When we work with our clients to help them build their negotiation capability, we spend time with them working through their challenges, and workshop solutions together. Recently, a client raised a challenging negotiation around discounting they were having with a key customer. This scenario goes to the heart of what problem solving negotiation is about: when faced with an extreme, uncompromising position, how do you get what you want and still maintain the critical business relationship?
While most of our smaller customers are relatively easy to deal with, some of our larger ones are nightmares. We have one major customer whose account makes up about 15% of our annual revenue. Because of our dependence on them, they feel that they can basically push us around at will. Just the other day, they asked for a 12% discount on all purchases in the next financial year. When I said that 12% was a bit steep, they dug their heels in and gave me one week to get back to them. If we don’t give in, they’ll just to go our competitors – and we can’t afford to lose them. The problem is that we also can’t afford such massive discounting.
What should I do?
Let’s explore just one of many helpful strategies we discussed.
The tug of war: win on price – but at what cost?
Often, in cases like this, where the other party puts forward a fixed, one-sided position, the temptation is to put forward an extreme, self-serving position of your own. They say: “We want a 12% discount.” You say: “Well, actually we’re bumping our prices up by 5%.” Some in the fields of negotiation call this counter-proposals for unreasonable demands. We think this is just a fancy name for haggling, which lowers value, and reduces trust along the way.
In our experience, what follows is a veritable tug-of-war or haggle – a pattern of incremental and hard-fought concessions, leading eventually to agreement at some mid-point between your extreme demands…. or, at worst, termination of the relationship.
What’s the problem with this approach? By casting the negotiation as a game of who can compromise least – even when you’re the one to give away less – you end up destroying the value you could potentially create by working together to generate solutions. And, even more significantly, the adversarial, horse-trading process risks damaging important business relationships – like the one described here.
So what’s the answer? One helpful strategy is to explicitly reframe the negotiation as a joint problem solving quest, rather than a bargaining contest.
Reframing the ‘game’: don’t just compromise, create value
In this situation, you could say: “You clearly have your preferred position in mind, and I also have my own. But, rather than us simply haggling over them, let’s spend a few minutes to see if we can come up with some creative options that work for you, and for me.” In fact, you’ll probably find options that are better for both of you than your current positions.
Because from there, the possibilities are endless: testimonials to drive sales with other customers, volume discounts, joint ventures to other clients, customer referrals, streamlining supply chain activities, joint marketing/advertising, and so on.
While there’s more to say about the process from here, this is the first critical step towards collaborative problem solving. Try it… and let us know how it goes!
The team at CMA