Changing the Negotiation Conversation
A client asks us for a proposal. That’s a good thing, right? We do as they ask and provide a proposal. What’s next? We all know the first offer is likely not going to be the last. In fact, what many of us have done with that response is to give the client a price for products and services. The very natural inclination is for the customer to then begin the negotiations at this phase. We have DNA going back 1000 years saying that the buyer should never accept the first offer. We know what the conversation is going to be and where it’s headed, so how do we change that conversation and take control?
Let me go back about 20 years when I first founded our firm with Dr. Max Bazerman of the Harvard Business School. At the end of our first year in business, I looked at the distribution of profit between us. Let’s just say while not horrible, I felt he was doing rather well relative to his commitment. I left a VP sales job with a Fortune 100 organization and was completely committed to this new business. Max however, was still a full-time professor with a somewhat passive interest in the firm. My goal was to adjust the year-end profit distribution in a way I felt was more equitable.
I invited Max to lunch. Everything was going along well as we chatted and got caught up on each of our lives. As we neared the end of our time together, Max mentioned he needed to get back and teach a class. I blurted out:
“Max, I’m not making enough money here.”
To his credit, and somewhat amusingly (in retrospect), his response was:
“So, you want some of mine?”
Once I got over the initial shock of that statement, I realized what had happened. A zero-sum game was set up, and the only way I got more was by taking it from him. I should have just reached in his wallet and pulled out some money!!
After that initial schooling, Max changed the conversation. He offered the following three options:
- I get more cash flow but shift some of my equity over to him and Max reduces his allotted days to support the firm by 25%.
- Max gets more cash flow and shifts some of his equity to me and keeps his allotted days at the same level.
- I get more cash flow, we keep equity the same and Max reduces his allotted days to the firm by 50%.
All of this came a little bit too quickly for me, but Max’s brain works this way. He knew what was happening. I was trying to compare all these new solutions to our existing agreement (my alternative) and the math was just not moving that quickly for me! He knew this, and once again took control of the negotiation by asking me:
“Which of these options offends you least?”
My reply was option 2, where I get less cash flow and more equity. But, wait! Didn't I come to lunch to get more money? Max’s response was, so you value long term equity more than short term cash flow? I said yes, but I wasn't aware of that until you just played that little game with me! What was that game?
We call these Multiple Solution Options. What Max did was take control by completely changing the negotiation conversation from a zero-sum game to something that had the possibility of creating value for both of us. We went from one path forward that focused on sub-dividing resources, to three paths forward with varying value propositions for us both.
After having worked on my own negotiations and coached others all over the world, I have to say this is one of the best weapons in our arsenal. What we’ve seen is that most salespeople are providing the proposal the customer wants. The salesperson has diagnosed the customer’s needs and prescribed their own solution (usually a sub-optimal one). We are now reacting to the customer’s request and setting ourselves up for a zero-sum, value dividing, competitive negotiation. Many times, we know there is a better solution for the customer (and us) but want to be customer service focused and respond to their needs. Offering Multiple Solution Options is a way to create value for us AND the customer. There are two things we see happening consistently with this approach:
- Rarely, if ever, are one of the three initial options accepted. Rather, a very interactive discussion occurs after we ask customers to rank the solutions from most to least desirable, and then ask why they ranked them that way. This discussion acts as a sensitivity analysis to undiagnosed needs for the other side.
- Many times, we also see the customer is asking for the lowest investment solution. We provide that and then typically add in two other options at medium and high-level investments. Often, the deal ends up at least one level higher than the initial discussion.
One caveat is there is both art and science to building, and more importantly, titling each one of these options. This needs to be executed thoughtfully and specifically customized to this deal. Caveat two, practice presenting these Multiple Solution Options and prepare for the likely conversation about the co-developed fourth option.