Every year, hundreds of businesses enter business negotiations. Sometimes this is an issue of supply and demand. In some cases, it is a takeover bid. There are many reasons as to why negotiations are required but there are often similar traits seen. Costly legal battles are created without need, hardball tactics backfire, and there are always disputes over badly worded contracts.
Some negotiations are noteworthy due to either the size of the companies involved or because the outcome could have serious ramifications for competitors or consumers. Some examples of epic negotiations are:
Starbucks & Kraft Foods
In 1998 Starbucks and Kraft extensively negotiated for the right to sell Starbucks coffee in stores. Successful negotiations meant that Kraft was able to sell the packaged coffee in supermarkets. By 2010 this market was worth an estimated $500 million and Starbucks decided they wanted to have more control over the coffee sales. In particular, they wanted to sell more single serving coffee pods, not just the ones that worked in the Kraft machines (which was the original agreement).
Starbucks offered Kraft $750 million to buy them out of the contract but Kraft said no. Despite this, Starbucks finished the business relationship and started to sell a bigger range of coffee pods. A three year court battle found Starbucks to be at fault for breaching the agreement. This breach cost them a compensation payment of $2.75 billion to Kraft’s. This highlights the lack of forethought when the original negotiation was made. No allowance was made for a changing marketplace and economy. There should have been clauses to allow for early termination and renegotiation.
Apple & Samsung
Samsung is one of Apple’s biggest suppliers. The relationship is important to both parties. Sadly, this did not stop Apple from stating that they had lost out on many sales due to Samsung copying many of the features from Apple’s smartphones. In particular, features belonging to the iPhone. Samsung objected to this and stated that their products were chosen by consumers because of the bigger screen and cheaper price.
Ultimately, the courts decided in Apple’s favour, costing Samsung $890 million. Both companies had the opportunity to discuss this with each other and enter court appointed negotiation. The problem in these types of cases is when negotiators on both sides feel they have too much time and energy invested, or maybe too much to lose to give up. The longer the disagreement continues the more disagreeable both sides become. It would have been better for both companies if they had got passed this and reached an amicable settlement.
Fiat & Chrysler
This is an example of a negotiation carried out too quickly; because when this happens, problems always appear in the future. In 2009, Chrysler was financially broke and about to collapse. The U.S. Treasury saved it from extinction by negotiating a deal whereby Fiat would acquire a 20% stake in Chrysler, 10% to the U.S. Treasury and 2% to the Canadian government.
The balance of the company would belong to the Chrysler union workers health care trust along with a $4.59 billion note to the health care trust to cover future health benefits. Fiat was to gradually buy all the interest in the company. They have purchased the U.S. and Canadian government stakes and then intended to purchase the health union stake. This is when the issue arose.
The hastily agreed contract neglected to specify whether the $4.59 billion note should be included in the value or not. The courts will now have to decide how to resolve this one, because this negotiation is far from being over. Which of these two companies needs some negotiation training, Fiat or Chrysler?
Apple’s Price Fixing
In 2007, as Apple was ready to launch the iPad they were approached by five major publishers who were not happy with the way Amazon had a low fixed price for e-books. The publishers negotiated with Apple for an agreement to supply e-books under an agency model which would allow publishers to set their own prices for e-books.
They would need to give Apple 30% commission. At least one of the publishers threatened Amazon with delayed delivery of their latest e-books unless Amazon also switched to an Agency model. When Amazon agreed the price of e-books went from $9.99 to $14.99. It was the consumer who lost out.
The U.S. Department of Justice ruled that the Apple had colluded with the publishers to artificially raise e-book prices and that it was not to increase competition. This serves as a reminder to all negotiators to never lose site of the affect your vision will have on others and ultimately yourself.
Each of the cases presented above mentioned are meant to teach a lesson. Having a lot of money doesn’t mean you can win. When you negotiate a deal you want the end result to live up your expectations; if you can’t build a connection with an opponent you can't reach mutual ground. Here are a few best practices in negotiations that almost never fail:
# Enter meetings prepared with solid information
# Remember that everything's negotiable
# Consider non-financial incentives
# Compromise without giving up too much
# Say "no" and walk away if the final offer doesn’t live up to your expectations
# Maintain a professional attitude regardless of the situation
Some negotiations are noteworthy due to either the size of the companies involved or because the outcome could have serious ramifications for competitors or consumers. Some examples of epic negotiations are:
Starbucks & Kraft Foods
In 1998 Starbucks and Kraft extensively negotiated for the right to sell Starbucks coffee in stores. Successful negotiations meant that Kraft was able to sell the packaged coffee in supermarkets. By 2010 this market was worth an estimated $500 million and Starbucks decided they wanted to have more control over the coffee sales. In particular, they wanted to sell more single serving coffee pods, not just the ones that worked in the Kraft machines (which was the original agreement).
Starbucks offered Kraft $750 million to buy them out of the contract but Kraft said no. Despite this, Starbucks finished the business relationship and started to sell a bigger range of coffee pods. A three year court battle found Starbucks to be at fault for breaching the agreement. This breach cost them a compensation payment of $2.75 billion to Kraft’s. This highlights the lack of forethought when the original negotiation was made. No allowance was made for a changing marketplace and economy. There should have been clauses to allow for early termination and renegotiation.
Apple & Samsung
Samsung is one of Apple’s biggest suppliers. The relationship is important to both parties. Sadly, this did not stop Apple from stating that they had lost out on many sales due to Samsung copying many of the features from Apple’s smartphones. In particular, features belonging to the iPhone. Samsung objected to this and stated that their products were chosen by consumers because of the bigger screen and cheaper price.
Ultimately, the courts decided in Apple’s favour, costing Samsung $890 million. Both companies had the opportunity to discuss this with each other and enter court appointed negotiation. The problem in these types of cases is when negotiators on both sides feel they have too much time and energy invested, or maybe too much to lose to give up. The longer the disagreement continues the more disagreeable both sides become. It would have been better for both companies if they had got passed this and reached an amicable settlement.
Fiat & Chrysler
This is an example of a negotiation carried out too quickly; because when this happens, problems always appear in the future. In 2009, Chrysler was financially broke and about to collapse. The U.S. Treasury saved it from extinction by negotiating a deal whereby Fiat would acquire a 20% stake in Chrysler, 10% to the U.S. Treasury and 2% to the Canadian government.
The balance of the company would belong to the Chrysler union workers health care trust along with a $4.59 billion note to the health care trust to cover future health benefits. Fiat was to gradually buy all the interest in the company. They have purchased the U.S. and Canadian government stakes and then intended to purchase the health union stake. This is when the issue arose.
The hastily agreed contract neglected to specify whether the $4.59 billion note should be included in the value or not. The courts will now have to decide how to resolve this one, because this negotiation is far from being over. Which of these two companies needs some negotiation training, Fiat or Chrysler?
Apple’s Price Fixing
In 2007, as Apple was ready to launch the iPad they were approached by five major publishers who were not happy with the way Amazon had a low fixed price for e-books. The publishers negotiated with Apple for an agreement to supply e-books under an agency model which would allow publishers to set their own prices for e-books.
They would need to give Apple 30% commission. At least one of the publishers threatened Amazon with delayed delivery of their latest e-books unless Amazon also switched to an Agency model. When Amazon agreed the price of e-books went from $9.99 to $14.99. It was the consumer who lost out.
The U.S. Department of Justice ruled that the Apple had colluded with the publishers to artificially raise e-book prices and that it was not to increase competition. This serves as a reminder to all negotiators to never lose site of the affect your vision will have on others and ultimately yourself.
Each of the cases presented above mentioned are meant to teach a lesson. Having a lot of money doesn’t mean you can win. When you negotiate a deal you want the end result to live up your expectations; if you can’t build a connection with an opponent you can't reach mutual ground. Here are a few best practices in negotiations that almost never fail:
# Enter meetings prepared with solid information
# Remember that everything's negotiable
# Consider non-financial incentives
# Compromise without giving up too much
# Say "no" and walk away if the final offer doesn’t live up to your expectations
# Maintain a professional attitude regardless of the situation