Negotiation is a consensual process, based on mutual agreement. You do not have to accept any offer unless you choose to. You can always say no. But we negotiate to satisfy some interest, and if we do say no, we must find another way to satisfy that interest.
In everyday jargon, we use the terms option and alternative interchangeably. In the negotiation context, however, it is useful to distinguish between options and alternatives. An option is a possible solution to a negotiation. During a negotiation, there is often a range of options or possible agreements available to satisfy your interests. But if you and your negotiating counterpart cannot agree on one, you may have to look elsewhere for an alternative means of getting what you need. These alternatives exist outside of the negotiation. So in negotiating parlance, an option is a possible agreement with your current negotiating counterpart, while an alternative would be a possible agreement with someone outside of the current negotiation.
For example, suppose you are negotiating for a salary increase with your current boss at Myco. You and your boss have a number of options available: she can offer you a big increase, no increase, or an increase of any number of figures in between. She can base the increase on your performance, the cost of living, or tie it to company practices or industry trends. She can offer you various combinations of benefits in lieu of a higher salary. These are all options that can result in a negotiated agreement.
If you and your boss cannot reach an agreement, you still have a choice: you can accept what your boss offers, or you can resign. What, then, are your alternatives? How can you satisfy your interests (recognition of your worth, maintaining your standard of living, being treated with fairness and respect, among other things) outside of Myco? You can find a position with another company, change careers, resume your studies, retire early, start your own business, or run away and join the circus. You may not like any of these alternatives, but you do have choices.
Some of your alternatives are better than others. When evaluating the options available with your negotiating counterpart, you just need to know which of the various alternatives available to you is the most attractive. This is your Plan B.* You then choose between what your counterpart is offering you and your Plan B. In the example given, if your best alternative is to find a similar position with another company, you can forget about joining the circus for the moment. Your decision then becomes: should I accept my boss’s offer and stay with Myco, or do I take a job with Other Company?
If Other Company has not offered you a job, then you do not have that alternative. Your best alternative then might be to start your own business. If that is not particularly attractive to you, you would do well to find a better alternative. If you have no good alternatives when you ask your boss for that raise, you will have little power in the negotiation. You will have to accept what she offers, or resign.
THE POWER OF A STRONG PLAN B
Without a backup plan, you have very little negotiating power. With an attractive alternative, you have great power, even if your counterpart is a large, wealthy corporation. What traditionally passes for power—money, resources, an impressive title with a large organization, and other trappings of power—is no guarantee of success in negotiation. Other sources of power, such as information, preparation, and expertise, can tilt the balance of power in favor of the little guy. A strong Plan B is perhaps the greatest source of power of all. This source of power is largely a function of information and preparation.
Your Plan B is critical for a number of reasons:
• Your Plan B gives you confidence
Your Plan B is like a safety net. If you can get a better outcome in the negotiation, take it; if not, walk away from the table and go with your Plan B. It guarantees that you will not be worse off by negotiating.
• Your Plan B is a benchmark
Most of the time, your Plan B is not very different from an option on the negotiating table. For example, your Plan B may be an offer for a position with Other Company at $3,500/month and you are negotiating with Myco for a similar position at a comparable salary. Knowing your Plan B gives you an idea of what a realistic option should be.
While we usually find it easier to compare numbers, don’t focus solely on dollars. Other Company may offer to pay you more than Myco, but you may have to work longer hours, have a longer commute, and they may offer you less attractive benefits. Consider all the pros and cons carefully when comparing your counterpart’s offer with your Plan B.
• Your Plan B must be realistic
It should be something you could and would really do if the negotiation fails. Bluffing, that is, claiming to have a Plan B that does not exist, can be risky. If you are negotiating a salary increase with your boss at Myco and you tell her that Other Company has offered you $1,000 more, she just might say “A thousand dollars more? That’s great! You should take it!”
Don’t deceive yourself by fantasizing about an alternative that you wouldn’t actually exercise. For example, suppose you have no competing offer and you decide your best alternative is to start your own business. That would require capital, a business plan, a considerable amount of effort, a healthy bank balance to tide you over for several months, some quantum of risk, and so on. If you are not prepared to accept these challenges, this is not your Plan B. Stop dreaming and develop a realistic Plan B.
• Your Plan B can be improved
Your Plan B is not set in stone. For example, suppose your Plan B is an offer for a position with Other Company at $3,500 a month. All things being equal, you would not accept an offer from your boss for less than that figure. If Myco offers you $3,600 you take it; if they offer you less, you go with Other Company. But what if, during your negotiations with Myco, you contact Other Company and they agree to increase their offer to $3,800 plus insurance coverage and a transportation allowance? Or you get an offer from ThirdCo at $3,900? Now you can confidently ask Myco for more, knowing you can beat their previous offer of $3,600. Once you determine your Plan B, see if you can improve on it.
THE DANGER OF YOUR BOTTOM LINE
In Chapter 3 we saw that many negotiators decide upon the “worst” deal they are willing to accept before they begin negotiating. The rationale is that it is better to think about this coolly and objectively before the heat of the negotiation sways them to accept a poor offer. This sounds prudent, and a bottom line can offer some protection against making a bad deal.
However, a bottom line that looked good before the negotiation may prove unworkable during the negotiation. As offers and counter-offers are made, new information comes to light, new interests and currencies are identified, and situations change in various ways, the old bottom line may no longer be realistic. By its very nature, a bottom line is rigid; there’s no point in having a bottom line that can change!
A bottom line is an arbitrary point. It may have been based on interests as understood at one time, but those interests can change or prove to have been misjudged as the negotiation proceeds. The bottom line figure resembles more of a position than a reflection of interests. Recall that a position is what you think you want, and an interest is what would really serve your needs.
Your bottom line is just a number, or an arbitrary position that may not be meaningful. Your Plan B is a better point of reference. It is a real alternative to a real option on the table. Therefore, you should compare the option before you (a possible solution to the negotiation) with your Plan B (your best alternative solution outside of this negotiation) and decide which one is better for you.
DEVELOPING YOUR PLAN B
Focus on your key interests and ask yourself how you might satisfy them if you cannot reach an agreement with the other party. List as many alternatives as you can think of. Remember, you are not looking for options—possible solutions to this negotiation—at this time. You are looking for alternatives outside of this negotiation, courses of action you could pursue with other parties or on your own. List the pros and cons for each. Which alternative is most fa
vorable? Is it realistic? If so, this is your Plan B.
Your Plan B is your best alternative at a given point in time. But times change. You can also change your backup plan. You can improve your Plan B or find a new one. There is no need to cling to your original Plan B throughout the negotiation— you can continue to improve it even as you negotiate. The better your Plan B, the better the agreement you can expect from your negotiating counterpart.
WHAT IS THEIR PLAN B?
Remember that your counterpart also has a Plan B. You may be able to estimate his Plan B by anticipating his alternatives to dealing with you and identifying the most favorable one. Put yourself in his shoes and try to determine his best alternative.
Just as you may be able to estimate your counterpart’s Plan B, he may have some idea what your Plan B is as well. In our earlier example, your boss may know what Other Company and ThirdCo pay their employees.
DIMINISHING THEIR PLAN B
While Plan Bs can be improved, they can also be made to appear less attractive. The idea is to improve your Plan B and suggest that your counterpart’s is weaker than he thinks it is. Of course, you need to be subtle and tactful about this. You also need to understand that your counterpart may use this tactic on you. However, if your Plan B is realistic and strong enough, you can resist this.
Returning to our example, suppose your boss says she can only increase your salary to $3,700. What is her best alternative if you resign? She may be able to hire a younger person for less than what she was paying you. Her Plan B looks good, perhaps even better than giving you a raise! How can you make it look weaker?
You can suggest that it will be troublesome and expensive to recruit a replacement for you. The new hire will take time before he can get up to speed and be productive. He may not work out at all and your boss will be back at square one, so why take the risk? Now her Plan B doesn’t look so good, and she might decide to increase her offer. Alternatively, she might try to diminish your Plan B by suggesting that the managers at Other Company are slave drivers and they have a dysfunctional culture, so why leave your friends and a good position for a lousy couple of hundred dollars more?
There are other ways of making a Plan B seem less attractive. Suppose you are negotiating to purchase a house. Your offer of $372,000 is a bit less than what the seller would like. What is the seller’s Plan B? Perhaps another prospect has expressed a willingness to buy the house for $374,500. What can you do to weaken his Plan B? Put down a cash deposit. The other prospect’s words may sound sweeter, but they are only words, and money talks. The seller’s Plan B suddenly seems less attractive next to your cold, hard cash.
WALKING AWAY
Psychologically, it may be difficult to walk away from a negotiation. You have invested time, effort, money, and psychic energy, and you don’t want all of that to be for nothing. You may feel that your constituents are counting on you to reach an agreement, and they would be disappointed if you came back without one. You may feel pressure from the other party to “do your part” to make the deal happen. You may even look at your bottom line and decide that it was too unrealistic after all, and accept a proposal you should rule out.
Whenever you feel these pressures, focus on your interests! Remember that whatever resources you have invested are sunk costs and are irrelevant in evaluating whether an agreement makes sense at this time. Your constituents may be expecting an agreement, but after the fog clears they will be more disappointed with a bad one than none at all. The approval of your counterpart is not usually a valid consideration, so do not feel pressure to conclude an agreement just for his sake. Your bottom line may offer some protection against accepting a bad deal, but it may be too rigid in light of new information and currencies that come up during the course of the negotiation.
Do not use any of these factors to determine whether to conclude an agreement. The only thing to consider is your Plan B. Compare the best option on the table with your Plan B and decide which serves your interests better.
Having a strong Plan B is an indispensable part of preparing for your negotiation. A strong Plan B ensures that you will not settle for less than what you can get elsewhere, and gives you confidence that you can reach a more favorable agreement during a negotiation. By improving your Plan B and undermining your counterpart’s Plan B, you can expect an even better outcome.
Negotiation is a voluntary process. No deal at all is better than a bad deal. You can walk away from a bad deal, but it is easier to walk away if you have a Plan B waiting for you. Always have a Plan B. If you don’t, you’re not ready to negotiate.
NEGOTIATING WITH A MONOPOLY*
This is one of the toughest puzzles in negotiation: how do you negotiate with a monopoly supplier when you need him but he doesn’t need you? The problem seems insurmountable at first glance, but recall that “need” comes in many forms. Do you really need them in the true sense of the word, or is it really just a matter of convenience or preference?
In addition, a monopoly may take many forms. There’s the pure monopoly you learned about (or slept through) in ECON 101, where one company really does control the entire supply (such as an electricity provider). More often, we’re dealing with a seeming monopoly based on supply dependency. Your supplier may behave like a monopoly because there are high transition costs or barriers to leaving them, for example, the company that developed your software. Or your supplier may have access to your intellectual property or other critical information that binds you to them.
In all of these cases, we see the importance of preparation. How well do you understand your supplier’s situation? How much does your business mean to them in dollars or as a percentage of their overall business? Who are their other customers, and how do you compare? What are your supplier’s strategic goals and future direction, and do these suggest any opportunities for you?
While there is no sure-fire answer that will work in every situation, there are a number of possible solutions that might work for you in a particular situation. Or for your boss. Most of these tactics can only be used at a senior level. We consider them here from easier to riskier.
1. Create new value for the supplier
Help the supplier enter new markets or industries
A good introduction is valuable. Can you bring your counterpart a new opportunity? For example, a beverage company had only one supplier available for packaging in a particular market and was being squeezed. However, the beverage maker was able to use that supplier in a couple of other markets where it had not been able to gain a foothold previously. The supplier gave across-the-board price concessions in exchange for getting contracts in the new market.
Help the supplier reduce its business risk
Recall that allocation of risk is a currency that can be monetized. For example, if your supplier’s business is cyclical, you may be able to lock in a long-term contract at a lower price. The supplier may not need you, but they will benefit from your business during the slow part of their cycle. Your ability to help smooth out their ups and downs is a currency you have that they value and are willing to pay for.
2. Change the way you buy
Consolidate orders or bundle purchases
Your supplier may have a monopoly on some products or services, but they may have competition in other areas. Their desire to keep your business in those areas may make them behave more reasonably in others. You may be able to consolidate your orders with other business units of your organization. You may also form a consortium with other buyers and consolidate your purchases.
Review whether you need everything you’re buying
For example, you may have purchased a high-end package with all the bells and whistles, only to discover that you don’t use all the extras. Consider whether you could do with a lesser quantity or a more basic version. You may either save money by buying less, or motivate the supplier to give you a better rate for the whole package.
3. Create a new supplier
Bring in a new sup
plier from another market
This is a variation of the first scenario, above. Instead of the beverage company introducing their packaging provider to a new market in exchange for price concessions, they could have brought in a packager from another industry or geographic market to compete with their existing monopolist.
Vertically integrate
Rather than succumb to your monopoly supplier, consider whether you can produce it in-house, or acquire a company or hire the talent that can. Elon Musk has done this several times at SpaceX. He originally planned to buy old rockets from Russia. When he couldn’t reach an agreement with them, he started building his own rockets. When the company that fabricated the nose cones gave him a hard time, he started building his own nose cones. He did the same thing with fuel valves—very few companies can make such specialized valves, and SpaceX is now one of them.
When I relate this example to my students, I sometimes get a reply to this effect: “Sure, Elon Musk can do that, he’s a billionaire, he’s the CEO, etc. I can’t do that at my company.” My reply to that is: “Is Musk able to do it because he’s a billionaire CEO, or is he a billionaire CEO because he is able to do it?” If you do not have the authority to make such a decision, maybe your real job is to persuade your bosses to do it.
4. Play hardball
Threaten to withhold or cancel orders
Your supplier may have a lot of leverage in terms of extracting a high price from you, but recall that leverage is a function of timing, and the balance may change. You might let them know that if they can’t give you a better deal on this business, then you won’t consider them for other business that might arise in the future. This may seem harsh, so consider it carefully. It also helps to have a specific piece of business in mind, so they appreciate the consequences.
WIN-WIN Page 8