There are a number of dilemmas we face as negotiators. In part 1, we firstly look at whether we should actually negotiate or not? Secondly, how do we negotiate in regards to the value of the relationship?
To Negotiate or Not
To negotiate or not is the obvious first dilemma and contrary to popular belief not everything is negotiable. Negotiating is one way of resolving conflict, but it is not the only way. An essential characteristic of negotiating is the flexibility provided by trading behaviour. We are often asked to give advice about conflict at work where a team member is clearly not performing and are often the result of poor communication or workplace discipline. In these situations, the best solution is to enforce the established workplace standards and processes rather than treat these matters as potentially negotiable.
Similarly, an examination of your alternatives may reveal better options than negotiating and then making concessions. Why would you need to provide a discount demanded by a customer when others are happy to pay your list price? This is a happy situation faced by Apple when demand outstrips available supply of their products. Before deciding to negotiate, you must examine the alternatives you have to negotiating. This will depend on the state of the economy and structure of your industry.
If you are selling trees in a forest, you always have the alternative of not selling this year and allowing them to grow for another year and become more valuable. Alternatively, if your product is fragile like an airline seat, a hotel room or a table at a restaurant, then if it is not sold today than the sale is lost forever. In these circumstances, you are far more likely to flexible in your pricing. This explains the abundance of flight and hotel deals available that are on offer. Curiously restaurants do not offer the same flexibility that explains their average occupancy of 36% versus 90% for hotels and flights.
Transaction or Relationship
A major customer requests an immediate 15% price reduction to assist them in difficult trading conditions. Your response to such a request will depend on whether your focus is on the transaction or the whole relationship. On the transactional level, it may result in trading losses if you agree. On that basis, it would be relatively easy to decline the request.
If you examine the whole relationship with the customer, there may be other reasons to support a price reduction. The relationship may underwrite the expenses of regional offices that profitably service a range of other customers in the region. The relationship may support a volume of purchasing which allows for significant discounts with your suppliers. If this volume is lost, other customers will face price increases. In these circumstances, the relationship is more important than the current transaction.
Good negotiators have a clear understanding of both the importance of the current transaction and the overall relationship and craft their responses accordingly.