Negotiating to Win from a Position of Weakness

Negotiating from a Position of Weakness NASSCOM 2007 Prof. Deepak Malhotra Harvard Business School

Negotiating to win from a Position of Weakness NASSCOM 2007 Prof. Deepak Malhotra Harvard Business School

Why are we starting with Chapter 12?
Introduction
Capturing Value in Negotiation
Creating Value in Negotiation
Information : How to Find Out What They Know
Mistakes People Make I: Cognitive Bias in Negotiation
Mistakes People Make II: Motivational Bias in Negotiation
Overcoming Bias
Strategies of Influence: How to get them to say “Yes”
Increasing your Strategic Awareness in Negotiation
Ethics in Negotiation
Strategies for Confronting Lies and Deception
Negotiating from a Position of Weakness
When Things Get Ugly: Dealing w/ Irrationality, Anger, Threats, Ultimatums, & Egos
When Not to Negotiate
Putting it into Practice

Story 1
“ In our business, potential customers constantly tell us that we have to lower our price, and that if we don’t lower it, they will go to our competitors. They do not seem to want to talk about anything other than price. And the fact of the matter is, they can go to our competitors and get a better price. How can we possibly negotiate a good deal in such situations?”

Story 2
“ I am involved in a dispute and the other side is threatening to sue. Their lawsuit is entirely frivolous, but if we go to court, they can continue to litigate until I go bankrupt. They have a lot of money and can easily afford a long court battle. What can I do?”

Story 3
“ My country is a small player on the world stage. When it comes to negotiating economic or political international agreements, we are constantly being pushed around. More powerful countries overlook our interests, and we practically have to plead for what we most desperately need. Is there some way to improve our position?

Negotiate Effectively… Even When You are Weak

The Roosevelt Campaign
1912 – U.S. Presidential election
3 million copies photograph have been printed
Permission has not been granted.
Copyright law: owner can demand $1 per copy
No time to reprint brochure
Brochure is critical for the campaign

The Roosevelt Campaign
Campaign manager sends telegram to copyright owner:
"Planning to print three million copies of campaign speech with photographs. Excellent publicity opportunity for photographers. How much are you willing to pay to use your photographs?"
Photographer’s reply:
"Appreciate opportunity, but can only afford to pay $250”.

A Client: “QAR”
QAR revenues: $300 million
85% of revenues based on relationship with Remus
Remus revenues: $3.25 billion
QAR is one of many regional distributors
If Remus and QAR end their relationship: QAR Loss of Revenue Remus Loss of Revenue ~80% ~3%

The Case of “QAR”
Define the “zone of possible agreement”.
Current momentum
Current Deal
Preferred Revenue Sharing
No constraints on strategy
No forced affiliation
Feared Outcome
Lose preferential revenue deal
Lose all flexibility
Forced affiliation
Lose $240 Million

But let’s do some analysis: If there is NO DEAL…
QAR :
Loses 80% Revenue = $240M
Gains:
+ Future business opportunities
+ Sovereignty
= ~ $50 million
Net Loss if No Deal
$190 Million

Current momentum
Current Deal
Worst Case
You lose some revenue
You lose flexibility
Some affiliation
Lose $190 Million
Feared

Some analysis: If there is NO DEAL…
REMUS :
Also Lose:
+ Political connections
+ Reputation
= ~ $20 million
Net Loss if No Deal
$120 Million
QAR :
Gains:
+ Future business opportunities
+ Sovereignty
= ~ $50 million
Net Loss if No Deal
$190 Million

Current momentum
Current Deal
Best Case
Even more revenue
More freedom
Gain $120 Million
Worst Case
Some affiliation
Lose $190 Million

Define the “zone of possible agreement” .
Current Deal
Best Case
Even more revenue
More freedom
Gain $120 Million
Worst Case
Some affiliation
Lose $190 Million

Define the “zone of possible agreement” .
Change momentum?
Current Deal
Best Case
Even more revenue
More freedom
Gain $120 Million
Worst Case
Some affiliation
Lose $190 Million

Change momentum
Current Deal
Best Case
Even more revenue
More freedom
Worst case
Some affiliation
Reset expectations Reset the “anchor”
- Full flexibility and No affiliation is the default
Stop apologizing, Stop saying “yes sir”, keep acting!
This is a negotiation – demand compensation for concessions

Lessons from Roosevelt & QAR
Don’t reveal the weakness of your alternatives
Having weak alternatives is not so bad if the other side’s alternative is also weak
Being weak is bad. Feeling weak can be fatal.
The person who defines the negotiation, wins the negotiation
Change the focus of the negotiation to be about:
The weakness of their alternatives
The value you bring to the table
Pricing example: Cost Plus OR Value Driven?
This works if you identify and leverage your Distinct Value Proposition

Make Your Distinct Value Proposition a Factor in the Negotiation

Beating the Price-Only Auction
Should I submit a low-cost/low-value bid, or a high-cost/high value bid?
Submit multiple bids simultaneously
Negoti-auctions
Lower your bid just enough to make it to the 2 nd round
Purchasing agent cares only about low price
Go around the agent with a CC to principal
Do a Post-Settlement Settlement with the principal
Communicate with your customers…
When there is no money on the table
Possibly preempt the auction
Not everyone is your customer. Have the difficult conversation.
“ Is it the case that you will pick the lowest price option regardless of the entire package someone offers? Do you have any interests other than price?”
A thought experiment…

If You Can’t Leverage Your Strength, Leverage Your Weakness!

Romania
Paris 1919
Allied Forces in charge
Redrawing geographic boundaries
Age old principle: to the victor belong the spoils
The case of Romania seems to be an exception

The Dispute
South American distributor’s perspective:
Old models are being dumped in S. America
Manufacturer then illegally terminated the agreement
CLAIM: Want $8 million (lost profits, reputation damage, $s invested)
US manufacturer’s perspective:
Distributor did not order the minimum amount required in Year 1
Distributor did not have distribution channel set up as initially claimed
Distributor still owes us $125,000 for products already delivered
CLAIM: We want to end the agreement and collect our $125,000

The Dispute
Who has more power?
U.S. manufacturer is 1000 times bigger than the distributor
Legal experts agree: US manufacturer’s case is stronger
If litigate, the case will be heard in a U.S. court
What was the final Agreement?
Agreement:
U.S. manufacturer will pay $1 million to the distributor
Manufacturer will give the distributor exclusive right to sell new product (and future products) in a few key regions of South America

Lessons from Romania & Prosando
Weakness can be a strength
They might need for you to survive and be successful
Key Insight:
Your Power is not simply based on the strength of your alternatives… more fundamentally, your Power is determined by you ability to create value for others
Consider the case of a small firm in the pharmaceutical industry…
A small player negotiating with a large pharmaceutical firm
After deal is done, he decides to squeeze them for more money!

Student Profile
“ I had agreed…to sell the rights to 8 different drugs I have in development… I had negotiated for five straight days on this deal and it closed…before the Harvard course. After your classes I call up the pharmaceutical company that is buying the rights and said that I needed more money up front - The company was taken aback by my call.
However… I used this opportunity to explain exactly "why" I wanted different terms . Once they heard my rationale, that I wanted the money to start more projects, that I wanted the money to help me with cash flow and that I wanted the money to be able to go to some angel investors to raise even more money, they understood. All they wanted in return was a right of first refusal on any future projects I develop with the additional cash flow in the next two years.
Now instead of using a line of credit to support all these development programs, I have 3-4 more projects which I will start this summer vs. end of 05'. And both sides have a better value under these terms …”

Sick of Playing by Their Rules? Change the Game

Changing the Game
Attack the source of their power
Planned Parenthood

Planned Parenthood
A recurring problem – anti-abortion protestors
How might the clinics deal with this problem?
The “Pledge-a-Picket” program.
Clinic asks supporters to pledge donations on a per protestor basis.
The more protestors that show up, the more money the clinic raises!
One clinic has even posted a sign that reads: “Even Our Protesters Support Planned Parenthood” .

Changing the Game
Planned Parenthood

Changing the Game
Planned Parenthood
Don’t try to block their punch

Changing the Game
Planned Parenthood
A Last Minute Demand

Student Profile
The CEO of a construction company negotiating with a buyer
Negotiations had been going on for weeks
Just before the contract was signed—a last minute demand:
If the project is not completed by the deadline, the construction company must pay a very hefty penalty for each month of delay
The CEO was surprised—and angry.
To make matters worse, the CEO was desperate to do the deal.
How would you, as CEO, handle this situation?

Changing the Game
Planned Parenthood

Changing the Game
Planned Parenthood
If you have no power, don’t play the power game

Changing the Game
Planned Parenthood
If you have no power, don’t play the power game
Einstein at the bargaining table

Would you take a Group of Juvenile Delinquents to the Zoo? 17% 17% 50%

A Final Example…
Subway Sandwich Shop
Man walks in and orders a sandwich
Then he takes out a gun and points it at the cashier
“ Give me all the money that is in the cash register”
Cashier Responds:
“ How about $10 and the sandwich?”
The eventually agree on $20 and the sandwich

Power Corrupts Absolute Power Corrupts Absolutely Effective Negotiators Don’t Have to Worry

Power Corrupts Absolute Power Corrupts Absolutely Trained Negotiators (and stupid cashiers) Don’t Have to Worry

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Negotiating to Win from a Position of Weakness

by NASSCOM on Dec 03, 2007

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Negotiating to Win from a Position of Weakness — Presentation Transcript