objective rather than arbitrary. In addition, a reasonable standard helps you to maintain credibility. It helps your counterpart to sell the result to his boss or other stakeholders. It gives your counterpart a reason to agree with you.
The negotiation must also be perceived as being procedurally fair. Fairness is universally one of the strongest rationales, although there are different ideas about what is fair. If you don’t like the rationale advanced by the other party, ask “What makes that fair?” They may be able to persuade you, or they may acknowledge the unfairness and relent. In any event, many negotiators feel better about having a fair process than getting the best outcome substantively.
Of course, a party can advance a number of rationales. Some will be more persuasive than others, and some will be more favorable to you than others. You want to use a rationale that is persuasive to your counterpart and produces an acceptable (if not the best) result for you. Your task is to develop a range of objective standards and prioritize them in order of preference to you. Also, anticipate the rationales your counterpart might advance and which are most favorable to them, and be prepared to dispute them.
For example, suppose you are negotiating the lease amount for office space. You could use a number of possible standards (see below). All of these can be rationally justified. Of course, you would first suggest the option most favorable to you. To do so, arrange the options on a continuum from most to least favorable:
• $12.00 rate paid by previous tenant
• $13.20 rate paid by previous tenant plus an adjustment for inflation
• $14.00 best rate available elsewhere (Plan B)
• $14.50 rate of comparable space in comparable building
Thus, you would first offer $12.00 per square foot, arguing that it is fair to pay the same rate today as the previous tenant paid yesterday. The leasing agent would probably argue that you should pay $14.50 because it is the going rate for comparable space. While any of these options would be justifiable, you would not want to pay more than $14.00 (your Plan B).
Why would the leasing agent accept your $14.00 when the market rate is $14.50, and her boss is also expecting $14.50? You have to provide a rationale: “We’re a good tenant, we have a sterling reputation, we pay our rent on time, we bring a lot of valuable foot traffic to your building, every month the space sits empty you’re losing money, etc.” Will her boss accept the deal? If she can sell him on it, with your help.
If you engage in the same type of negotiation repeatedly (such as office leases), you should use the same rationale for each one. If you pick and choose according to what is most favorable to you in that particular instance, your credibility will suffer. In this case, you want to advance the rationale that is most advantageous to you most of the time and stick with it.
PRECEDENT
A court of law will nearly always follow precedent when handing down a judgment. Precedent refers to the practice of following previous outcomes in similar cases. It allows the courts to be consistent, and it allows citizens to predict whether a proposed course of action is likely to have negative consequences. Society benefits from this fairness and predictability.
In law, precedent is binding. In other fields, we often act as though it were as well. The same rationale applies. We like and accept precedent because it makes our life easier, and we like doing things the way they’ve been done before. So it’s a good idea to appeal to precedent whenever it serves your interests.
What if following precedent goes against your interests in a particular situation? Then argue against it. Differentiate your case from the others, and show how this distinctio
n warrants different treatment.
For example, suppose you are negotiating with your boss for a salary increase. You could use precedent to show how other employees in the same position with the same experience and performance are earning more than you, so your request is justified. Your boss might try to find a reason why the precedent should not be followed. Perhaps a poor economy or some other factor makes your comparison irrelevant.
Precedent is a powerful justification for getting people to do something. Use that power when you can, and be prepared to fight it when you must.
COMMITMENT
As you prepare for a negotiation, get the commitment of others on your team. Ask for their input and involvement. Get their buy-in. Their full support is a source of power.
Commitment is the difference between “Let’s give it a try” and “Failure is not an option.” Commitment from your team means you are all in this together. All share the risk and reward. Knowing your team is with you gives you confidence. You will feel stronger, and your counterpart will notice this. This psychological edge will help you throughout the negotiation.
The advantage isn’t just psychological. Your team’s input will help you prepare better because you draw on multiple perspectives and strengths. You will benefit as their knowledge and expertise supplement your own.
INVESTMENT
People don’t like to lose. We don’t like to lose money, waste time, or invest effort without gain. It follows that the more we invest in a negotiation—time, money, effort, or psychic energy—the more we want to get something in return. This fear of seeing our investment go down the drain may lead us to accept a poor settlement.
The voice of wisdom tells us that it is better to see our investment gone than to make the situation worse by accepting a bad deal. Unfortunately, we don’t always heed this voice.
Be mindful of what you and your counterpart invest in a negotiation. Learn to see your investment as sunk costs that are gone regardless of whether you are able to conclude a satisfactory agreement. However, you don’t need to educate your counterpart on this point. Let him see his investment as a reason to reach an agreement with you. You might even remind your counterpart of his investment. “It’s too bad you can’t raise your offer any higher. After all the time we’ve spent on this, it would be a shame to walk away empty-handed. Are you sure you can’t find a bit more money in the budget?”
You can even leverage on your counterpart’s investment. Negotiate and agree on the easier issues first. Save the difficult ones for last. In light of his investment, your counterpart may become more accommodating on the tougher issues.
PERSISTENCE
When you were a toddler, you were eager to walk about like everyone else. Imagine if you had quit trying to walk the first time you fell down. You’d still be crawling around on the floor today! But you persisted, because you wanted it badly enough.
Most people give up too easily. They try something, they fail, and they quit. They ask for something, they get a no, and they give up. They are afraid to pursue the matter for fear of failing again. They stop asking in case they are seen as overbearing, or because they don’t want to risk further rejection.
The word no is not carved in stone. It is usually a gut reaction to a proposal that has not been well considered. The same request, in another time and place, might get a yes. When you hear a no, treat it as an opening position. Make a counter-offer. Modify your request. Explore other possibilities. Be persistent. You just may succeed in turning that no into a yes.
Every negotiation begins with the word no—if they said yes you wouldn’t be negotiating! Whether you end up with a yes often depends on how persistent you are.
PERSUASIVENESS
The power of persuasion is a boon to any negotiator. You will recall that negotiation is a form of persuasive communication. It is a way of getting others to do what you want them to do. How successful you are at persuading your counterpart depends on three factors:
1. Credibility
Do you look the part, sound knowledgeable and confident, have relevant experience or expertise, and enjoy a good reputation? Do you represent an organization that possesses these qualities?
2. Logic
Do you have facts, evidence, and statistics on your side? Is your reasoning sound? Can you point to specific examples that support your position?
3. Emotion
Do you speak with passion and conviction? A dynamic and enthusiastic presentation is more persuasive than a dry one. Can you identify your counterpart’s hot button? Their emotional driver might be ego, greed, fear—something other than the desire for a “good deal” by some objective or dollar-based measure.
Imagine coming home one day and seeing your neighbor in his driveway. A shiny new Mercedes is parked in the space where his old Toyonda used to sit. You say, “That’s a beautiful car! Why did you decide to buy a Mercedes this time?” Of course you know why: it’s about status, prestige, impressing people, flaunting his wealth, and other emotional and ego needs. But he will never admit it. He will offer a logical reason instead: it’s a high performance machine, it has German engineering, it’s a safe, solid car that will last for years, it will hold its value, etc.
People decide based on their emotions and justify their decisions with reason. The fact is that successful businesspeople are as emotionally driven as anyone, but they don’t usually admit it. It is important for them to appear rational. So, make an emotional appeal to move your counterpart, but provide him with a logical hook to hang his hat on.
PEOPLE SKILLS
Having good people skills is a source of power for a win-win negotiator. It’s essential to communicate clearly and smoothly. You need to show concern and respect for the other party and value your relationship. You must empathize with him, even when you do not agree.
It also helps to be likable. Smile, be friendly and approachable, and take a personal interest in your counterpart. Some people truly believe that they can keep warm and fuzzy feelings from influencing them during a hard-nosed business negotiation, but the best negotiators know better!
We will look more closely at people skills in the next chapter.
LEVERAGE
While the terms leverage and power are often used interchangeably, leverage is not the same as power. Traditional sources of power are fairly clear cut: information, expertise, resources, and so on are easy to identify and understand. Not so with leverage. Leverage is dynamic, it changes with the situation.
Leverage is largely a matter of perception. If you have the upper hand based on objective measures but don’t know it, then you don’t have it. And because the balance of power may shift as the negotiation progresses, you need to reassess it continually as you get new information or insights.
I like to think of leverage as who has the upper hand at a given time. This is determined by a number of factors, such as:
• Who needs the deal more. If the other party knows you need it, they have the upper hand. “Needs” can be intangible, such as ego, a need for consistency with social norms, or an emotional attachment. For example, if you tell the car dealer “This is my dream car! How much?” don’t expect a discount.
• Who has more to lose. People hate to lose more than they love to win, so your counterpart may have an edge if you are playing it safe. Insurance agents often play this card.
• Who has less time. If you are up against a tight deadline, your counterpart may have the advantage. Time is money, and lack of time is desperation.
• Who has less control of the status quo. If you are able to call the shots or throw a wrench into the works, you may use this to your advantage.
• Who has a better Plan B. Developing a strong Plan B is arguably the single most important thing you can do to prepare for a negotiation. It allows you to walk away easily. On the other hand, if your Plan B is poor and your counterpart knows it, they have the upper hand. As your Plan B is so crucial, we will look at it in detail.
D
EVELOPING AND USING YOUR PLAN B
One of the main themes of this book is that you must prepare well for a negotiation. So far, we’ve discussed how you need to gather information, study the negotiating environment, consider your interests and currencies, anticipate your counterpart’s interests and currencies, and develop a range of options. You will also need to formulate a strategy, and understand and anticipate tactics and counter-tactics. While this is excellent advice, it is no guarantee that you and your negotiating partner will reach a satisfactory agreement.
You have limited control over the process and eventual outcome. There are just too many variables that you cannot control. Information is limited and imperfect. Situations change. Strategies and tactics fail. Emotions, ego, and irrationality affect human behavior. All you can do is your best.
And have a backup plan.
ALWAYS HAVE A PLAN B
Whenever you prepare to negotiate, ask yourself how you can best satisfy your interests if you and your negotiating partner are unable to reach an agreement. Can you satisfy your interests somewhere else? If so, with whom? Under what terms and conditions? Before you begin to negotiate, always have a viable backup plan, or a Plan B.
Suppose you are engaged in a difficult negotiation. Your counterpart is driving a hard bargain, and you are beginning to feel that you may have to settle for less than you would like. What can you do? The answer depends on your Plan B.
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