How can suppliers design negotiation processes for better creating and capturing value?
Key account managers often find it difficult to capture the full value they create for their customers. They provide insights, information and support that add value to the customer, but are then unable to monetise it.
Here, we take you through some ideas and techniques which you could use to design the negotiation process in such a way as to facilitate the capture of customer value created.
There is a relatively straightforward approach to designing the negotiation process, considering the following three phases:
- Planning and preparation
- Exploration and exchange
- Seeking agreements
Good negotiators will typically split their time 70%, 20%, and 10% between the different phases (see Figure 1):
- 70% of the time, the effort goes into planning and preparing the outcomes, different variables and defining various alternatives to maximise agreement.
- 20% of the time is typically invested in understanding the other party's interests and priorities, and exchanging concessions.
- The final 10% is used for establishing the criteria that will facilitate the actual agreement.
Before the negotiation
1. Articulate value through multiple lenses
In preparing for the negotiation process, it is advisable to think about multiple lenses. Why? Because more people typically get involved in B2B negotiations.
The agency Raconteur published a report in January 2023 that said that in a business transaction, there are, on average, 11.6 people involved in the decision-making process. So in a complex B2B sale, a significant amount of the input will be pretty wide-ranging, and you will need to design the process to capture the perspectives of various individuals.
Many people spend a lot of time focusing on the strategy, but it is more productive to think about what would be the strongest and most compelling arguments.
2. Refocus BATNA to the other party
The second thing to think about is what is referred to as the BATNA or the Best Alternative to a Negotiated Agreement, but don't focus on your BATNA - focus on the BATNA of the other party. In doing this, the discussion is framed around 'what would happen to the other party if the deal is not closed?' This approach will help boost your confidence. Psychologically the effect is that attention is focused on the value you bring.
If you read the work of Daniel Kahneman, Thinking Fast and Slow, it is clear that people tend to be risk-averse and are very reticent to lose something they think they have already achieved. Hence, thinking that you could have something and then the possibility of not having that is a powerful driver in negotiation.
3. Enhance your sources of power
Before the negotiation, thinking about how you can leverage power is also helpful. The acronym N.O.T.R.I.C.K.S sets out the significant elements to consider. Think of these elements and what you can do beforehand to enhance them.
During the negotiation
4. Negotiate the process first, then terms
Process typically refers to phases, timings, authority, contingency factors, and levels of involvement, whilst terms are typically price, contract template, payment schedule and SLAs.
The best negotiators tend to negotiate and agree on the process before delving into substantive issues.
5. Use fewer, stronger arguments
A further area in which many negotiations can be improved is by looking at the number of arguments put forward. Many people tend to put forward multiple arguments thinking that will add weight to their case. The reality is that multiple arguments provide multiple points for people to challenge, especially when many individuals are involved. A much better approach is to decide on your most robust case and focus on the strongest arguments to defend that point.
6. Think about the first offer
In commercial negotiations, you are always better off making the first offer. Based on research, up to 50% of the variance in the outcome of distributive bargaining is explained by who makes the first offer. This is because the first offer inevitably creates an "anchor", which is referred to in the subsequent negotiation phases.
When you make the first offer, it is always beneficial to put forward a range of offers which are all equivalent from your point of view but which trade-off various elements against each other. When this is done, the customer will inevitably start to do the trade-offs, giving you greater insight into their priorities.
7. Label concessions as such
As you go through the negotiation and make concessions, it is important to keep them in context, so be very explicit. Don't allow the customer to misunderstand the meaning of that interaction tactic.
If you offer a concession, label it as a concession and be clear about its conditions. Not doing this is dangerous because the other party can interpret the concession as a sign of desperation (to get a deal), as a weakness (or indeed as the willingness to achieve a satisfactory deal or effort to build a relationship). It is often said that "generosity can breed greed", so it is worth paying attention to how you position your concessions.
8. Ignore ultimatums
In the end part of the negotiations, you should never force anyone into what Deepak Malhotra, a Negotiation Professor, describes as "the situation where you force the other party to select between being smart by making the right choice and looking good". So at this point, the best thing to do with any ultimatums is just to ignore them.
9. Ask more questions
Throughout the negotiation process, ask more questions. A negotiator can never ask too many questions, though they can be too assertive and make too many statements.
Neil Rackham revealed how effective negotiators ask many more questions, as these are useful in a number of ways:
- Provides data about the other party's thinking and position
- Gives control over the discussion
- More effective than expressing direct disagreement
- Keeps the other party active
- Gives negotiators breathing space.
After the negotiation
10. Always follow up
After the negotiation ends, email what has been agreed, particularly if it will become part of a contract.
One question that may occur after negotiations have ended that you may wish to consider is 'would you revisit the agreed deal?' Re-negotiating an agreement is usually not advisable, unless both parties are better off after revising the agreement.
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Article written by Richard Vincent CEng MIET FF.APS