This is the third in a three part series on the science and process of negotiating. In our last blog post we discussed the ten manageable and relevant elements to consider when planning for negotiations. In today’s post we’ll talk through how to renegotiate in a tough economy.
In present times, it seems that any pretense of collaboration has suddenly gone out the window. Now, buyers are quite happy to win at the expense of their suppliers – and some suppliers are now raising their margins with unjustified price increases. For a supplier, the best time to negotiate a price increase is when the buyer is distracted by market-wide changes — i.e. sellers raise prices at the same time as everyone else. So how should you handle this?
Re-negotiating Done Deals
It is really frustrating when you have another party attempting to renegotiate a deal that you have already agreed upon, particularly if it is part of a complex long-term framework. The situation is likely to become emotionally charged because it may feel like one party or the other is now negotiating in bad faith. People start to make statements using “hot” words and “faux pas” to describe the other party’s behavior, i.e. “ we can’t trust you,” etc. This makes rational behavior unlikely.
When you initially make an agreement with somebody, both parties are usually looking at a gain of some sort. When a renegotiation takes place, at least one party will probably end up in a more unfavorable position than they were before the renegotiation.
It is very tempting to react emotionally to any attempt at contract negotiations, but this can become dangerous. Under these circumstances people frequently make irrational decisions. The ego kicks in and people start to become attached to the original deal without realizing, or refusing to acknowledge, that the status quo has now changed. This frequently results in deadlock that doesn’t help either party.
In a re-negotiation, two things happen:
1. The negotiation is likely to become much more unpleasant and competitive than the original negotiation. In the original negotiation both parties are generally looking at positive outcomes. In a renegotiation somebody will almost certainly come off worse. Research has shown that negative events affect us much more than positive events, and this is likely to affect people’s behavior
2. Both sides are likely to be less willing to compromise and more likely to end up in a stalemate. Research has shown that negotiators who looked at deals in terms of profits rather than loss are more likely to compromise. What this means is that:
- As a seller: you need to guard against positive “spins” put on the situation by the buyer. If the buyer portrays a situation in a positive convincing way, you’re more likely to compromise — but you may not need to. Playing hardball can be an option.
- As a buyer, renegotiating prices downwards will continually talk about how much profit the seller will still make – rather than how much it will cost them.
One of the most effective ways buyers and sellers deal with this is to swap out negotiators. This has the benefit of reducing the emotional content of the discussion, and also removes the attachment to the initial deal. Further research supports that people continue to throw good money after bad to support their initial position – yet another reason to change the negotiator.
Before looking at what it means to the buyer, it is important to remind ourselves, especially when renegotiation may occur, to train the people responsible for, or involved with renegotiation. A renowned training consultancy conducted research during the last recession with one of their clients to see what the impact was, if no training was provided or stopped during these trying economic times. They trained part of the sales force and didn’t train the rest of the sales force (the experiments ‘control’ group.)
Sales of the untrained (control) group fell by 13%. The trained had a gain of 17%. In terms of gaining new business the trained group performed 79% better than the control group. This highlights not just the importance of training, but of re-skilling when the negotiation game changes. Negotiations are conducted differently in many ways, in times of bust, to times of boom.
Special gratitude to the following referenced authors, companies, and organizations:
- CustomerCentric Selling©
- “Getting to Yes” by Roger Fisher and William Ury
- “Power of Negotiation” by William Zartment and Jeffrey Rubin
- HBR and Harvard Business School – case studies on negotiations
- Spin Selling© by Neil Rackham
Copyright © KeyRoad Enterprises, LLC 2011 – co-authored by Philippe Lavie and Rob Gullett