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Power Negotiation Principles & Techniques

power-negotiation

Summary

Learn five techniques and the principles beneath them that business people need to become more effective power negotiators.

by Roger Dawson

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The manner in how you behave during a negotiation can have a dramatic impact on the outcome. I’ve been teaching negotiating to business leaders throughout North America since 1982 and I’ve narrowed this concept down to five fundamental power negotiation principles. These principles are always at play in your business negotiation process, and will help you smoothly achieve your goals.

Get the Other Side to Commit First

Power Negotiators realise that you’re usually better off if you can get the other side to commit to a position first. There are several obvious reasons to adopt this approach:

  1. Their first offer might be much better than you hoped.
  2. It gives you information about your counterpart before you have to disclose anything.
  3. It enables you to bracket their proposal. If they present a price first, you can bracket them, so if you end up splitting the difference, you’ll get what you want. If they can get you to commit first, they might bracket your proposal. Then if you end up splitting the difference, they get what they wanted.

The less you know about the other side or the proposition that you’re negotiating, the principle of not going first becomes even more important. If the Beatles’ manager Brian Epstein had comprehended this principle he could have made the Fab Four millions more on their first movie. United Artists wanted to cash in on the popularity of the singing group but was reluctant to go out on a limb because United Artists didn’t know how long the Beatles would remain popular. They could have been a fleeting success that fizzled out long before their movie landed on the screen. So, they planned the film as an inexpensively made exploitation movie and budgeted only $300,000 to make it. This was clearly not enough to pay the Beatles a high salary. So, United Artists planned to offer the Beatles as much as 25 percent of the profits. The Beatles were a such an incredible worldwide sensation in 1963 that the producer was very reluctant to ask them to name their price first, but he had the courage to stay the course. He offered Epstein $25,000 up front and asked him what percentage of the profits he thought would be fair deal.

Brian Epstein didn’t understand the movie business and should have been intelligent enough to play Reluctant Buyer and use Good Guy/Bad Guy. He should have said, “I don’t think they’d be interested in taking the time to make a movie, but if you’ll give me your very best offer, I’ll take it to them and see what I can do for you.” Instead, his ego wouldn’t let him act dumb, so he assertively stated that they would have to get 7.5 percent of the profits or they wouldn’t do it. This tactical error cost the group millions in income when the director Richard Lester, to every one’s surprise, created a brilliantly witty portrait of a day in the group’s life that became a worldwide success.

Both sides should have understood that they shouldn’t have been the ones to make the first offer. You can’t sit there forever with both sides refusing to put a number on the table, but as a rule you should find out what the other side expects to do first.

Act Dumb, Not Smart

To Power Negotiators, to act smart is dumb, but to act dumb is brilliant. When you are negotiating, you’re better off pretending as if you know less than everybody else does, not more they do. The dumber you act, the better off you are unless your apparent I.Q. sinks to a point where you don’t have any credibility.

There is a good reason for this. With a few exceptions, human beings tend to help people that they see as less intelligent or informed, rather than taking advantage of them. Of course there are a few ruthless people out there who willingly try to take advantage of weak people, but most people want to compete with people they see as smarter and help people they see as not so bright. So, the main reason for acting dumb is to diffuse the competitive spirit of the other side. How can you fight with someone who is asking you to help them negotiate with you? How can you carry on any type of competitive banter with a person who says, “I don’t know, what do you think?” Most people, when faced with this situation, usually feel sorry for the other person and go out of their way to help them.

Do you remember the TV show Columbo? Peter Falk played a detective who roamed around in an old raincoat, seemingly in a mental fog, while chewing on an old cigar butt. He constantly wore an expression that suggested he had just misplaced something and couldn’t remember what it was, let alone where he had left it. In fact, his success was directly attributable to how smart he appeared, simply by appearing dumb. His demeanour was so disarming that the murderers came close to wanting him to solve his cases because he appeared to be so helpless.

The negotiators who let their egos rule them while coming across as a sharp, sophisticated negotiator let several things that work against them in a negotiation. These include being the following:

  1. A fast decision-maker who doesn’t need time to think things over.
  2. Someone who doesn’t need to check with anyone else before going ahead.
  3. Someone who doesn’t have to consult with experts before committing.
  4. Someone who wouldn’t ever stoop to begging for a concession.
  5. Someone who wouldn’t ever be overridden by their boss.
  6. Someone who doesn’t have to keep extensive notes about the progress of the negotiation and refer to them frequently.

The Power Negotiator who understands the importance of playing dumb keeps these options open:

  1. Asking for time to think things over so that he or she can thoroughly consider the dangers of accepting, or the opportunities that additional demands might bring.
  2. Deferring a decision while he or she refers to a higher authority such as a committee or board of directors.
  3. Asking for more time to let legal or technical experts review the proposal.
  4. Begging for more concessions.
  5. Using Good Guy/Bad Guy technique to add pressure on the other side without confrontation.
  6. Taking time to think under the ruse of checking notes about the negotiation.

I pretend to act dumb by asking for the definitions of words. If the other side points out problems and says, “Roger, there are some ambiguities in this contract,” I respond with, “Ambiguities . . .ambiguities . . . hmmm, you know I’ve heard that word before, but I’m not quite sure what it means. Would you mind explaining it to me?” Or I might say, “Do you mind going over those figures one more time? I know you’ve done it several times already, but for some reason, I’m not getting it. Do you mind?” This makes them think: What an amateur I’ve got on my hands. In this way, I lay to rest the competitive spirit that could have made a compromise very difficult for me to accomplish. Now the other side stops fighting me and starts trying to help me.

Be cautious that you’re not acting dumb in your particular area of expertise. If you’re a heart surgeon for example, don’t say, “I’m not quite sure if you need a triple by-pass or whether a double by-pass will do.” If you’re an architect, don’t say, “I don’t know if this building will stand up or not.”

Win-win negotiating depends on the willingness of each side to be truly empathetic to the other side’s position. That’s not going to occur if both sides continue to compete with each other. Power Negotiators know that playing dumb helps diminish the competitive spirit and opens the door to win-win solutions.

Think in Real Money Terms but Talk Funny Money

There are many ways to describe the cost of something. If you went to the Boeing Aircraft Company and asked them what it costs to fly a 747 coast to coast, they wouldn’t tell you “Fifty-two thousand dollars.” They would tell you eleven cents per passenger mile.

Sales-people call that breaking it down to the absurd. Haven’t we all had a real estate salesperson say to us at one time or another, “Do you realise you’re only talking 35¢ a day here? You’re not going to let 35¢ a day stand between you and your dream home are you?” It probably wouldn’t occur to you that 35¢ a day over the 30-year life of a real estate mortgage is greater than $7,000. Power Negotiators think in real money terms.

When that supplier tells you about a 5¢ price hike on an item, it may not seem important enough to spend much time thinking about until you start thinking of how many of those items you buy during a year. Then you discover that there’s enough money sitting on the table to make it well worth your while to do some Power Negotiating.

I once dated a woman who had very expensive tastes. One day she took me to a linen store in Newport Beach because she expected us to buy a new set of sheets. They were beautiful sheets, but when I found out that they were $1,400, I was amazed and told the sales clerk that it was this kind of opulence that caused the peasants to storm the palace gates.

She calmly looked at me and said, “Sir, I don’t think you understand. A fine set of sheets like this will last you at least 5 years, so you’re really talking about only $280 a year.” Then she whipped out a pocket calculator and quickly started punching in numbers. “That’s only $5.38 a week. That’s not a lot for what is probably the finest set of sheets in the world.”

I said, “That’s absurd.”

Without cracking a smile, she replied, “I’m not through. With a fine set of sheets like this, you obviously would never sleep alone, so we’re really talking only 38 cents per day, per person.” Now that’s really breaking it down to the ridiculous.

Here are several other examples of funny money techniques:

  1. Interest rates which are described as a percentage rather than a dollar amount.
  2. The amount of the monthly payments being emphasised rather than the true price of the item itself.
  3. Cost per brick, tile, or square foot rather than considering the total cost of materials.
  4. An hourly increase in pay per person rather than the actual annual cost of the price increase to the company.
  5. Insurance premiums as a monthly premium rather than a yearly cost.
  6. The cost of land described as a monthly payment.

Businesses know that if you’re not having to pull real money out of your purse or pocket, you’re likely to spend more. This is the reason why casinos the world over have you change your real money to gaming chips. It’s why restaurants are happy to allow you to use a credit card although they have to pay a percentage to the credit card company. When I was employed for a department store chain, we were constantly pushing our clerks to sign up customers for one of our credit cards because we knew that credit card customers will spend more, and they will also buy better quality merchandise than a cash customer. Our motivation wasn’t entirely financial in pushing credit cards. We also knew that because credit card customers would purchase better quality merchandise, it would satisfy them more, and they would be likely more pleased with their purchases.

So, when you’re negotiating, break the investment down into the ridiculous, because it does seem like a lot less money, but learn to think in real money terms. Don’t let people use the Funny Money Gambit on you.

Concentrate on the Issues

Power Negotiators know that they should always focus on the issues and not be distracted by the actions of the other negotiators. Have you ever looked at tennis on television and seen a highly emotional star like John McEnroe jumping up and down at the other end of the court? You wonder to yourself, “How on Earth can anybody play tennis against somebody like that? It’s such a game of concentration, it doesn’t seem fair.”

The answer is that good tennis players understand that only one thing affects the result in a game of tennis, and that’s the movement of the ball across the net. What the other player is doing doesn’t affect the outcome of the game at all, as long as you are aware what the ball is doing. So in this way, tennis players learn to concentrate on the ball, not on the other person.

When you’re negotiating, the ball is the movement of the goal concessions passing across the negotiating table. It’s the single one thing that affects the outcome of the game; but it’s so easy to be thrown off kilter by what the other people are doing, isn’t it?

I remember once wanting to buy a large real estate project in Signal Hill, California that comprised eighteen four-unit buildings. I realised I had to get the price far below the $1.8 million that the sellers were asking for the property, which was owned free and clear by a large group of real estate investors. A real estate agent had brought the deal to my attention, so I felt obligated to let him make the first offer, reserving the right to go back and negotiate directly with the sellers if he wasn’t able to get my $1.2 million offer accepted.

The last thing in the world the agent wanted to do was present an offer at $1.2 million-$600,000 below the asking price-but finally I persuaded him to try it, and off he went to present the offer. By doing that, he made a tactical error. He shouldn’t have went to them; he should have had them come to him. You always have greater control when you’re negotiating in your power base than if you go to their power base.

He came back several hours later, and I asked him, “How did it work out?”

“It was awful, just awful. I’m so embarrassed.” He told me. “I got into this massive conference room, and all of the principals came in for the reading of the offer. They brought with them their attorney, their CPA, and their real estate broker. I was planning to do the silent close on them.” (Which is to read the offer and then be quiet. The next person who talks, loses in the negotiations.) “The problem was, there wasn’t any silence. I got down to the $1.2 million and they said, ‘Wait a minute. You’re coming in $600,000 low? We’re insulted.” Then they all got up and charged out of the room.

I said, “Nothing else happened?”

He said, “Well, several of the principals stopped in the doorway on their way out, and they said: ‘We are not going to come down to a penny less than $1.5 million.’ It was just terrible. Please don’t ever ask me to present an offer that low again.”

I said, “Just a second. You mean to say that, in five minutes, you got them to come down $300,000, and you feel bad about the way the negotiations went?”

See how easy it is to be thrown off by what the other people are doing, rather than focusing on the issues in a negotiation? It’s inconceivable that a full-time professional negotiator, like an international negotiator for example, would leave the negotiations because he doesn’t think the other people are fair. He may walk out, but it’s a specific negotiating tactic, not because he’s upset.

Can you just see a top arms negotiator showing up in the White House, and the President declaring, “What are you doing here? I thought you were in Geneva negotiating with the Russians.”

“Well, yes, I was, Mr. President, but those people are so unfair. You can’t trust them at all, and they never keep their commitments. I got so upset, I just walked out.” Power Negotiators don’t do that. They concentrate on the issues, not on the personalities. You should always be thinking, “Where are we now, compared to where we were an hour ago or yesterday or last week?”

Secretary of State Warren Christopher stated “It’s okay to get upset when you’re negotiating, as long as you’re in control, and you’re doing it as a specific negotiating tactic.” It’s when you’re upset and out of control that you always bound to lose.

That’s why salespeople will have this happen to them when end up losing an account. They take it into their sales manager, and say, “Well, we lost this one. Don’t waste any time trying to save it. I did everything I could. If anybody could have saved it, I would have saved it.”

So, the sales manager declares, “Well, just as a public relations gesture, let me give the other side a call anyway.” The sales manager keeps it together, not necessarily because he’s any smarter or sharper than the salesperson, but because he hasn’t become emotionally involved with the people in the same way the salesperson has. Don’t do that. Learn to concentrate on the issues.

Always Congratulate The Other Side

When you’re finished negotiating, you should always congratulate the other side. However poorly you think the other person may have done in the negotiations, complement them. Say, “Wow-did you do a fantastic job negotiating that. I realise that I didn’t get as good a deal as I could have done, but frankly, it was worth it because I learned so much about negotiating. You were brilliant.” You want the other person to think that he or she won in the negotiations.

One of my clients is a large magazine publishing company that has me teach Pricing Power Negotiating to its sales force. When I was telling the salespeople how they should never gloat in a negotiation, the founder of the company rose to his feet and said, “I want to tell you a story about that.” In a very upset state, he went on to tell the group, “My first magazine was about sailing, and I sold it to a huge New York magazine publisher. I flew up there to sign the final contract, and the moment I signed it and thanked them, they said to me, ‘If you’d have been a better negotiator, we would have paid you a lot more.’ That was 25 years ago and it still burns me up when I think about it today. I told them that if they had been better negotiators, I would have taken less.” Let me ask you something: if that magazine publisher wanted to buy another one of his magazines, would he start by hiking the price on them? Of course he would. However harmless it may seem, be sensitive to how you’re reacting to the deal. Never boast and always congratulate the other side.

When I published my first book on negotiating, a newspaper reviewed it and took exception to my statement that you should always congratulate, saying that it was manipulative to congratulate the other side when you didn’t really believe that they had won. I disagree. I view it as the ultimate in courtesy for the conqueror to congratulate the vanquished. When the British army and navy went down the Atlantic to recapture the Falkland Islands from the Argentineans, it was quite a rout. Within a few days, the Argentine navy lost the bulk of its ships, and the victory for the English was absolute. The evening after the Argentinean admiral surrendered, the English admiral invited him on board to dine with his officers and congratulated him on a splendid campaign.

Power Negotiators always want the other parties to believe that they won in the negotiations. Start the negotiation by asking for more than you expect to get. It continues through all of the other Gambits that are designed to service the perception that they’re winning. It ends with congratulating the other side.

If you let these five power negotiation principles guide your conduct as you negotiate, they will serve you well throughout your business dealings, and will propel you into becoming a Power Negotiator.

Roger Dawson is a negotiating consultant and a sales and management speaker.

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