Description
Explains different types of sales negotiations. How negotiations happen in sales. Describes various situations for negotiations.
NEGOTIATION ANALYSIS
THE CONTEXT OF NEGOTIATION
• There are two Parties • Each party has something of value to another. • Each party can communicate with one another. • Each party has the authority to accept or reject.
EXCHANGE SITUATIONS
• Not Engaging
– No..no…no… yes
• Fixed Rate
– Take it or leave it
• Bargaining
– Trial & Error
• Negotiating
– Problem solving for self / other
NEGOTIATION - DEFINED
• Daily give and take of social interactions.
• Art of getting what you want without regard to the cost to the other side. • Endeavor that focuses on gaining the favour of people from whom we want things. • A process of exchange to resolve conflict and reach a mutually beneficial agreement.
CONFLICT
• Where two or more parties have interests or perceptions that differ ( goal divergence)
– Conflict within organization
• Departmental
– Conflict with customers
• Exchange Situations
NEGOTIATION
• Fundamental Managerial Skill • Two minute exercise to multi-month process • One time transactions to Ongoing relationships • One to One to Many to Many
NEGOTIATION
• IS NOT….
– Haggling on Price – Showing one up-manship – Beating an adversary in a game
It’s all about creating value
NEGOTIATION FRAMEWORK
• Who are the parties? • What are their needs & priorities? • Who enjoys power?
• How can value be created?
• What to do if the negotiation breaks down?
TYPES OF VALUES – LIGHT SWITCH
? User Friendly switch
? Functional Value
? It is cheaper
? Economic Value
? Alumni Designed It
? Emotional Value
? All B Schools have it
? Social Value
? We are Innovators
? Epistemic Value
VALUE BLOCK
• Ram purchased a pressure cooker
– – – – Existing Model Most of his neighbors had it Bought a low end to save money His wife liked it mainly because she was curious about its new features.
VALUE BLOCK
• A single product can deliver different values • Value perceptions can differ • Values can be satisfactory or necessary • Values can not compensate each other • Customers compromise on values
CAN YOU CREATE VALUE?
VALUE CREATION
Gayathri has written a novel which she thinks will be a best
seller with a sales of 100000 copies. Publisher thinks it will
be a moderate success with a sales of 50000 copies. They
negotiate for advance royalty. Gayathri wants a minimum advance of Rs.140000. Publisher can pay a maximum advance of Rs.120000.
VALUE CREATION
Producer thinks there is a 80% chance the movie will be a hit
and the distributor thinks there is a 50% chance that the movie
will be a hit. A hit movie is worth Rs.60 crores. They negotiate
for outright sale of distribution rights. Producer wants Rs.45 crore and the distributor is ready to pay Rs.38 crores.
VALUE CREATION
Buyer wants 60 days credit as a matter of policy. Seller wants
payment upfront. The deal value is Rs.120 lakhs and the
seller expects to make a clean profit of 10% on the deal. They negotiate for payment terms.
VALUE CREATION
• Value can be created when
– There is difference of opinion (view)
• Outcome • Probability • Time perception
VALUE CREATION SPACE
Buyer
No Deal Region
No Deal Region Seller
IDEAL SITUATION
Price Delivery Warranty Payment Quality
Buyer
Seller
Price
Delivery
Warranty
Payment
Quality
REAL SITUATION
Price Delivery Warranty Payment Quality
Buyer
Seller
Price
Delivery
Warranty
Payment
Quality
HANDLING DIS-CONNECTS
Buyer
Critical Not Critical
Critical
Position Creators (no sacrifice)
Value creators for the seller
seller gain > buyer sacrifice
Seller
Not Critical
Value creators for the buyer
buyer gain > seller sacrifice
Non value creators
(no gain)
NEGOTIATION POSITIONS
• I will pay 10% more if you can deliver within a week. • I can not deliver within a week even if you pay double.
• Can I get 10% more if I deliver within a week? • I can not pay you a single paisa more even if you deliver as of yesterday
MICRO ANALYSIS (PRICE)
Delivery
Relative
Buyer
Absolute
Price
Relative
Seller
Absolute
SEPARATING POSITIONS & INTERSETS
Positions :
Interests:
• Stance • Price • Delivery • Payment • Warranty • Quantity
• Reason for the position • Cost cutting ? • Inventory ? • Cash Flow ?
INVENT OPTIONS FOR MUTUAL GAIN
• Think beyond Price
– Single price approach will not work – Single point agenda will not work
• Value Perceptions Differ
– Stock Trading – Continuous Delivery vs Rate Contract
JUDGING SUCCESS
• • • •
Break Down Agreement Postponement Gain in Negotiating Capital
SEVEN QUESTIONS FOR NEGOTIATION
1. 2. 3. 4. 5. 6.
Who are the parties ? What are the fundamental needs & Priorities ? What to do if agreement is not reached ? How can value be created & who is likely to get it ? Who enjoys power ? What is the right thing to do ?
7. What will the party do if there is no agreement ?
WHAT WILL YOU DO?
• You are offered a job at Rs. 6.00 lakhs pa – You already have other offer at Rs.5.00 lakhs pa – Which one will you take?
WHAT WILL YOU DO?
• You are offered a job at Rs. 6.00 lakhs pa – You have another offer at Rs.5.00 lakhs • More about 5.00 lakh job – Stock options available – The job is in your home town
BATNA
• Better Alternative to a Negotiated Agreement.
– What is the other party’s BATNA – Can we attach value to it ? – What is my BATNA ?
BATNA
• You have to offer for your product.
• The buyer has three other options
– There is a 10% chance that vendor A will offer the same at Rs.9.00 – There is a 50 % chance that vendor B will offer the same at Rs.9.50. – Vendor C has given a firm offer at Rs.9.75
BATNA
10% Yes A Approves deal No 90% B or C B Approves deal Yes
Buy from A @ Rs. 9.00
50%
Buy from B @ Rs.9.50
No
50%
Buy from C @ Rs.9.75
BUYER’S BATNA
Expected Values 0.10 x 9.00 = Rs.0.90 0.90 x 0.5 x 9.50 = Rs.4.27 0.90 x 0.5 x 9.75 = Rs.4.38
BATNA ?EV = 0.90 + 4.27 + 4.38 = Rs.9.55
BATNA
• Is about knowing your course of action if there is no agreement on negotiations • It will be difficult to find buyer’s BATNA • Customer’s who demand “yes” or “no” answer from you may have worked out their BATNA • BATNA is your “walk away” price or “reservation price”
ZOPA
• Zone of Possible Agreement
– Meghna Distributors Case – Buyer’s expectation Rs.8.50 to Rs. 9.40 lakhs – Seller’s expectation Rs.9.00 to Rs.9.75 lakhs ZOPA is Rs.9.00 to 9.40 lakhs
doc_943101494.ppt
Explains different types of sales negotiations. How negotiations happen in sales. Describes various situations for negotiations.
NEGOTIATION ANALYSIS
THE CONTEXT OF NEGOTIATION
• There are two Parties • Each party has something of value to another. • Each party can communicate with one another. • Each party has the authority to accept or reject.
EXCHANGE SITUATIONS
• Not Engaging
– No..no…no… yes
• Fixed Rate
– Take it or leave it
• Bargaining
– Trial & Error
• Negotiating
– Problem solving for self / other
NEGOTIATION - DEFINED
• Daily give and take of social interactions.
• Art of getting what you want without regard to the cost to the other side. • Endeavor that focuses on gaining the favour of people from whom we want things. • A process of exchange to resolve conflict and reach a mutually beneficial agreement.
CONFLICT
• Where two or more parties have interests or perceptions that differ ( goal divergence)
– Conflict within organization
• Departmental
– Conflict with customers
• Exchange Situations
NEGOTIATION
• Fundamental Managerial Skill • Two minute exercise to multi-month process • One time transactions to Ongoing relationships • One to One to Many to Many
NEGOTIATION
• IS NOT….
– Haggling on Price – Showing one up-manship – Beating an adversary in a game
It’s all about creating value
NEGOTIATION FRAMEWORK
• Who are the parties? • What are their needs & priorities? • Who enjoys power?
• How can value be created?
• What to do if the negotiation breaks down?
TYPES OF VALUES – LIGHT SWITCH
? User Friendly switch
? Functional Value
? It is cheaper
? Economic Value
? Alumni Designed It
? Emotional Value
? All B Schools have it
? Social Value
? We are Innovators
? Epistemic Value
VALUE BLOCK
• Ram purchased a pressure cooker
– – – – Existing Model Most of his neighbors had it Bought a low end to save money His wife liked it mainly because she was curious about its new features.
VALUE BLOCK
• A single product can deliver different values • Value perceptions can differ • Values can be satisfactory or necessary • Values can not compensate each other • Customers compromise on values
CAN YOU CREATE VALUE?
VALUE CREATION
Gayathri has written a novel which she thinks will be a best
seller with a sales of 100000 copies. Publisher thinks it will
be a moderate success with a sales of 50000 copies. They
negotiate for advance royalty. Gayathri wants a minimum advance of Rs.140000. Publisher can pay a maximum advance of Rs.120000.
VALUE CREATION
Producer thinks there is a 80% chance the movie will be a hit
and the distributor thinks there is a 50% chance that the movie
will be a hit. A hit movie is worth Rs.60 crores. They negotiate
for outright sale of distribution rights. Producer wants Rs.45 crore and the distributor is ready to pay Rs.38 crores.
VALUE CREATION
Buyer wants 60 days credit as a matter of policy. Seller wants
payment upfront. The deal value is Rs.120 lakhs and the
seller expects to make a clean profit of 10% on the deal. They negotiate for payment terms.
VALUE CREATION
• Value can be created when
– There is difference of opinion (view)
• Outcome • Probability • Time perception
VALUE CREATION SPACE
Buyer
No Deal Region
No Deal Region Seller
IDEAL SITUATION
Price Delivery Warranty Payment Quality
Buyer
Seller
Price
Delivery
Warranty
Payment
Quality
REAL SITUATION
Price Delivery Warranty Payment Quality
Buyer
Seller
Price
Delivery
Warranty
Payment
Quality
HANDLING DIS-CONNECTS
Buyer
Critical Not Critical
Critical
Position Creators (no sacrifice)
Value creators for the seller
seller gain > buyer sacrifice
Seller
Not Critical
Value creators for the buyer
buyer gain > seller sacrifice
Non value creators
(no gain)
NEGOTIATION POSITIONS
• I will pay 10% more if you can deliver within a week. • I can not deliver within a week even if you pay double.
• Can I get 10% more if I deliver within a week? • I can not pay you a single paisa more even if you deliver as of yesterday
MICRO ANALYSIS (PRICE)
Delivery
Relative
Buyer
Absolute
Price
Relative
Seller
Absolute
SEPARATING POSITIONS & INTERSETS
Positions :
Interests:
• Stance • Price • Delivery • Payment • Warranty • Quantity
• Reason for the position • Cost cutting ? • Inventory ? • Cash Flow ?
INVENT OPTIONS FOR MUTUAL GAIN
• Think beyond Price
– Single price approach will not work – Single point agenda will not work
• Value Perceptions Differ
– Stock Trading – Continuous Delivery vs Rate Contract
JUDGING SUCCESS
• • • •
Break Down Agreement Postponement Gain in Negotiating Capital
SEVEN QUESTIONS FOR NEGOTIATION
1. 2. 3. 4. 5. 6.
Who are the parties ? What are the fundamental needs & Priorities ? What to do if agreement is not reached ? How can value be created & who is likely to get it ? Who enjoys power ? What is the right thing to do ?
7. What will the party do if there is no agreement ?
WHAT WILL YOU DO?
• You are offered a job at Rs. 6.00 lakhs pa – You already have other offer at Rs.5.00 lakhs pa – Which one will you take?
WHAT WILL YOU DO?
• You are offered a job at Rs. 6.00 lakhs pa – You have another offer at Rs.5.00 lakhs • More about 5.00 lakh job – Stock options available – The job is in your home town
BATNA
• Better Alternative to a Negotiated Agreement.
– What is the other party’s BATNA – Can we attach value to it ? – What is my BATNA ?
BATNA
• You have to offer for your product.
• The buyer has three other options
– There is a 10% chance that vendor A will offer the same at Rs.9.00 – There is a 50 % chance that vendor B will offer the same at Rs.9.50. – Vendor C has given a firm offer at Rs.9.75
BATNA
10% Yes A Approves deal No 90% B or C B Approves deal Yes
Buy from A @ Rs. 9.00
50%
Buy from B @ Rs.9.50
No
50%
Buy from C @ Rs.9.75
BUYER’S BATNA
Expected Values 0.10 x 9.00 = Rs.0.90 0.90 x 0.5 x 9.50 = Rs.4.27 0.90 x 0.5 x 9.75 = Rs.4.38
BATNA ?EV = 0.90 + 4.27 + 4.38 = Rs.9.55
BATNA
• Is about knowing your course of action if there is no agreement on negotiations • It will be difficult to find buyer’s BATNA • Customer’s who demand “yes” or “no” answer from you may have worked out their BATNA • BATNA is your “walk away” price or “reservation price”
ZOPA
• Zone of Possible Agreement
– Meghna Distributors Case – Buyer’s expectation Rs.8.50 to Rs. 9.40 lakhs – Seller’s expectation Rs.9.00 to Rs.9.75 lakhs ZOPA is Rs.9.00 to 9.40 lakhs
doc_943101494.ppt