Counterpoint Courses Building Excellence in Procurement and - - PowerPoint PPT Presentation

Counterpoint Courses

Building Excellence in Procurement and Communications

Essential Negotiation Skills

Find it in Worcestershire – 16 June 2014

Ros Howard and Steve Mallaband

16 June 2015 4

There is no right answer

16 June 2015

Seller

LDO 218 MDO 348

How do you decide the price within this range?

ZoMA 40

Buyer

LDO 258 MDO As cheap as possible

5

MDO = Most Desirable Outcome LDO = Least Desirable Outcome ZoMA = Zone of Mutual Agreement

An agreement may not be possible

16 June 2015

Buyer Seller

LDO 120 LDO 100 MDO 348 No ZoMA MDO As cheap as possible

6

Have cheaper supplier Lowest daily rate

Knowing when to walk away

 As a Supplier you should know your LDO: the

lowest price you will sell at, for given terms

 As a Buyer you should know your LDO: the

highest price you are prepared to pay, for given terms

16 June 2015 7

BATNA – Best Alternative to Negotiated Agreement

There may be no ZoMA, which means you should know what your BATNA is:

 As a supplier: we can find other customers who

will pay more

 As a buyer: we can find other suppliers who will

charge less

16 June 2015 8

When should we negotiate?

There is a belief that the problem can be solved But the parties have different interests There is a willingness to work together But the parties do not know if they can trust each other

16 June 2015 9

What can we negotiate?

 Buying and selling of goods, services and works –

getting into contracts

 Termination of contracts – getting out of contracts  Changes to contracts  Extensions to contracts  Price rises  Disputes and claims

“In business as in life, you don’t get what you deserve, you get what you negotiate”

16 June 2015 10

The mind of the salesperson

16 June 2015 11

Volumes

Training Training Training

Relationship

The mind of the buyer

16 June 2015 12

Savings

Fairness

16 June 2015

Is this fair? Or is this fair?

13

Is it fair that a supplier should always make a profit?

The negotiation process

16 June 2015 14

Close/Agree Propose/Bargain Exchange Info/Debate Open

Preparation Implementation

Be prepared!

16 June 2015 15

Look at the market to see where the power lies

16 June 2015

Who has the power is often set by the market

16 Rivalry among existing competitor s Threat of new entrants Bargaining power of buyers Threat of substitute products or services Bargaining power of suppliers

Interests

Interest: An interest is what lies behind the need to negotiate

Buyer Wants to buy courses at a price significantly less than public courses Seller Wants to sell lots of courses at a good daily rate

16 June 2015 17

Trainalot’s interests

 To sell as many similar courses as possible – preparation

costs time

 To achieve an average income of 20 counters per day  In general a course takes 2 days to tailor (and a lot more to

create from scratch)

 If public courses then need to recover marketing and

administration costs (+30%)

 If private course and travel involved want to recover at cost  For four courses at client’s site, would want to charge at least

218 counters

16 June 2015 18

Drinkalot’s interests

 Currently use external courses at 10 counters per delegate

(including expenses)

 Quick market review for in-house training indicates that

discounts of up to 20% available because no need for supplier to market event and find premises

 Also for in-house courses Drinkalot do not need to pay

expenses for delegates, only expenses for trainers

 Leads to expectation of 6 counters per delegate = 240

counters for 4 courses of 10 delegates, plus trainer’s expenses of 18 counters = 258

 For four courses at own site, would want to pay at most 258

counters

16 June 2015 19

List your tradables

 Price  Volumes  Time of delivery  Location  Expenses of delegates  Expenses of trainers  Payment terms  Travel time

16 June 2015 20

What is the value of your tradable to you, the seller, Trainalot, and to them?

16 June 2015 21

Value to me Value to buyer LDO MDO BATNA Price H H 40 per course 60 per course Find other buyers Volume H M 2 courses 4+ courses Could do 1 course but price higher and with preparation Location L H Our premises Drinkalot premises Don’t care Preparation payment M M 2 days 3 days Spread over course fee Payment terms M H 60 days 30 days Would accept advance payment Staged payments

What is the value of your tradable to you, the buyer, Drinkalot, and to them?

16 June 2015 22

Value to me Value to seller LDO MDO BATNA Price H H 60 per course < 20 per course Find another supplier Volume M H 4 courses 4 courses Location H L Their premises Drinkalot premises Preparation payment H M 1 day no days Hide in course fee Payment terms M M 30 days 60 days Staged payment terms

You can increase your power

 Thorough preparation  Align your stakeholders  Enlist a powerful ally  Make the other party think you have the power  Create some other things to trade  Create a realistic BATNA

You have more power than you first might think

16 June 2015 23

Preparation checklist

 Look at the market to see where the power lies  What steps can I take to increase my power?  What are the risks?  What can I trade?  What is my LDO, my MDO and my BATNA?  What is the agenda for the first meeting?  How long will this negotiation last?

16 June 2015 24

Open

16 June 2015 25

Close/Agree Propose/Bargain Exchange Info/Debate Open

Preparation Implementation

Positions

 All prices are fictitious: 348, 210, 120, 258, 200,

235, 225…

 Position: A position is what is actually expressed

as a need or a want: “The price of two courses is 210 counters”

16 June 2015 26

Exchange info, debate, propose, bargain

16 June 2015 27

Close/Agree Propose/Bargain Exchange Info/Debate Open

Preparation Implementation

Seller’s strategy

 Get cosy with budget-holder to get sale  Bid high on 2 courses to give leeway to discount on

more

 Support higher in-house price on basis of travel

time and expenses

• Expenses are real
• Travel time is not – usually travel in evenings

 Push hard for firm commitment to 4 courses  Use “last minute nibble” to get quick payment – 30

days

16 June 2015 28

Buyer’s strategy

 Close alignment with budget-holder  Pre-condition using “lack of budget”  Get facts from market  Ask for opening bid for 2 courses only, to disguise

true need for 4

 Support lower in-house price on basis of reduced

marketing and administration

 Offer 4 courses in return for substantial discount  Accept nibble – can live with 30 days and prefer

this to advance payments

16 June 2015 29

Trading

 Move from signals to proposals to bargains to

agreement

 Never make a concession without getting

something in return

 Try to trade something that is worth little to you for

something that is worth a lot to you

 Do not give away lightly something that is worth

little to you, it may be worth a lot to the other party

 Use “if, then” questions and always put the other

party first

16 June 2015 30

Planning concessions

 The negotiation process is all about trading

concessions

 Be innovative and create options – things to trade  Be sure to concentrate on needs not wants  Plan how you will do this:

• Big steps
• Little steps
• All at once
• Never

16 June 2015 31

What is a concession?

Generally you will move from your positions towards your interests – a movement is called a concession Seller “If you could place a purchase order for 4 courses to be delivered in the next six months, then we could come down to 235” Buyer: “If you could reduce to 225, then we would place purchase order this week?” Seller “OK” Concession is 10

16 June 2015 32

Trading concessions

Step 1: Signal Seller “Would you be interested in more courses?” Step 2: Proposal Buyer “If you come down further, then I could buy four” Seller “If you bought four, then we could waive preparation time” Step 3: Strike a bargain Buyer “OK”

16 June 2015 33

Trading concessions

Step 1: Signal Buyer “I’ve spoken to Eve and by juggling the budget we could find 200 in total” Step 2: Proposal Seller “If you could place a purchase order for 4 courses to be delivered in the next six months, then we could come down to 235” Buyer: “225 if we place purchase order this week?” Step 3: Strike a bargain Seller “OK”

16 June 2015 34

Panic, Yes, No or Trade

Whenever you are asked a question you have four choices:

 Panic: but you won't do this if you are well

prepared, will you?

 Say "Yes": but you may be too soft, and give

something away for free

 Say "No": but you may be too hard, and miss the

• pportunity for mutual gain

 Trade: it may be best to trade: "If you do this for

me, I will do this for you"

16 June 2015 35

Close and agree

16 June 2015 36

Close/Agree Propose/Bargain Exchange Info/Debate Open

Preparation Implementation

Nothing is agreed until everything is agreed

Step 4: Summary and agreement Seller: I think so, let’s just go through the details. You will place a purchase order by Friday for four courses to be carried out at mutually acceptable dates within the next six months. You will pay us 225 counters all- inclusive in total, there will be no further charge for preparation or expenses. Buyer: Agreed

16 June 2015 37

Nothing is agreed until everything is agreed

Step 4: Summary and agreement Seller: I think so, let’s just go through the details. You will place a purchase order by Friday for four courses to be carried out at mutually acceptable dates within the next six months. You will pay us 225 counters all- inclusive in total, there will be no further charge for preparation or expenses. We’re assuming 30 days payment is OK?! (last minute nibble) Buyer: Agreed

16 June 2015 38

Useful tactics

 Use conditioning and preconditioning  Don’t be afraid to ask questions  Ask for adjournment to check and align  Don’t say too much – no need to justify yourself  Sort things out in informal meetings  Set aside difficult points for later

16 June 2015 39

Simple things to bear in mind

 All prices are fictitious  Aim high and set expectations at start  Know your LDO and BATNA  You have more power than you think  Don’t expect things to be “fair”  Win-win sounds nice but is not always possible  You (nearly) always have 4 choices:

• Panic, yes, no, trade

 No free gifts: If you… then I….  Nothing is agreed until everything is agreed

16 June 2015 40

Time for questions!

16 June 2015 41