Cost negotiation becomes a very hot topic when commodity prices fluctuate greatly. In the last few years sales organizations led the negotiation charge as they sought price increases to offset steep increases in raw materials, labor, and indirect costs. Now, buyers are starting to initiate the negotiations as some commodity prices have fallen off their high points.
Negotiations can start out with best intentions and still become stalled, stalemated, and ultimately stuck. Those of you who have attended our knowledge-based negotiation and cost courses know that I am a fan of the collaborative negotiation approach elucidated in Getting to Yes1. However, this is not the book I refer to when I want to brush up on how to unstick a negotiation. Instead, I refer to Getting Past No2 a follow up book by one of Getting to Yes’s authors, William Ury.
I won’t try and summarize a 200-hundred-page book in a relatively short blog. Instead, I will summarize what I think are some of the key-take-aways from both books that can apply when a negotiation gets stalled or stalemated.
Understand why the negotiation got stalled in the first place. Ury identifies five of the most common reasons:
- Their emotion. Example: Six months ago, the entrepreneur CEO negotiated a cost increase due to higher raw material costs. However, he was unsuccessful in getting increases due to higher manufacturing costs due to labor and energy cost increases. The buyer approaches the owner requesting that prices now go down as the raw material pricing has abated. Upset that he did not get the increases for labor and energy that did not abate the CEO explodes.
- Your emotion. In response to the CEO’s initial negative reaction the buyer threatens: “Either reduce the prices or I will resource the business.”
- Their position. The CEO believes the buyers position, if accepted will leave him in a money losing situation on the product.
- Their dissatisfaction. The CEO’s dissatisfaction with the previous agreement that did not provide increases for labor and indirect costs was the root cause of his emotional reaction.
- Their power. A power imbalance with one side “holding all of the cards” can lead to a stalemate that is acceptable to only one of the parties. If the CEO is under no contractual obligation to negotiate with the buyer and the buyer has no options but to buy from the supplier he may just walk away from the discussion.
The best way to not have negotiations stall is to have a track record of collaborative negotiations as laid out in Getting to Yes and apply them to the situation at hand:
- Separate people from the problem – don’t negatively react to emotional outburst from the other side. Instead, use questioning strategies to explore them to gain valuable knowledge and let the other side let off steam: “You seem upset. Can you tell me why?” “So, reducing prices for raw materials will leave in in a money losing situation due to labor and energy prices? Help me understand.”
- Focus on interests, not positions. The buyer could say: “It is in our best interest to have profitable suppliers. I hope it is in your interest to have profitable customers. Unfortunately, our customer would only allow us to pass through increases for raw materials not labor and energy. They have now asked us to reduce our prices due to the price decreases in raw materials. We want to keep our customer happy because they are the source of sales growth that we both benefit from.”
- Invent options for mutual gain. The best way to do this is to frame the negotiation as a joint problem-solving exercise and look for ideas. “What are options that would enable us to keep our ultimate customer satisfied and minimize the impact to our companies?”
- Insist on using objective criteria to select from the options identified. In this case the best options would keep the ultimate customer happy without negatively impacting buyer and seller profits. The more difficult the problem the more likely it will be that there is not one solution but a patchwork of multiple to make a deal that satisfies the interest of all.
Finally, the negotiation skill I believe that is most important to successful negotiation is the ability to shut-up and listen to the other side. When the negotiation is stalled when the other side seams intractable, don’t use threats and sticks, instead employ the quality techniques of 5 why questioning to better understand their positions and the interests behind them. Once you think you understand say what you have heard and ask: “Did I miss anything.” If they say no, they are more ready to listen to your perceptions, positions and interests.
Join us for our “Overcoming Objections & Intransigence in Negotiations” webinar on February 28th where we discuss why buy/sell negotiations get stalled and how to get them moving again.
In the webinar we will discuss Ury’s approach and provide practical tips for how to apply it to buy/sell negotiations.