The Arts of Negotiation

Whether you are buying or selling something, even if that something is a one-off commodity, item there is always scope for negotiation — the very nature of the wish to buy or sell is a factor in determining the price and conditions of a deal. No doubt there's a plethora of good books on negotiation but here are a few handy hints — some more useful that others no doubt.

Firstly, don't neglect personal relationships: liking and trust both have value. In some places (perhaps France, for example) the unquantifiable value of a good relationship may nonetheless be high enough to outweigh other significant factors. In long-term business relationships there is considerable value in spending time & money on your partners... but don't be over generous: you'll either look needy or sleazy.

Secondly, don't forget the cultural factors — the local style of negotiation and attitude to business in general. In some places it may be appropriate to throw an occasional tantrum (indeed lack of passion for the business may be considered a negative quality), in some it is very bad form to say simply "No" to a proposal or request (the Japanese for "No" in such situations is merely "That would be very difficult."), in some you should attend to the spirit of your proposed agreement and in others the letter (and, in the case of the Netherlands, what the other side may be mentally including/excluding in invisible ink — "In matters of commerce the fault of the Dutch//Is offering too little and asking too much."). As the American's might say, don't bet the farm on the first deal in a strange land.

Thirdly, always be clear about the bottom line: at what point must you walk away — know the value of the business as well as the price.

Fourthly, never make two concessions in a row — a principle even better deployed if your first concession is a "gimme" (i.e something you had planned to give away anyway). The reasoning behind this is that if you do not require something to balance a price reduction (e.g. longer delivery, shorter warranty, larger up-front payment etc.) the original price was (un)necessarily inflated: you should be protecting your margins at all times. (Though we cannot neglect other considerations, such as the time-value of money (cash-flow) it's a very bad idea to appear needy.)

But, beyond these things, what about some specifics. Here are a few negotiating ploys encountered , and my (successful) responses to them

You must give us a discount because we are a prestigious customer. 

The idea behind this ploy is that somehow by associating with you, the customer is adding value to your business. Typical specific examples include "Other's follow where we lead, if we buy from you, this will encourage others to buy — and we should share in the value we add to your business."

I have no objection to sharing the value once the (theoretical) value has been realised. If the client actively participates in a sales and marketing program, provides sales leads, introductions,etc. then it would be entirely appropriate to offer an element of commission on sales arising from their efforts... in appropriate proportion to those efforts. Obviously I couldn't discount the price for the current contract as the added value is currently undefined.

We will buy more from you if you reduce the price on the initial sale.

Again, a theoretical benefit is being offered. Offer a quantity discount with a fixed call-off period; charge the quantity price and if no subsequent order materialises invoice for breach of the quantity discount arrangement (if cash-flow permits such an arrangement).

We have already bought X units from you.

This was particularly amusing when deployed by a South Korean buyer since the first two units had been sold at a significant discount on the basis that the next order would in fact return the average price to the nominal list price (the price had therefore gone up). Answer: yes, but you didn't tell me you were going to buy more and you certainly didn't contract to buy more. That information or such a deal might have been valuable then. Do you think you might buy even more? Perhaps we should negotiate a quantity discount now so that you don't miss out again in the future.

You could also point out that if they intend to buy more from you then the previous purchases must have been at minimum satisfactory — probably better — and so the economics of the first deal was beneficial all round anyway.

It's too expensive.

A truly classic and vapid approach, which really means only "I want to pay less." Ask (delicately), "What does 'too expensive' mean?" If the answer is that it's more expensive than competing products, use product differentiation to justify the price differential. If the answer is, "I don't have the budget," then obviously you should seek to re-examine the requirements and then to offer something that does fit — or you could phase implementation (find out what the budget issue actually is).

Sometimes a buyer might challenge you to justify the cost of something — price breakdowns are always useful for dealing with such challenges since, below a certain level of granularity it is simply not possible for anyone to object to a particular cost item. But, when price breakdowns are not appropriate or unavailable (Why aren't they available? Always be prepared.) hand-waving arguments about long-term viability, investment, contingencies, etc. can deal with many specific objections.

Feel free to add your own one-line negotiating ploys and responses.