PREPARATION FOR SALES NEGOTIATIONS
In addition to the factors outlined in the previous section, a sales negotiator will benefit by paying attention to the following additional factors during preparation.
Assessment of the balance of power
In the sales negotiation, seller and buyer will each be expecting to conclude a deal favorable to themselves. This balance will be determined by four key factors:
- The number of options available to each party. If a buyer has only one option – to buy from the seller in question – then that seller is in a powerful position. If the seller, in turn, is not dependent on the buyer but has many attractive potential customers for the products, then again they are in a strong position. Conversely, when a buyer has many potential sources of supply and a seller has few potential customers, the buyer should be able to extract a good deal. Many buyers will deliberately contact a number of potential suppliers to strengthen their bargaining position.
- The quantity and quality of information held by each party. (‘Knowledge is power’, Machiavelli.) If a buyer has access to a seller’s cost structure then they are in a powerful position to negotiate a cheaper price, or at least to avoid paying too high a price. If a seller knows how much a buyer is willing to pay, then their power position is improved.
- Need recognition and satisfaction. The greater the salesperson’s understanding of the needs of the buyer and the more able they are to satisfy those needs, the stronger their bargaining position
- The pressures on the parties. Where a technical problem is of great importance to a buying organization, its visibility high and solution difficult, any supplier who can solve it will gain immense bargaining power. If, on the other hand, there are pressures on the salesperson, perhaps because of low sales returns, then a buyer should be able to extract extremely favorable terms during negotiations in return for purchasing from them.
- Determination of negotiating objectives-It is prudent for negotiators to set objectives during the preparation stage. This reduces the likelihood of being swayed by the heat of the negotiating battle and of accepting a deal which, with the benefit of hindsight, should have been rejected
It is useful to consider two types of objective:
- ‘Must have’ objectives. The ‘must have’ objectives define a bargainer’s minimum requirements; for example, the minimum price at which a seller is willing to trade. This determines the negotiating breakpoint.
- ‘Would like’ objectives. These are the maximum a negotiator can reasonably expect to get; for example, the highest price a seller feels they can realistically obtain. This determines the opening positions of buyers and sellers.
Since negotiation implies movement in order to achieve agreement, it is likely that concessions will be made by at least one party during the bargaining process. Preparation can aid negotiators by analyzing the kinds of concession that might be offered to the other side.
The kinds of issue that may be examined during concession analysis include the following:
- Price;
- Timing of delivery;
- The product – its specification, optional extras;
- The price – ex works price, price at the buyer’s factory gate, installation price,in-service price;
- Payment – on dispatch, on receipt, in working order, credit terms;
- Trade-in terms, e.g. cars.
The aim of concession analysis is to ensure that nothing that has value to the buyer is given away freely during negotiations. A skillful negotiator will attempt to trade concession for concession so that ultimately an agreement that satisfies both parties is reached.
A further sensible activity during the preparation stage is to estimate the proposals and demands the buyer is likely to make during the course of negotiation, and the seller’s reaction to them. This is analogous to the anticipation of objections in pure selling – it helps when quick decisions have to be made in the heat of the negotiation.
