Don't anchor yourself: When preparing for a negotiation, remember to develop your 'ask' or opening offer first - before your goal and least acceptable agreement or walk-away.
4 Ways to Use Negotiating Power Wisely
By Thomas Wood
Fortune 500 companies exert power in the marketplace, and by extension in negotiations. It's easy to exert power in negotiations, but not as easy to use it wisely. Seeing the new Fortune 500 list just released, and how many of our clients are in it, made me think of the many discussions with those clients, and their customers and suppliers, about the perils of being powerful.
This week Fortune released it's 61st Fortune 500 list. Fortune 500 companies are ranked for FY revenue reported, together totaling $12.5 trillion. They reported a combined profit of $945 billion, and employ almost 27 million people around the world. To say they have power at the negotiating table is an understatement.
Watershed Associates has served many of the Fortune 500 with negotiation training, including three of the top 5. We advise many negotiators in these Fortune 500 companies about their real world challenges. The negotiators on the front lines know that power from size can be real or perceived, but it can also shift easily. Revenue and profitability giants don't always hold all the power; many factors influence who holds the power in a negotiation:
- Which of you is a customer or supplier the other can't afford to lose.
- Which company has the available cash flow to weather a downturn.
- Your position in the industry matters - You can be a Fortune 500 company, but if your market position is lowest among your industry competitors, you might not have power in your negotiations.
- Your company’s agility – how fast can it change direction to adapt or respond to external market forces?
- Expertise – which company forecasts weather, economics, access to natural resources, or consumer mood better?
- How quickly you need a deal in relation to how quickly (or not) your counterpart needs a deal.
- And of course, the relative strength of your Best Alternative to a Negotiating Agreement (BATNA), or plan B, as compared to your counterpart's BATNA. BATNA is all about Who stands to lose the most if there is no deal. Sometimes, it's the party with perceived power.
But when you do have the power in a negotiations, you still have challenges:
Others are trying to shift the power balance; bet on it!
Power holders are often less diligent and thus more oblivious to the growing power of the powerless; they don’t assess the situation accurately and don’t change to suit it. This arrogance can leave you oblivious to a growing source of power.
Your behavior reveals much to the other side and can drive defensive behavior.
For example, when a customer or supplier feels they get unfair deals from a powerful company, they might shift power by building coalitions, give better deals to the competitors at your back door, and strengthen relationships with your next generation decision makers. Or if they feel the deal struck was one-sided, there is always potential for you to be blindsided or receive less during execution of the contract, and the party who feels they got less at the bargaining table will be the one looking for ways to recapture that value during the contract period. Remember, the powerless go on the offensive if they perceive unfairness.
The powerful are not always liked.
Let's face it, we can love a company on its way up -- think Amazon or Google or Microsoft -- but once those companies became giants, we started rooting for the new players. There is greater focus on showcasing failings of the powerful, so they are actually more vulnerable to downfall than the smaller companies.
With power in hand, what can you do to keep that power from working against you? Try these 4 strategies to use your inherent negotiating power wisely:
1. Be Likeable.
Being likeable is highly underrated in life and in negotiations. There is lots of advice on how to be likeable. And being likeable doesn't mean you give away value at the negotiating table. It does mean that you:
- Invest time into building relationships; Get to know your counterpart's company and the individual negotiator(s). Use rapport, find affiliations (common interests), and keep commitments.
- Demonstrate that you are working as much on this deal as your less powerful counterpart.
- Reveal your humanity; Share stories about volunteer work, injuries, mistakes you learned from, etc. Smile and laugh when appropriate as they share their stories. Enjoy them!
- Like them! Even if they aren't very likeable, think about what you do like or admire -- their sense of humor, their recall of detail, their interesting analogies, etc. But be sincere and don't overdo it. Let the other side earn your respect and professional friendship over time.
Remember, companies don't negotiate. People negotiate. And people extend the most consideration to people they respect and trust.
2. Ask for Collaboration
Articulate your company’s interest in mutually beneficial negotiations with smaller players. Literally, ASK them to engage in a collaborative discussion with you. Persuade your less powerful counterpart why you want this deal (because they may be assuming you don't really care, and thus they have nothing to lose by playing hardball). They will be surprised to hear you ask them to be collaborative, when that is exactly what they thought was not attainable.
3. Demonstrate You Are a Collaborator
The less powerful counterpart comes to the table expecting to have to grab whatever value they can and hide any weaknesses. If they find you are collaborative from the start, they become less guarded. When they are less guarded, you will be able to identify their interests and find alignment with yours in a way that builds value rather than simply dividing it.
To show you are collaborative:
- Show empathy -- care about what matters to your counterpart.
- Use objective criteria and standards of fairness to explain offers -- don't just assert positions. Explain your position with data, industry standards, expert analysis, etc.
- Early on, the offer of a small "free gift" may be in order.
- Plan at least one concession they need or want and let them earn it along the way.
- Allow yourself to be nibbled (gently), giving a little more at the close of negotiations.
4. Never Threaten Your BATNA.
If you have the power, your less powerful counterpart knows you have BATNAs, or alternatives to this deal. No need to talk about your BATNAs. When the powerful talk about their leverage and alternatives, it is perceived as a threat. People react to threats with every possible counter offense.
Being a collaborative power holder pays dividends now and later.
You want the other side to expose their true interests, propose ideas and creative solutions, so that more value can be created and a sustainable agreement results. You want to be known as a fair negotiator who creates value at the bargaining table. Flaunt your power, and you will not achieve this. And one day, the power will shift!