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10/16/2018



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Open

Opening is what you initially put on the table as a price, budget or requirements. It is a key time to influence the other party.

Open 1: Set the agenda. Take control of the meeting without taking over. Lead and guide the meeting. Ensure you control the order of topics for discussion.

Open 2: If you don't ask, you don't get. You cannot afford to be timid and passive. You are in 'sales' and as such need to be assertive. You may not always get what you want by asking but you have a much higher chance if you do at least ask.

Open 3: Open first or second? Intuitively we think it is better to open first. Most of the research and my experience suggest that in the majority of situations it is better to open second. However, it is not a black and white issue. There is a school of thought that recommends opening first. What are the arguments for and against each?

Opening first Opening second
Arguments For

  • Straight away gives a strong assertive confident position.
  • May influence the other party to moderate their position.
  • By opening second you can see more clearly what it is that the other party wants and what is most important to them.
  • 'The longer you take to say your price the more money you will make.'

Arguments against

  • You may miss out on opportunities to have asked for more.
  • The other party may avoid their opening and simply 'attack' your opening position.
  • 'The sooner you say your price, the less money you will make.'
  • Because you are opening second you may be influenced to moderate your opening.
  • If you moderately reduce your price, that may be bad.
  • If you moderately increase your price because of something said by the other party in their opening, that could be good.
  • You may appear hesitant and lacking in self-belief.

As you can see, it is not a clear-cut decision. You must decide each time whether to open first or second. Generally, I recommend agencies to open second. The reason for this is that by opening second you have a clearer understanding of your client's requirements, are more able to take a consultative approach to solving their problems and you can ask high-quality questions that can demonstrate your expertise and differentiation from your competitors.

Open 4: Create an aura of expertise. From an early stage in the client-agency relationship, demonstrate your expertise in your given subject(s). Do it without coming across as a 'know-all.' Clients often employ external advisers and agencies to solve their problems. See yourself as a 'problem-solver and profit-improver' for your clients. Prepare your questions in advance. The quality of your questions can show your expertise. You don't need to provide all the answers at the early stage, just show your understanding of your client's business. During tough times, like the recession, it seems that expertise becomes even more important. It's not simply lower prices that people want but certainty in the result they will enjoy and that they are making the right choice. They want risk reduction. Making a wrong decision in a recession is more costly than when times are better because budgets are more limited, jobs are less secure and results are more carefully analysed under the microscope.

Risk Reduction becomes more important than Price Reduction.

Open 5: Anticipate their likely opening, questions and objections. Put yourself in their shoes. What would you do? What would be your likely approach? How would 'you' put pressure on 'you?' What questions would 'you' ask 'you?' What objections would 'you' throw at 'you?' Anticipate their likely openings and plan how you should respond in each case.

Open 6: Don't argue, ask questions. The typical reaction when our price is challenged or we are put under pressure in a negotiation is to argue our point of view. The risk with this response is that we appear defensive and emotional. Arguing tends to make both parties dig in, become more intransigent and less likely to be flexible and give you what you want. Instead, ask well planned, well constructed questions, then listen carefully and actively. This is a far more influential way to understand the other party's thought processes.

This gives you more time to think, gain useful information and gauge the other party's level of determination. When you ask questions and listen, you are in control. For example, your client tells you they think your fees are very expensive. Often our first reaction is to argue defensively with the client that our fees represent good value for money and are in line with market rates. Often in this situation neither party will change their opinion. However, if you ask questions, firstly you will find out the reasons for the client's statement and secondly you will be more likely to influence their thinking to change towards your position. For example, 'What makes you say that we are expensive? What are you comparing us to? What will be the value to you of getting this project right? How much extra value, sales, new customers, profit or market share is this likely to create? What will that be worth to you?' I have also found from personal experience that this approach keeps the conversation calmer and less confrontational.

Open 7: Talk less, listen more. Listen carefully to the other party. Don't interrupt. Hear their full point of view. Restate their point of view to show you understand. We learn nothing when we are talking and learn so much when we listening. A trap that is easy to fall into for agency and sales people is to talk too much, especially about what we know well: ourselves, our agency and our proposal. As a rule of thumb, you should talk 30-40% and your client 60-70%, especially during fact-finding and briefing.

Bargain

Bargain 1: Seek Win-Win. This maintains the relationship. Do this byntrading and seeking high satisfaction for both parties. Aim for both parties to be highly satisfied.

Bargain 2: Trade. Don't give things (money, concessions or tradables) away; trade them or swap them for other concessions. So if a client asks for a discount then swap the discount for something else of value to you. This can be very powerful when you ask for something that is highly valuable to you but has little cost to the other party. When you give valuable things away without trading them, there is a strong possibility that the other party either sees what you've given away as lacking much value or that you are making so much money that you can afford to give away so much - or worse, both. This simply makes them want more from you. A good phrase to use when trading is: If you..... then I ......  'If you pay in advance and agree to a three-month notice period then I can give you a 3% discount.' The order is important. In the sentence above it is a statement. If you reverse it to If I do .... will you do....? It then becomes a closed question and has more likelihood of the client saying 'no.' For example, 'If I give you a 3% discount, then will you agree to pay in advance and agree to a three-month notice period?' Trading concessions also reduces the likelihood of the client 'pricenibbling' and asking for lots of extras. Does this mean that you should never do anything over and above your scope of work for clients? Isn't going the extra mile right? It is fine to provide small concessions or actions which are valuable to your client to show your commitment. However, think into the future about what implications this may have longer term. Beware of setting precedents which can quickly become expected. Very quickly the 'extra' becomes seen as the norm.

Bargain 3: Wish list. Develop a wish list of tradable items. These are items which are valuable to you and relatively low cost to the other party. There is no right or wrong as to what goes on the wish list; it depends on what's valuable to you. So if your cash-flow is poor then upfront or early payment terms will be a real priority on your wish list.
Your wish list might include such tradables as:

  • Payment terms
  • Introductions and referrals
  • Case studies
  • Testimonials

In my negotiation workshops I work with agencies to develop their own wish lists, often with a dozen or more tradables.

Bargain 4: Wish lists for your agency and also a tailored wish list for each individual client. I recommend developing a wish list for your company which is consulted prior to all negotiation discussions. Then tailor it to each individual client company as there are different opportunities and concessions within each client company.

Bargain 5: Negotiated money is the fastest money you will ever make or lose. Would you like to earn the equivalent of £360,000/hour? Let's imagine you are negotiating a retainer fee with a client of £24,000/month. The client then pressurises you to drop the fee. You agree to reduce the fee by £1,000/month. How long did it take you to drop the fee by £1,000/month - one minute, two minutes? Let's say two minutes, that's equivalent to losing £360,000 in an hour (£1,000 x 12 months x 60/2 minutes). Imagine the reverse situation where you negotiate an increase in your retainer fee - you can earn the equivalent of £360,000/hour for two minutes' work. Can you see the potential impact that skilful and effective negotiating can have on your business's profitability?

Bargain 6: Authority is a powerful tool. Authority can be used in a variety of ways. One way is to intimidate you. This is where the client's boss or Managing Director enters your meeting at the client's offices and, on being introduced to you, tells you he can't believe how much your agency's rates and fees are. This is often simply to put pressure on you to believe 'their MD thinks we are really expensive.' 'Absent authority' can also be used against you. This is when a client explains to you that their boss thinks your fee is very expensive and that their boss says they will only hire you if you reduce your fee. The client will sometimes then tell you how they think your fee proposal is very fair. This is a form of 'good cop, bad cop.' You have to judge whether this is real or fictitious. One way to call their bluff is to ask to meet with the boss to discuss the project and the fee level. If they are reluctant, then position the meeting as you and your day-to-day client contact working together to present an important initiative to their boss. You can use 'absent authority' in reverse to your benefit. When you are under pressure to reduce your fee you can explain that, unfortunately, your board will not agree to a reduction. (I suggest that the 'absent authority' is an amorphous group, e.g. the board or senior management, rather than a specific individual such as your boss or your MD, as there is a possibility your client may demand that they talk on the phone immediately to 'your boss'.)

Bargain 7: Keep the whole deal in mind. Negotiations can become quite emotional. One specific topic may derail a negotiation. In this situation, it is possible to lose sight of the bigger picture of the whole deal and become hung-up on a minor issue. Remind yourself what the overall big picture is. What is your ultimate goal from this negotiation?

Bargain 8: Always have a BATNA. Negotiation text-books talk about a 'BATNA' - the Best Alternative To a Negotiated Agreement. This means: what alternative do you have if you don't reach agreement? The best way to see how this is important is to imagine a client demanding a 25% reduction in fee immediately with no reduction in team or input. If the client accounts for 40-50% of your business, you have very little choice about how you can respond. You are possibly going to agree to their demands or, at best, a reduced level; whereas if the client accounts for only 10% of your business, you have a BATNA. You have choices which include refusing, trading, compromising or even resigning the client. These options give you more power to negotiate. Always give yourself choices - avoid a fait accompli situation. You always want to have a BATNA.

Bargain 9: Give yourself time to think. When we are under pressure in a meeting to negotiate, or more likely agree to a client's proposed fee reduction, there is a risk that we agree to a particular term and then subsequently regret our decision. Do not simply agree because you feel under pressure. If you are going to agree to a revised term or price then make sure you have had time to think through the implications for your business. Simple phrases can buy you time so you can consider the decision in your own time without the immediate pressure, for example:
  'I need time to review the numbers again.'
  'I will need to discuss this with my board.'
  'I need some time to think this through, the implications are too important to rush the decision.'
  'I need to sleep on this.'
Even a simple comfort break can give you a few minutes to think in an unpressured environment.

Bargain 10: Let them work for every concession. When we negotiate, if we have had to work hard for the deal, typically we feel we have got a better deal. If we agree a deal too easily, there is a likelihood that the other party thinks they have not asked for enough and there is more available to negotiate - all they have to do is come back to the negotiation table and push. 'Slice the salami thin' - if you reduce your price, do so in very small increments. This helps to manage the client's expectations to expect less of a reduction. The smaller the amount you come down in price, the more the other party will assume there is less room for you to manoeuvre.

Bargain 11: Give options. When you provide options to your client, this seems to have the effect that the other party feels more in control because they have a choice. Work done by Harvard Business School found that no more than three options should be provided. The three different options can be trimmed-down versions of the same proposal with three different price structures, or the three options can be three completely different proposals, such as:
  1. One safe route/on budget.
  2. One slightly risky and slightly over budget.
  3. One more risky and over budget.

Bargain 12: Plan and use your great responses to tough statements and questions. There are various statements and questions you can use which, at minimum, give you more time to think and, in some cases, can persuade a client to come around to your view.
  'On what basis is it too expensive?'
  'Why do you think that other agency has dropped their fee so much?'


Close

Close 1: No deal is better than a bad deal. It is difficult to turn down a deal, even a bad deal, and sometimes we can be tempted to agree a deal that, long term, has poor consequences for us and our agency. We must be able to recognise a situation when we are better off declining the deal and even walking away. The alternative is to agree the deal and then discover it is unprofitable, demands too much resource and time or other negative results for us. It seems many sales people and agency people are unable to walk away from a deal, no matter how poor the deal is for them.

Close 2: The winner's curse. When a deal is agreed too quickly or too easily, there is a risk that either party - or even both parties - suffers from the 'winner's curse.' This is the feeling that although you've agreed the deal you could and should have done a better deal. There is a risk that one party tries to renege on the agreed deal. It seems that to avoid this feeling it is preferable to have had some movement in the deal, some sense of haggling and trading.

Close 3: Time pressure to close the deal. It is often at the end of a negotiation that we tend to give away the most concessions in our anxiousness to close the deal. Some negotiation experts believe that as much as 90% of the value of the concessions given away is given away in the last 10% of the negotiation time. It is common in property negotiations for large sums of money to be re-negotiated just before exchange of contracts. Don't be pressured into decisions you may regret later. This is more likely to happen when we have no alternative options or choice.

Close 4: It's not all over till the ink is dry. Beware of relaxing too much before the contract is signed by both parties. I have seen several situations where the agency thinks the deal is done and the business awarded. The client then slips in a few extra requirements. These have ranged from:

  • A reduced monthly fee till their new financial year as the client has supposedly over-spent their budget
  • A last-minute extra project that needs to be included within the budget
  • The budget is reduced but the results and outputs are to remain as previously agreed

Which is harder to negotiate with: a new client or an existing client?
Generally speaking, with an existing client there are various precedents which have been established over the duration of the relationship. These precedents tend to make it hard to change the methods of working, the rates/prices and the balance of power in the relationship. That doesn't mean it's impossible to negotiate effectively with an existing client; it requires planning and patience. With new clients, there is an opportunity to start the relationship in the right way by establishing best client-agency practice right from Day One. However, we don't always achieve that 'best practice' from Day One, perhaps because we are excited to have won the new client and we are in the honeymoon phase, or we avoid difficult conversations early on in the relationship thinking we can cover those points further along in the future. The key principles and techniques outlined in this chapter are vital. However, without the right level of confidence and self-belief they are simply principles and techniques. Your mindset must be in the right place.


This article is an extract from 'Why Do Smart People Make Such Stupid Mistakes' written by Chris Merrington and published by Ecademy Press Limited, 2011.



Chris Merrington Picture

Chris Merrington is a U.K. consultant and trainer who founded his firm Spring 80:20 in 2001. His background includes a highly successful and award winning 20 year career in Direct Marketing and Marketing Communication agencies at director level, selling to senior clients in major blue chips and government departments. You may contact Mr. Merrington at chris@spring8020.co.uk


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Copyright © 2011 Chris Merrington
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The Negotiator Magazine  (June - July, 2011)