First impressions make
a difference. Getting off to a good start in business negotiations is likely to
influence the final agreement. Your first offer should reflect your best-case
scenario, supported by first-class justification. To steer negotiations toward
your goals, find out the other side's needs; think through your opening
positions; and master the technique of repeated questioning.
The way you open
business negotiations influences the entire process, from the initial offer to
the final agreement. For first-time negotiations, especially between different
cultures, these opening moments are even more critical.
Business executives
should ask themselves three questions when preparing their opening offer:
• Who should make the
first offer?
• Should it be high (if
you are exporting) or low (if you are importing)?
• What should you do if
your opening offer is rejected?
While some negotiators
recommend letting the other side open the discussions, others suggest that
making the first offer gives you a tactical advantage. These suggestions are
simplistic and generally apply to one-time business deals. Doing business in
the global arena is a long-term prospect, where personal relationships are
essential. Skilled negotiators create a favourable atmosphere that has a
positive impact on the tone, style and progress of negotiations, as well as the
final agreement.
Once made, first
impressions are difficult to change, particularly if they are negative. We tend
to have quicker, stronger and longer-lasting reactions to bad impressions than
to positive ones. So, take extra care in formulating opening statements.
For fruitful
negotiations, the opening offer should:
• stress mutual
benefits;
• be clear and
positive;
• imply flexibility;
• create interest;
• demonstrate
confidence; and
• promote goodwill.
Understand what the
other side needs
The opening phase is
the time to find out what the other side is really looking for. Identify their
underlying needs and your common interests, and emphasize the mutual benefits
to be derived from reaching agreement. At least in the initial stage of the
discussions, be prepared to set aside differences of interests and potential
obstacles that could derail the negotiations. Your first offer should be viewed
as fair and reasonable. The other party may require justification to support
your proposal; you should be in a position to provide it. Overall, the initial
offer should be on the higher side to give you room to manoeuvre while
protecting your margins. Research has proven that negotiators starting with
high aspirations generally obtain higher outcomes than those with lower or more
modest goals. As a rule, buyers do better starting with low offers, while
sellers improve their results with high openings.
In view of these
findings, exporters may be tempted to start high and importers to begin low to
maximize their outcomes. However, as every deal is different, both parties
should consider each new negotiation as unique, calling for extreme care in the
preparation of opening strategies. Experienced negotiators in international
business bear a number of factors in mind when planning their opening stance:
cultural norms prevailing in the target market; competition in their line of
business; and whether they are seeking repeat orders over the long term.
Equally important is how badly they need the deal and whether they have other
business alternatives.
Should I make the first
offer?
Yes, if you wish to
take the initiative and set the tone of the discussions. You gain a tactical
advantage by submitting your position first, because you establish a reference
or anchor point.
Your anchor point will
probably influence the other side's responses. The other party now knows your
position, and will either reject it or request a counter-offer. The other side
may also revise its acceptance limits in light of your opening offer.
At this point, don't
make unnecessary concessions; seek clarifications instead. This approach
assumes that your initial offer is based on recent market information, is
credible and is presented with conviction.
In most international
business deals, sellers are expected to make the first offer since buyers
consider themselves in a position of power. In some markets, buyers dictate the
discussions and control the negotiations from the beginning to the final
agreement.
No, if you are not
familiar with the market in which you are trying to do business. Making an
offer without adequate information or a clear understanding of what the other
side wants places you in a risky position. For example, having your first offer
accepted means that you have underestimated the market.
Another reason for not
making the first offer, even if you know the market price, is to test the
seriousness of the other side, particularly if it is new a business deal. In
this case, prepare in advance. Find out about quality standards, delivery
terms, size of order, payment conditions and other relevant information. This
will enable you to present a credible offer or counter-offer.
Should I open high?
Yes, if you can justify
the level of your offer. At this early phase of the discussions, any objections
to your high offer should be dealt with through questions, not by making
concessions. Your best approach to objections is to find out which part of your
proposal is acceptable and which elements are considered objectionable. Only by
acquiring this additional knowledge will you be in a position to justify your
initial offer or eventually make a counterproposal. Proposals and counter-offers
should be handled step by step, using the technique of repeated questioning
(see box). This allows you to gather and exchange information without making
early concessions. Equally important, the technique allows discussions to
continue, despite rejection of a high initial offer.
Starting high is common
in markets where business executives rate their superior negotiating skills by
how many concessions they obtain. For example, a high initial offer is expected
in many countries in Latin America and the Middle East. In highly competitive
markets, frequently found in south-east Asia, North America and western Europe,
opening offers are slightly above the bottom line. In most of Asia, Africa and
European economies in transition, a moderate to high offer is taken for
granted. A moderate opening offer is an acceptable strategy to initiate
discussions in most foreign markets.
The main mistake to
avoid is to present an offer considered so high by the other side that it
results in a deadlock. Another common pitfall is to start with a high offer and
not be prepared to justify it. To overcome lack of justification or
preparation, negotiators wrongly begin immediately to make concessions, without
asking for reciprocity.
Should I make a low
offer?
Yes, in special situations.
Skilled negotiators may make a low initial offer, near the bottom line - not so
much to get the business, but to be invited to the negotiations. In some
industries and markets, your product is sold at a going price and at
predetermined conditions, leaving you with little choice in setting your
opening offer. When facing strong competition, your offer should be more or
less in line with theirs.
An advantage of having
an opening offer close to the competition's is that it allows you to remain in
contention for the business. To increase your chances of having your offer
retained, your proposal must address the specific needs of the other side and
demonstrate how your offer can best meet their requirements to their full
satisfaction. While doing this, it is important not to criticize your
competitors openly.
When they hope to enter
into new markets or to get a foot in the door with a new customer, business
executives often open with a proposal that is close to, or at times below,
their bottom line. In such cases, it is vital to explain that the offer is
valid for a limited time only. For example, an exporter may be faced with extra
production capacity during the last quarter of the year. In this situation, the
exporter could propose a limited business deal at a one-time price
preferential, in order to utilize the extra capacity and thus recover the fixed
and part of the variable costs.
At times, you may wish
to make a low offer in order to secure business with well-known global
enterprises. This strategy is common among small and medium-sized firms seeking
business deals with world-class companies. Advantages of being associated with
large international firms often override the need for immediate profits. This
business strategy places the negotiator in a weak position from the beginning,
however, and often results in unprofitable agreements. To avoid being caught in
this situation, shift the discussions away from the initial offer to the needs
of the other side.
Your main concern at
this stage is to take charge of the discussions through questions, in order to
make sure you have a clear understanding of the real needs of the other side.
Once you know exactly what the other party's requirements are, you can propose
additional features such as better quality, faster delivery, individual versus
bulk packaging, short and flexible production runs and other intangibles in
order to improve your margins. By managing successfully this type of low-offer
strategy, you could obtain a profitable agreement despite having started near
your bottom line. Remember, professional buyers are known to seek the
highest-quality products or services from the most reputable firms at the
lowest possible price. In the end, these same buyers often end up paying a
premium to avoid the risk of getting inconsistent quality or receiving late
deliveries.
There are times when
entrepreneurs from small or mid-sized firms propose very low offers in the hope
of receiving large orders at higher prices in the future. Too often, promises
for future business opportunities remain just that - promises. Negotiating
deals at low prices in the hope of recovering lost profits from future orders
is a dangerous strategy. Wise negotiators avoid this strategy because of the
high risks involved. Don't forget that if the main reason you obtained the deal
was your low offer, the moment you raise the price (with or without ample
justification), the buyer is most likely to shift the business away from you to
your competitors.
What should I do if my
first offer is rejected?
React positively. A
rejection should be regarded as the beginning of the negotiations, not the time
to make concessions or take a defensive attitude.
Experienced negotiators
expect objections. They turn objections into opportunities, without getting
into concessions. They consider such reactions as an ideal opportunity to start
an information exchange through questioning.
Before justifying your
initial proposal, ask the other side what part of your offer they are willing
to accept. This information allows you to initiate discussions in a positive
manner and to reintroduce your proposal, stressing the features considered best
by the other side. By not ceding to pressure, you gain a substantial
psychological advantage in the early round of discussions. This exchange of
information between both parties is necessary to identify common grounds and
explore new interests to reach a better agreement.
A summary of the most
common objections encountered in the opening phase of the face-to-face
discussions and appropriate responses is given in the box on page 16. These
objections are generally meant to put you on the defensive. By taking charge of
discussions through repeated questioning until you have a clear understanding
of what the other side really wants, you can successfully overcome these early
objections and be in a favourable position to steer the negotiations toward
your goals.
Getting your first
offer ready
For every negotiation
you plan to enter, your initial offer should stand on its own merit within the
prevailing context surrounding the discussions. Entering the negotiations under
false pretences or unfounded premises can prove costly or result in deadlocks.
Make your first offer competitive in the eyes of the other party and be ready
to defend it with valid arguments.
The worst scenario is
to make concessions immediately following objections to your initial offer.
Unskilled or unprepared negotiators frequently face this dilemma in their
business dealings. Asking questions, active listening and patience go a long
way to conquering this tendency. Anticipate the typical objections you are
likely o face; prepare appropriate replies in advance; and formulate
information-seeking questions before you meet the other side.
Your knowledge of the
market, a clear assessment of your competitors, and an understanding of the
other side's real needs should help you overcome this crucial initial phase.
As the opening offer
will shape the outcome of the negotiations, your ability to make a good
impression from the outset is critical. Remember, you may not be given a second
chance to make a good first impression.
Although it is better
to place your initial offer slightly higher to reach a better outcome, you may
have to lower it if you are doing business in highly competitive markets. In
more traditional and less competitive markets, your offers should be on the
higher side with plenty of built-in concessions. In these markets, negotiators
judge their results by the number of concessions obtained due to their
persuasive bargaining skills rather than the full value of the concessions.
In whichever market you
plan to negotiate, your initial offer should be presented with confidence and
conviction yet implying flexibility. The issue is not to have your offer
accepted or rejected or to be the first to make an offer, but to be in a
position to start strong and maintain control of the discussions. It is only
through a series of high-yield questions that you will learn what the other
side really requires, enabling you to reformulate your offer to meet their
specific needs.
This phase of the
negotiations should be regarded as an opportunity to create an atmosphere of trust,
leading to an exchange of strategic information. It is not the time to start
making concessions. Executives from certain corporate or local cultures
consider this initial phase a waste of time and enter immediately into trading
away concessions. Successful negotiators know better. They invest their time by
finding out the real needs of the other side and by determining how best they
can satisfy those needs in an acceptable package. In other words, your first
offer should reflect your best-case scenario, supported by first-class
justification.
What if they say...
Handling common rejections to first offers
Your offer is too
expensive.
• Ask what is meant by
too expensive.
• Find out what is
considered acceptable and on what basis.
• Respond by providing
justification.
• Avoid lowering your
price until you learn more about what the other party is looking for.
• Find out if the
objection is due to your price offer or if it reflects other factors.
• Ask yourself: if I'm
too expensive, why is the other side negotiating with me?
We don't have that kind
of budget.
• Find out how large
the budget is, and for what time frame.
• Explore whether your
offer can fit within the overall budget by checking whether the other side can
combine several budget lines.
• Propose deferred
payment schedules.
• Confirm the order and
postpone deliveries until a new budget allocation is confirmed.
• Split the order into
smaller units or mini-orders to meet current budget limitations.
That's not what we are
looking for.
• Ask what they are
looking for, and insist on specifics.
• Find out which
aspects of your offer they like best.
• Keep asking questions
until you have a clear understanding of the other side's real needs, then...
• Repackage your offer
in light of the new information received.
Your offer is not
competitive.
• Ask what is meant by
the phrase 'not being competitive'.
• Find out if your
competitors' offers are comparable to yours.
• Look for weaknesses
in the other offers and stress your strengths.
• Reformulate your
offer by avoiding direct comparison with competition. Stress the unique
features of your products/services.
