Sunday, December 26, 2010

Truly the Best

“We said we would deliver the components for $1 million,” Verdi said to Tyler Gitou. “They came back and said if we don’t lower our price by $100,000 they will look for another supplier. What do I do now?”

“Did you tell them $1 million was your best price?” Tyler asked.

“Yes, we said it was our best and final offer.” Verdi replied. “We thought that would signal to them we were ready to close the deal.”

“Is it true?” Tyler asked.

“What do you mean?” Verdi asked.

“Is that truly your best and final offer? Or can you do better?”

Verdi thought for a moment. “What difference does it make?”

“Often people will say something is their best and final offer and it really is not; they are willing to go further than that if pushed. The problem is once you break from your so-called ‘best and final offer’, you have destroyed the other party’s trust in your numbers. When are they supposed to believe it really is your best and final offer if you change it when they apply pressure?”

Verdi nodded. “I see what you mean.”

“To maintain trust in your negotiations, never say something that is not true. Trust is the most powerful element you can build into a negotiation and bluffing does not build trust.”

“So what do I do when I have reached my limit but I still want the deal?”

“Explain that to the other party,” Tyler said. “Tell them that you want to find a way to make this work for them, but it has to work for you as well. Is there something in your bid that you could change that would lower the price?”

“Yes,” Verdi said. “We could use different components that would make it cheaper. It may impact the quality of the outcome.”

“Good,” Tyler said. “Offer them that option. Tell them you can provide the components they requested for $1 million or reduce the price if you use different parts. Let them choose. Basically, you are asking them to decide which is more important to them: a lower price or the quality of the outcome. Giving the other party a choice empowers them. They are now in control of the results of the negotiation.”

“But what if they say they want the same components at the lower price or they will go to another provider?” Verdi asked.

“Ah,” Tyler smiled. “That’s a question about their BATNA. Let’s talk about that after your meeting with them. We will sit down and think about all the different ways they might respond.”

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