“Negotiation” is a process we use to close a deal when we haven’t been able to reach agreement through our discussions to a particular point in time.
There’s a notion that “negotiations are not predictable” and that we have to be prepared for anything, armed to the teeth with tactics. While we get surprised from time to time, most negotiations are, in fact, fairly predictable.
Thinking about two questions BEFORE we start “negotiating” can help us achieve better outcomes for both parties.
#1 – What is the consequence to BOTH parties if we don’t agree?
This is the BATNA, Best Alternative to a Negotiated Agreement. The BATNA is important because this is what we are negotiating against.
More often than not, both sides in a negotiation aren’t clear about either their own Best Alternatives or their customers’ Best Alternatives. As a result, both sides use all kinds of tactics. Neither party can get their arms around ‘the negotiation’ because they’re not dealing with a full view.
We need information, especially about the customer’s best alternative to a negotiated agreement with us. It’s best if we have MORE information than the customer does about their alternatives.
Where does this information come from? From our accumulated and (hopefully) shared experiences as a team competing with other banks. All of our bank competitors have patterns and comfort zones. We have a better opportunity to know what those are because we’re in the market more frequently than our clients and prospects.
That way, when a customer says, “I can get the same thing cheaper” or “ABC Bank wouldn’t require that of us” or “You’re much tougher on your covenants than the rest of the market” or “You’re not worth the price premium you’re proposing,” we could say, for example, “Sure, ABC Bank won’t ask for your personal guarantee, but they’ll charge you for this and do this, this, and this which will be less advantageous for you.”
So… better information about our customers’ best alternatives to reaching agreement with us.
#2 – What are the potential and likely terms of agreement?
Anticipating the “potential or likely terms” BEFORE the negotiating starts enables us to think more broadly, to widen the field of play, giving ourselves and our clients more room to maneuver, more things to trade off in order to reach agreement on a “package” rather than on a “deal,” narrowly defined.
Based on our experience with our clients and prospects, we can and should anticipate the likely terms of a “package.”
Yes, price will come up as a term in any negotiation. From the negotiations we’ve observed or documented, we find that the customers and bankers don’t have or don’t put all of the facts on the table simultaneously, so they end up defining complex commercial arrangements mostly in terms of price when there are or could be many business and personal needs, business issues, and bank products and services in the mix, and many terms and conditions. We’ve seen many bankers drop the price, defensively, even before negotiations start, because they think price is the primary or sole determinant of success – they’re thinking about the terms of agreement far too narrowly.
For both questions, the key to success is to start early, long before our competitors or customers are thinking about ‘negotiating.’ From the very earliest points in our conversations with clients and prospects, we can gather insights and information about our customers’ alternatives and the likely or potential terms of a package.
If we do this, we are more likely to reach agreement without formally negotiating and we will be much better positioned to achieve our objectives without defensively dropping price.
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