“Extreme” Negotiations with Customers

By Jonathan Hughes, Partner, Vantage Partners; Ben Siddall, Partner, Vantage Partners; and David Chapnick, Principal, Vantage Partners

In November 2010, Jonathan Hughes, Aram Donigian, and Jeff Weiss published an article in the Harvard Business Review titled “Extreme Negotiations” that highlighted lessons in effective negotiation under extreme pressure from the U.S. military that also apply in the business world. Today we revisit those lessons in a very different world. The COVID-19 pandemic has shaken world markets, created significant political and financial instability, and reduced business predictability. Many companies have experienced a slowdown in business activity, with resulting revenue losses over the past several months.

As the news changes every day, timeframes for recovery are uncertain and will vary significantly by industry sector. As we saw in the 2009 financial crisis and subsequent recession, challenging contract renegotiations are a predictable result of this new reality. As companies in many industries confront shrinking demand, higher levels of unused inventory and increased uncertainty, they will undoubtedly turn to suppliers for cost savings while simultaneously looking for guarantees of supply assurance.

Sales teams will need to respond to heightened pressure from customers to reduce pricing, while negotiating to protect revenue and margins — even as they work collaboratively with customers to meet their needs and address their constraints. The current environment thus raises the stakes in customer negotiations and also increases the risk that negotiations become adversarial.

A key insight underlying the ideas in the 2010 HBR article is that negotiation behaviors tend to be deeply ingrained and are often reactive rather than deliberate, especially in high-stakes and stressful situations. Today’s environment can be viewed through the same lens. These strategies are not only useful at the bargaining table but can (and should) also serve to reshape planning and positioning far in advance of formal negotiations that we know are coming. A strong (collaborative) offense is the best defense.

Editor’s note: This article has been edited for length. The full piece, featuring multiple customer examples, will appear in the Fall issue of Velocity magazine.

Strategy 1: Broaden your field of vision, question assumptions, and rethink objectives

Start by identifying key assumptions and subject them to scrutiny; use negotiation planning and execution to continually gather new information and revise strategies accordingly.

One hallmark of the “extreme” negotiation is a feeling of danger creating pressure to act fast to reduce the level of perceived threat. In the face of this pressure, negotiators often begin acting before they fully assess the situation. They act and react based on gut feel and initial perceptions. Given the added pressure to look strong and gain (or remain in) control, they tend not to test or revisit their initial assumptions even as the negotiation progresses. As a result, they often negotiate based on incomplete or incorrect information. This often leads to conflict, impasse, or, at best, a resolution that addresses only a part of the problem or opportunity at hand.

Strategy 2: Uncover underlying motivations and invite collaboration

Uncover (often hidden) motivations and concerns; take responsibility for proposing multiple solutions; invite the other side to critique or improve on those ideas.

Danger (a high level of proximate risk) not only creates a desire to act fast, it also produces a perceived need to look strong and take control. This, in turn, often leads negotiators to quickly put a stake in the ground and to negotiate primarily by making demands. Unfortunately, this position almost always triggers or exacerbates resistance from the other side. As a result, such an approach tends to produce contentious and inefficient negotiations and runs the risk that no agreement will be reached, even when one was possible.

Strategy 3: Focus on fairness to persuade and build buy-in

Use facts and the principles of fairness (not brute force) to persuade others: arm them with ways to defend their decisions to their constituents; focus on creating useful precedents for future negotiations.

Stressful circumstances often produce a temptation to use coercion or threats to achieve objectives — though reasoned analysis usually indicates that such efforts are unlikely to succeed and may well backfire. Even if such approaches succeed in the short run, they almost always breed resentment and sow the seeds for future conflict. Moreover, a reliance on pressure tactics often triggers a response in kind from counterparts, thus catalyzing a destructive cycle of threat/counter-threat.

Strategy 4: Actively build relationships built on mutual trust and respect

Deal with relationship issues head-on; make incremental commitments to build trust and encourage cooperation.

Negotiators under extreme pressure are often tempted (consciously, or sub-consciously) to leverage a counterpart’s desire for a good relationship to extract concessions. However, holding a relationship hostage to extract a better deal usually carries a high long-term price. Such tactics breed resentment and often leave deeper issues unaddressed, which contributes to future problems that could otherwise have been avoided.

Conversely, high-stakes, high-risk contexts frequently produce a temptation to try to “buy” cooperation. In order to build a relationship, or rebuild trust, many negotiators choose the quick and easy path of attempting to trade resources or make concessions in order to mollify the other side and reach agreement. After all, that’s typically what their counterparts are demanding. Unfortunately, making substantive concessions to improve a relationship almost never works. Doing so almost always creates a perverse set of expectations and incentives; it invites future extortion, and breeds disrespect or even outright contempt.

Strategy 5: Focus on shaping the negotiation process, not just trying to control the outcome

Consciously change the game by not reacting to the other side; deliberately take steps to shape the negotiation process as well as the outcome.

Threatening circumstances produce a strong desire to avoid harm. This, in turn, short-circuits strategic thinking, and often leads negotiators to give in on critical issues to avoid or reduce immediate threats. The result, unfortunately, is often an agreement that creates substantial future risk exposure.

Conclusion

At core, perhaps the most fundamental lesson when negotiating in high-stakes, high-risk (“extreme”) situations is that in the very context where one feels the most pressure (either because of the customer or internal pressures) to act fast and emphatically stake out an unwavering negotiating position, it is best to do neither. Control and power can most effectively be asserted by slowing down the pace of the negotiation, diligently seeking an unbiased understanding of one’s counterparts (even at the risk you might begin to empathize or even partially agree with their positions!), and actively leading them into a more collaborative negotiation process.

Often, this approach is dismissed as a “soft” or even naïve way to negotiate with customers. But successful negotiators know that it is quite possible to be assertive without being adversarial and to be collaborative without being taken advantage of. The strategies in this article are about being strategic rather than reactive, thinking several moves ahead about how your actions in a negotiation are likely to be perceived by the other side, and making deliberative responses that help move the negotiation toward achievement of your ultimate objectives. It is up to sales executives to create an organizational climate in which their sales teams are encouraged and equipped to engage successfully in such inherently challenging negotiations.

About Vantage Partners
Vantage Partners helps companies achieve alignment where it’s most critical — between their goals and strategies, with their external business partners, and internally across their people. We do this by delivering breakthrough insights and igniting collaboration. To learn more about Vantage Partners or to access our online library of research and white papers, please visit:
http://www.vantagepartners.com.