CHAPTER 12

FORMAL
NEGOTIATING

Stephen B. Castleberry | John F. Tanner Jr.

Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
 LEARNING OBJECTIVES

• What is negotiation selling? How does it differ from

non-negotiation selling?
• What items can be negotiated in selling?
• What type of planning needs to occur prior to a
negotiation meeting? How should a seller set
objectives?

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 LEARNING OBJECTIVES

• How can the negotiation session be effectively opened?

What role does friendly conversation play?
• Which negotiation strategies and tactics do buyers use?
How should negotiators respond?
• What are the salesperson’s guidelines for offering and
requesting concessions?

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 NATURE OF NEGOTIATION

• Negotiation: Bargaining process through which buyers

and sellers resolve areas of conflict and arrive at
agreements
• Areas of conflict
• Minor issues - Who should attend future meetings
• Major issues - Cost per unit or exclusive purchase
agreements

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 NEGOTIATION PHILOSOPHIES

• Win-lose negotiating • Win-win negotiating

Negotiator attempts to Negotiator attempts to
win all the important secure an agreement
concessions and thus that satisfies both
win over the opponent parties
• Resembles almost every
competitive sport

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 NEGOTIATION VERSUS NON-
NEGOTIATION SELLING
• Regular sales call are forcedi.e. not open to change or
negotiation
• Negotiations differ from regular sales calls :
1. More intensive planning
2. Larger number of people from the selling firm
• Formal negotiations involve very large or important
prospective buyers

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 ITEMS NEGOTIATED BETWEEN BUYERS
AND SELLERS
• Inventory levels the buyer must maintain
• Inventory levels the seller must keep on hand to be able
to restock the buyer quickly
• Details about the design of the product or service
• Web page development
• How the product will be manufactured
• Display allowances for resellers

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 ITEMS NEGOTIATED BETWEEN BUYERS
AND SELLERS
• Advertising allowances and the amount of advertising
the seller does
• Sales promotion within the channel of distribution
• Delivery terms and conditions
• Retail and wholesale pricing points for resellers

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 GOOD NEGOTIATION

Factors affecting successful negotiation

• Situation
• Parties involved
• Cultural differences

Traits necessary to successfully negotiate

• Patience and endurance
• Willingness to take risks and the ability to tolerate ambiguity

Poor negotiators
• Fear conflict and are closed-minded, unorganized, and dishonest
• Downright belligerent

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 PLANNING FOR THE NEGOTIATION
SESSION
• Prepare emotionally for the stress that will occur
• Location
• Free from distraction for both teams
• Neutral site - Owned by neither party
• Online negotiations affect the behaviors of the negotiators
• Time allotment depends on:
• Negotiation objectives
• Extent to which both sides desire a win-win session
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 NEGOTIATION OBJECTIVES

• Power is a critical element when developing objectives

• Make concessions in the negotiation meeting
• Target position: What a company hopes to achieve at
the negotiation session
• Minimum position: Absolute minimum level of
acceptance
• Should be established by the team

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 NEGOTIATION OBJECTIVES

• Opening position: Initial proposal which should:

• Reflect higher expectations than the target position to
allow concessions
• Be supported with solid information
• Identify and discuss issues that could arise beforehand

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EXHIBIT 12.3 - COMPARING BUYER AND
SELLER PRICE POSITIONS

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 ADAPTIVE PLANNING AND BRAIN STORMING

• Adaptive planning: Development of alternative paths

to the same goal
• Brainstorming session: Meeting in which people are
allowed to creatively explore various methods of
achieving goals

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 ADVANTAGES AND DISADVANTAGES OF
TEAMS
Advantages
• More creative than one
individual due to different
backgrounds
• Members help one another
and reduce the chances of
making a mistake
Disadvantages
• More participants involve
more time to reach
agreement
• Different opinions make the
seller’s team appear
disorganized
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 TEAM SELECTION AND MANAGEMENT

• Seller’s team size should be equal to the buyer’s team

size
• Sessions should have defined roles
• Team leader should manage the actual negotiation
session
• Establish rules and signals to communicate with one
another
• Practice to understand respective roles

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 PEOPLE WHO MAY
SERVE ON THE SELLING NEGOTIATION TEAM
Titles Possible Roles

Salesperson • Coordinates all functions

Field sales manager • Provides additional local and regional information

• Secures necessary local funding and support for planning
and presentations

National sales manager/ • Serves as a liaison with corporate headquarters

vice president of sales • Secures necessary corporate funding and staff support for
planning and presentation

National account • Provides expertise and support in dealing with issues for
salesperson/national important customers
account sales manager

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 PEOPLE WHO MAY
SERVE ON THE SELLING NEGOTIATION TEAM
Titles Possible Roles
Marketing department • Provide suggestions for product/service applications
senior executives, product • Supply market research information and other information
managers, and staff

Chief executive • Serves as an authority figure

officer/president • Facilitates quicker decisions regarding changes in current
policy and procedures

Manufacturing executives • Provide information about current scheduled production

and staff and the possibility/cost of any modifications

Purchasing executives and • Provide information about raw materials inflows

staff • Offer suggestions about possible quantity discounts from
suppliers

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 PEOPLE WHO MAY
SERVE ON THE SELLING NEGOTIATION TEAM
Titles Possible Roles
Accounting and • Source of cost accounting information
finance • Supply corporate target returns on investment, cost estimates
executives and staff under various buying scenarios, and information about order
entry, billing, and credit systems
Information • Provide information about current information systems and
technology anticipated changes needed under various buying scenarios
executives and staff • Ensure that the periodic reports are generated in a timely
fashion
Training executives • Provide training for negotiation effectiveness and conduct
and staff practice role plays
• Provide information about necessary buyer training
Outside consultants • Provide any kind of assistance necessary
• Helpful if the firm has limited experience in negotiations or has
not negotiated with this type of buyer before
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 INDIVIDUAL BEHAVIOR PATTERNS

• Team leader needs to consider the personality style of

each member of both teams
• To spot any problems and plan accordingly
• Categorize team members on the dimensions of
assertiveness and responsiveness as:
• Analyticals
• Amiables
• Expressives
• Drivers

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 EXHIBIT 12.5 - CONFLICT-HANDLING
BEHAVIOR MODES

Source: Adapted from Kenneth Thomas, “Conflict and Conflict Management,” in The Handbook of Industrial and Organizational Psychology, ed. Marvin Dunnette (Skokie, IL: Rand
McNally, 1976).

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 CONFLICT-HANDLING BEHAVIOR MODES

• Competing mode: Assertive and uncooperative

• Pursuing own goals and objectives at the expense of the
other party
• Accommodating mode: Unassertive and highly
cooperative
• Focus on the needs and desires of the other party

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 CONFLICT-HANDLING BEHAVIOR MODES

• Avoiding mode: Refers to individuals who do not

attempt to fulfill their own needs or the needs of others
• Do not strive for a win-win agreement or any agreement
• Compromising mode: Applies to people in the middle,
in terms of cooperativeness and assertiveness
• Attempts to arrive at a win-win solution

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 CONFLICT-HANDLING BEHAVIOR MODES

• Collaborating mode: Individuals who are both

assertive and cooperative
• Seek to maximize the satisfaction of both parties
• Seek to reach a truly win-win solution
• Have the motivation, skill, and determination to:
• Really dig into an issue or a problem
• Explore all possible solutions

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 NEGOTIATION MEETING

• Ambush negotiating or a sneak attack: Buyers engaging

in a win-lose tactic of negotiating when the other party does
not expect it
• Occur :
• Prior to the negotiation meeting
• During installation of the new product
• Preliminaries
• Conversation to break the ice
• Ensure a comfortable environment
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 NEGOTIATION MEETING

• Establish a win-win environment

• Prepare an agenda
• Agenda: Listing of what will be discussed and in what
sequence
• General guidelines
• Listen carefully
• Keep track of issues discussed or resolved
• Consider cultural differences

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DEALING WITH WIN-LOSE NEGOTIATORS

• Good guy-bad guy routine: Works on the hurt and

rescue principle
• Bad guy - Negotiator makes all sorts of outlandish
statements and requests
• Good guy - Offers a win-win solution by presenting a
lower demand
• Lowballing: Occurs when one party intentionally
underestimates or understates a cost

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DEALING WITH WIN-LOSE NEGOTIATORS

• Used in buyer-seller negotiations in industrial situations

• Best response is to say no
• Underscores the importance of getting signatures on
contracts and agreements as soon as possible
• Nibbling: Small extra, or add-on, the buyer requests after
the deal has been closed
• Variation of lowballing

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DEALING WITH WIN-LOSE NEGOTIATORS

• Emotional outbursts tactic

• Used by buyers to make seller feel uncomfortable ,so as
give in to their demands
• Budget limitation tactic or budget bogey: Claims of
budget ceilings
• A ploy to try to get a lower price
• Best defense is to do homework before going into the
negotiation session

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DEALING WITH WIN-LOSE NEGOTIATORS

• Browbeating: Attempt to alter the selling team’s

enthusiasm and self-respect
• Negotiation jujitsu: Salesperson steps away from the
opponent’s attack
• Directs the opponent back to the issues being discussed
• Goal - To calm the buyer while helping the seller maintain
control of her own emotions

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 WHAT TO DO WHEN THE BUYER TURNS
TO WIN-LOSE STRATEGIES
• Detach yourself
• Give enough time to think about the issue
• Acknowledge their position and then respond
• Creates a favorable climate for a response
• Build them a bridge
• Warn, but don’t threaten

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 OTHER WIN-LOSE TACTICS

Limited authority

Red herring
• Bringing up a minor point first to distract the other side from considering the main
issue

Trial balloons
• Floating an idea without really offering it as a concession or agreement
• Goal is just to get information

Total silence by the buyer after you make an offer

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 CONCESSION

• One of the involved part agrees to change a position in

some fashion
• Guidelines to make concessions effective
• Never make concessions unless
• All of the buyer’s demands and opening position are known
• One is given in return and do not feel guilty about receiving
a concession
• Concessions should gradually decrease in size

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 CONCESSIONS

• Do not be afraid to say no

• All concessions offered are tentative until the final
agreement is reached and signed
• Be confident and secure position and do not give
concessions carelessly
• Do not accept the buyer’s first attempt at a concession
• Help the buyer to see the value of any concessions agreed
to

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 CONCESSIONS

• Negotiate without preconceived notions

• When a mistake is made, tell the buyer and begin
negotiating that issue again
• Check out the offer to see how it compares to the target
position before agreeing to it
• Remain noncommittal when customer asks for a bottom
line price
• Know when to stop and use silence effectively
• Plan the session well
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