Negotiating skills 1

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Negotiation skills for marketers - Part 1. Everyone negotiates. Knowing how to do it better gives you an advantage

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Negotiating skills 1

  1. 1. The MAANZ MXpress Program Negotiating Skills 1 Dr Brian Monger Copyright September 2013. This Power Point program and the associated documents remain the intellectual property and the copyright of the author and of The Marketing Association of Australia and New Zealand Inc. These notes may be used only for personal study associated with in the above referenced course and not in any education or training program. Persons and/or corporations wishing to use these notes for any other purpose should contact MAANZ for written permission.
  2. 2. MAANZ International • MAANZ International, is a Not for Profit,  internet based professional and educational  institute which has operated for over 25 years. • MAANZ International offers Professional  Memberships; • Marketing Courses (Formal and Short) • And Marketing Publications • www.marketing.org.au  2
  3. 3. Dr. Brian Monger • Brian Monger is the CEO of MAANZ International and a  Professional marketer and consultant with over 40 years  experience. Marketing In Black and White 3
  4. 4. What is Negotiation? • Successful negotiation is the process by which two or more parties arrive at a mutual agreement, by means of discussion and bargaining, within an agreed time scale. • Negotiation is usually the final stage in the selling process. Once the customer has agreed that your product is the one he wants, both parties often have to negotiate the price, terms of the agreement or both. This is where good negotiating skills become essential. In the chapters which follow we will show you how to prepare for a negotiation and the steps you need to go through to reach a successful conclusion.
  5. 5. Types of Negotiation • There are four possible outcomes to a typical negotiation: • It is tempting to think that a successful negotiation (from the salesperson's viewpoint) is one where the salesperson wins. This may be true where the negotiation is a one-off transaction, for example a house purchase, where you are unlikely to come across the other party again. • However, most negotiations will be a part of a longer term relationship. You will usually do a transaction with a customer in the hope of winning more business from that customer in the future. You cannot therefore afford to upset your customer and make him feel that he has 'lost' the negotiation.
  6. 6. Types of Negotiation • A successful negotiation is one in which both parties to the negotiation are satisfied with the result - a win/win situation. This is what you should be striving for. • To succeed in a negotiation, both parties must want to reach an agreement. If you discover early on that the other party is reluctant, or worse, not interested, then it would be much wiser to abandon the negotiation. On the other hand, walking away from a negotiation has long been used as a high risk bargaining move. This approach is not one that should be taken in normal business negotiations. By keeping the channels of communication open, you leave room for consideration of alternative proposals. MAANZ International 6
  7. 7. Types of Negotiation • Also, it is not wise to play the 'tough guy' with a hostile attitude. The other party may simply refuse to negotiate under those circumstances. Your objective is to sustain the other party's desire to negotiate, not to subject him to so much pressure that he feels he must give in. These approaches are counter-productive. MAANZ International 7
  8. 8. Building a Long Term Relationship • The most successful marketers tend to recognise that their job is not to sell products, but instead to create relationships. Developing long-term relationships with customers not only provides a source of competitive advantage, but can be much more profitable than a hit-and-run approach in which the only goal is to make a sale at a point in time. Negotiation strategy plays a critical role in the establishment of such relationships. Specifically, there is a direct connection between a positive sum or win-win negotiating strategy and the seller's ability to foster customer loyalty.
  9. 9. Building a Long Term Relationship • Customers who perceive a negotiation to be one-sided have little incentive to give the seller any future business. Even if the deal seemed fair at the time, dissatisfaction can develop during implementation, especially after a customer has had some time to reflect. Sellers must recognise that the relationship is as important as the literal provisions of the negotiated contract. MAANZ International 9
  10. 10. Two-way Interaction • Negotiation involves two-way interaction in which both parties seek attributes. Either side can walk away if their needs are not being minimally satisfied by those on the other side. Investments are being made by both sides, and each party must perceive the give-and-take to be equitable. Relationships also tend to get more personal over time. If an atmosphere of trust is not created early on, with benefits and burdens mutually shared, the job of the seller becomes more difficult with each new negotiation involving a particular customer. MAANZ International 10
  11. 11. Building a Long Term Relationship • The uncertainty that surrounds businesses today also affects on-going negotiations. Rapid changes in technology, the economy, production costs, competition, government regulation, and market size are increasingly commonplace. In fact, the only constant in modern business would seem to be change. • Such turmoil can alter the fundamental relationship between a seller and buyer in a very short amount of time. The seller who takes too much advantage of his or her organisation’s negotiating position today will most likely pay for such short-sightedness in the not-too-distant future. MAANZ International 11
  12. 12. Negotiations Begin Internally • Before examining the nature of the negotiation process between buyers and sellers, it is worth considering what is happening inside the selling organisation. For sellers to achieve a competitive advantage in the marketplace, a number of key activities must be well co-ordinated. Research and development, production, finance, distribution, and marketing departments must collaborate in offering product value to customers. This collaboration is usually achieved through a process of internal negotiation.
  13. 13. Internal Negotiation • For example, the research department may develop a product, but the production department must determine its feasibility. The finance department must ensure that the funds are available for development, and the marketing department must assess demand and competition. From the drawing board to the shipping dock, the firm engages in an interactive accommodation and co-ordination among its members. MAANZ International 13
  14. 14. Internal Negotiation • A common breakdown in this co-operative relationship occurs because of the competitive pressures salespeople encounter in striking a deal. Members of the sales force are under great pressure to achieve both their personal goals and the goals of the sales department, to satisfy the customer's objectives, and to maintain a competitive posture with respect to the opposition. • Often a salesperson will "get out front" not only of the production or financial capacity of his firm but of the pre-existing sales commitments of his or her own department. MAANZ International 14
  15. 15. Internal Negotiation • Not uncommonly, the salesperson makes the deal, leaving the details (qualifying the customer's credit worthiness or ensuring production or delivery capability) to the relevant departments. As a result, the firm finds the cart has been placed before the horse. The prospective buyer may have an uneven credit history, may demand costly product changes, or may insist on impractical production or delivery schedules. These and other conditions may result in this sale or future sales unravelling because of poor communication with the other internal players in the firm. MAANZ International 15
  16. 16. Internal Negotiation • The salesperson must understand the on-going operational commitments of his or her own firm when formulating sales objectives. By recognising the firm's limitations, the salesperson can initiate discussions with a buyer that focus on determining what is possible, and in the process define what is negotiable. Problems can be minimised if the sales department follows a few simple guidelines: • Allot time for negotiations with other functional areas of the firm. • Develop and maintain co-operative relationships with other departments. • MAANZ International 16
  17. 17. Internal Negotiation • Determine the relationship between specific items in the sales agreement and areas that typically require internal negotiation. • Verify assumptions regarding the firm's ability to fulfil terms of the sales agreement. • Recognise issues in the sales agreement that pose internal credibility problems. • Manage salesforce enthusiasm in a disciplined and productive manner. • Stay abreast of internal changes that may affect relationships with customers. MAANZ International 17
  18. 18. Internal Negotiation • Keep superiors current on developments in major sales agreements as they occur. • Be knowledgeable of customer histories as they relate to issues requiring internal negotiation. • Help customers and internal people find creative alternatives when roadblocks develop. • The salesperson who is an effective internal negotiator is also apt to have more success in customer negotiations. He or she is likely to have more leverage • in bargaining with customers and may well be able to go further in satisfying their needs. With this in mind, let us turn to a more detailed discussion of the customer negotiation process. MAANZ International 18
  19. 19. The Nature of Customer Negotiations • Negotiation is concerned with needs of buyers and sellers. Both parties gain from a transaction. The customer acquires a product or service that meets needs, and the vendor makes a sale. The possibility of mutual gain is what brings the buyer and seller together. The amount of gain realised by either party creates the conflicts that must be negotiated. Conflict occurs because the parties find themselves competing for some of the same gains.
  20. 20. Customer Negotiations • In all cases, negotiation involves both science and art. The scientific aspect involves systematic approaches for resolving conflicts between two parties. The artistic side concerns interpersonal skills, the ability to convince and be convinced, and judgement regarding which tactics to use and when to use them. • There is no typical negotiation. A particular negotiation can involve any number of people and focus on any number of issues. It can be, formal or informal, lasting hours, weeks, or months. Most important, the process involved is dynamic, not static or fixed. The positions assumed by each party at the outset can differ significantly from those held at the close of the process. MAANZ International 20
  21. 21. Customer Negotiations • These dynamics are strongly influenced by a number of structural and situational characteristics. • A primary consideration is the extent to which the buying and selling representatives have the formal authority to negotiate. How much clout do these representative have in terms of the issues under negotiation? Are there conflicts within the seller organisation (or buyer organisation in industrial markets) on some of these issues? • Another consideration is the degree of interdependence between the buyer and seller. Both parties need each other, so the real issue concerns where the balance of power lies. Power is a function of dependency. That is, the more the seller is dependent on the buyer, the more power the buyer has. MAANZ International 21
  22. 22. Interdependence • Dependency is determined by how much one party needs the resources (i.e., products, services, or revenue) controlled by the other party and the availability of those resources from alternative sources. If the buyer is purchasing a critical item from a vendor who is the only available source of supply, the buyer's heavy dependency enhances the seller's negotiating power. • Negotiation can be further characterised by the number of issues involved. The willingness to pay or receive a certain price may interact with other issues. The existence of multiple issues to be jointly resolved through negotiation permits the parties to enlarge the size of the total pie before determining how much each side is to receive. MAANZ International 22
  23. 23. Multiple Issues • It is a real challenge to determine which trade-offs the other party will be inclined to make when multiple issues are involved. • Also, the existence of time constraints should be noted. By optimally using the time frame available, the disadvantages of hasty negotiation by one party can be averted. In addition, the degree to which the negotiation is public is important. If different terms are worked out with various customer accounts, the ability to negotiate flexibly with any one account is affected by how much other customers learn of the tactics used and final terms agreed upon. Competitors are also in a position to benefit from learning a firm's negotiation strategy. MAANZ International 23
  24. 24. Negotiations can be Repetitive or Nonrepetitive • Further, negotiations can be repetitive or nonrepetitive. That is, will this be a one-time sale, or might there be frequent negotiations in the future? Repetitive bargaining usually finds the parties adopting a more co-operative stance. Separately, the marketer should evaluate the presence of any linkage effects, that is, circumstances in which a particular negotiation and its outcome are linked to other negotiations. Obstacles can sometimes be overcome by using linkages creatively. MAANZ International 24
  25. 25. Location • Finally, the location of the negotiation is a factor. There may be a psychological benefit, as well as an ability to control the agenda of the proceedings, when the party negotiates on its home turf. • One side can enhance its own bargaining position by negotiating in an environment in which support people are readily available. Alternatively, negotiating on the other side's turf allows one to learn first-hand about the needs and capabilities of the other party. MAANZ International 25
  26. 26. Three Categories of all Negotiations • While many books have been written on negotiation and countless theories exist about how to be effective, there is general agreement on the three categories that all negotiations fall into. These are: • Situational • Principled • Positional MAANZ International 26
  27. 27. Situational Negotiation • Situational negotiation is the preliminary exploration of mutual interests, often via a third party. This is the first stage of negotiation, and takes place prior to the 'face- to-face' meeting. It is often designed to find out indirectly what the other party to the negotiation wishes to achieve, and to influence them subtly. This tactic is used a lot by governments and other public bodies. The aim of this is to lessen the reaction in the financial markets that could be expected if the interest rate rise were to take place suddenly and without prior warning - the type of thing which could spark off another stockmarket crash.
  28. 28. Situational Negotiation • Companies often use situational negotiation with their shareholders before announcing their annual results. If the results are going to be bad, by leaking rumours a few months before the results are announced, the company can usually ensure a much more favourable reaction from shareholders than they would if bad results were announced taking everyone by surprise and causing the share price to fall. MAANZ International 28
  29. 29. Principled Negotiation • This type of negotiation was developed at Harvard University and encourages the parties to focus on the underlying principles rather than the fixed positions or personalities involved. It depends on each side considering the options in an atmosphere of mutual acceptance and searching for common ground. It occupies a place between situational negotiation and positional negotiation (described below), making the final stages of reaching a satisfactory agreement much more acceptable.
  30. 30. Principled Negotiation • The four rules of principled negotiation are as follows: • Keep the subject of the negotiation separate from the personalities involved; • Focus on the respective interests; • Search for options to benefit both sides; • Stick to objective guidelines. MAANZ International 30
  31. 31. Principled Negotiation • Principled negotiation combines the best of soft and hard approaches to negotiation. Soft negotiation, where participants are friends and give away bargaining pieces without counting the cost, is the opposite of a hard approach where one takes a position and aims for nothing less than victory. The first will eventually lead to some grumbling that the other party owes something in return for the other's generosity (if those involved are not friends it may lead to a more serious dispute). The second one could end in a longstanding grudge. MAANZ International 31
  32. 32. Principled Negotiation • Future business relationships are not built on those sort of foundations. As we saw earlier, the aim should be for a /win/win' agreement, with both sides feeling that they have worked hard and found common ground both are happy with, gaining a satisfactory outcome. This creates a sound foundation for working together in the future. • If the atmosphere of mutual acceptance is lost during a principled negotiation, or if either side resorts to abuse or insult, the type of negotiation changes to: MAANZ International 32
  33. 33. Positional Negotiation • Positional negotiation occurs when each side clearly states its own position without regard for the position or interests of the other party. Personalities play a major role in this type of negotiation, and one side is aiming for victory over the other side. • Positional negotiation has been widely used by Trades Unions in their discussions to win more pay, has increased public awareness of this type of negotiation. It is not unusual to find discussions in deadlock, when what is supposed to be a negotiation becomes a dispute.
  34. 34. Positional Negotiation • Answers to problems can be found by backing away from confrontation to find common ground, often by a third party, brought in with the specific task of arbitrating between the two parties. • This type of negotiation is less likely to occur in conducting business, where both parties are looking for a win/win situation. However, it does occur in situations where one party to the negotiation is in a much stronger position than the other party. MAANZ International 34
  35. 35. • For more information about MAANZ International and articles  about Marketing, visit: • www.marketing.org.au • http://smartamarketing.wordpress.com • http://smartamarketing2.wordpress.com • .  http://www.linkedin.com/groups/MAANZ‐ SmartaMarketing‐Group‐2650856/about • Email: info@marketing.org.au • Link to this site ‐ ‐ http://www.slideshare.net/bmonger for  further presentations Marketing In Black and White 35
  36. 36. 36 END MAANZ MXPress Program

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