Write a three- to five-page paper about any negotiation that you have been involved in. For this assignment, discuss a negotiation that did not result in the best possible solution for all parties. This negotiation can relate to a work experience, a family or friend experience, or any other experience where you were an active member of a negotiation.
Discuss how the negotiation experience actually happened, then consider the negotiating techniques that you have learned about in the past 4 weeks of class, and then offer an explanation of how you could have conducted the negotiation better. Explain where your new learning from the course might have been helpful in this previous negotiation.
Deliverable: A three- to five-page paper outlining your response to the above assignment
Negotiation is a process by which compromise or agreement is reached while avoiding argument. In any discussion or negotiation exercise, individuals aim to achieve the best possible outcome for them. Negotiating skills are required in day to day situations and circumstances between managers and subordinates, between different departments, between companies and their suppliers, customers, and unions, and in many other situations.
Couple of years back, I was involved in a negotiation process with one of our customers wherein we were trying to sell our company’s equipment to them to be used in their factory premises. There was couple of our competitors that were also bidding for the same and trying to under-cut us on the prices. Ours being a larger organization, we were not able to compete on the prices and instead we were trying to sell on our company’s strengths and competitive advantage. We had couple of rounds of discussions with the client’s purchase department and were finding it really tough to compete on the prices.
Our company’s vice president, sales and global head of the product management group had taken a personal interest in this sale as it affected the company’s performance and such deal also affected the company’s stock performance. Though, the market was growing every year, we still didn’t want to lose this customer because it is always more profitable to close and service one large customer than several of the smaller ones.
Internally, we brainstormed the proposal and revisited the product specifications, delivery and installation, ongoing maintenance, long-term support and maintenance. We had several validations meeting with influential managers on the customer side and we felt that we had come up with the best estimations given various constraints. Finally, we had the final negotiation in which we had our company’s vice president, sales and global head of the product management group, customer’s head buyer, their vice president of manufacturing, and vice president of finance, and technical support people from their side.
The whole negotiation started with the functional and technical comparisons of our product with that of the competitors. They had planned well in advance and the whole exercise seemed to us that they wanted to negotiate and get the lowest possible price from us. Though, we were all well prepared for the meeting, they kept on highlighting the lower specifications or the functionalities of our products, The main points that they brought to the negotiating table were:
Our machines were higher in short-term price in the year one and year two.
Competitor’s machine gave higher output and throughput.
There was less maintenance cost incurred from the competitor’s machine as compared to ours. In fact, they kept on bringing this point during the entire discussion.
Our competitor had a pretty good off-the-shelf solution as well as pretty good output for the type of the machine that we had quoted to them.
There was a lot of internal negotiation among them over which of the options is most preferable. They kept on telling us that we were more expensive and the total cost of ownership for our machines was higher as compared to the competitors. They tried to push us for discounts and kept us on back foot with their demands throughout the discussion. Our vice president, sales tried to present more rational data but they all had come prepared and kept their demand of deep discounts of 10-15 % till the end. For us, that deal was important as this would have impacted our quarter end results and so, without trading and negotiating further, our VP sales agreed to offer discount little less than what they were asking for. They immediately accepted the offer and the deal were completed. I, being part of the whole negotiation, felt that we conceded far too early and easily during the negotiation. We should have kept the pressure on them by providing as many factual information’s about the product as possible. We also had not prepared the facts and information comparison sheets about our products and competitor’s product prices. We all had these information’s in our mind and according to me, the way these were presented to our customers was a bit haphazard which worked to their advantage. Also, our VP Sales and products seemed very desperate to close the deals at any cost and so they gave in too easily.
I would start the negotiation on a very positive note by thanking them to take out time to answer all our questions prior to the negotiation. I would also admit to the fact that our competitors were offering a pretty good off-the-shelf solution and make a point that though our company offered a customized solution, it also gave the customers a flexibility to adapt the solution as per their needs and requirements. I would also stress the point related to installation. The machines that are easily customized also prove to be relatively easy to install. As far as maintenance was concerned, we had a huge advantage in terms of our machine’s reliability. Our competitor’s machine output was a bit higher than ours, but our machines’ uptime was higher and thus probably made up for the difference. In terms of upkeep, our machines break down much less frequently and as a result last longer because of how they were engineered.
Though our “price” was a bit higher, but because of the reliability and flexibility of our machines, they had less downtime, easier long-term upgrades, and longer shelf life. I would also start addressing each of their concern. It is important to understand that effective negotiations are built on trust and establishing a good relationship and trust early in the cycle of negotiation pays off. I would go about addressing their following questions in a systematic manner.
If I were to redo this negotiation once again, I would do couple of things differently than we did in this negotiation. I would send out an e-mail to the head buyer, vice president of manufacturing, vice president of finance, and all the other people in their organization we had been selling to, and ask them if they could provide us some time to answer our queries so that we could better understand their needs for the upcoming negotiation. We would also send the questions in advance so that they could prepare for those questions in advance. This would help us to remove lots of surprises during the negotiation process.
Their managers sounded as if we would lose the business if we didn’t reach agreement with the customer in this negotiation. In this case, losing the business meant loss of revenue to the tune of $2 M on a yearly basis and in the long run, it would cumulate to a loss of around $10 M over the next 5 years. In addition, by not closing this deal, our company would have incurred the costs associated with the 3 months’ preparations time that we had spent working on the proposal, understanding the RFP and other associated cost such as staff time, product demonstrations, and so on.
Is there an off-the-shelf solution that fits the customer’s needs?
Delivery and Installation Elements Questions
How long will the customer’s operation be down while the machine is being installed?
How often does the machine break down?
How difficult would it be to train the customer’s team to run it?
What do maintenance costs look like in years two, three, and four?
How easily upgradable is the machine?
What is the machine’s expected life?Finally, I would agree to the following price and conditions.Volume: Five machinesUpgrades: 35% discountWarranty – 2 years of warranty, maintenance and support
References:Dietmeyer, Brian J., and Rob Kaplan. (2004). A Breakthrough 4-Step Process for Effective Business Negotiation. Kaplan Professional.
Business School Publishing (2003). Negotiation. Harvard Business Press. Books24x7. Web.
If we compare this negotiation process with the earlier ones, this negotiation was well structured and followed a systematic “question and answer” session to address each of the client’s concerns. Customer felt that they were getting value for the money spent and this negotiation ended with both sides coming away with more than they had anticipated at the beginning of the negotiation.
Installation support: 200 hours
Service: Five days x 24 hours
Price: $435,000 per machine with the customized solution as per the customer’s needs
They had the price as one of their primary concern. I would explain the rationale about the pricing that our company had followed. Also, I would compare the price performance parameters on each of the product’s attributes so that they get fairly a good idea about where our product stands vis-à-vis our competitors. Finally, to take care of their concern related to the machine pricing, we would give them a discount of 5 % based on the market condition and explain them that they were our valued customers and we were offering them the said discount for our long term business relationship in the past.