Taking Control of the Negotiation Process

Western culture: the main reason why most of aren’t keen to negotiate on a deal. Yet for small businesses in particular, the ability to understand the processes involved in a negotiation can mean the difference between profit and loss.

Knowledge is power and it can take as little as one day to grasp the fundamentals of successful negotiation. Once learned, you’ll be surprised at just how often these skills come in handy, at work of course, but in your everyday life too.

Let’s look at a few figures first. A successful 1 million business might make ten percent profit. There are plenty of organisations with that kind of revenue making no more than two or three percent pre-tax profit. Imagine then a tough year like 2008, when costs rose dramatically and major customers refused to accept price increases of any kind.

By honing your negotiating skills, it’s quite realistic to expect improvements in your deals, depending on which commercial area you’re in, three or even five percent more might be feasible. The biggest challenge is to first accept that there’s a set of highly effective rules for negotiating and that professional buyers in particular know exactly how to use them.

Perception is reality. It is usually within your control to manipulate the environment of a deal and that one advantage can make a huge difference to the shape of a deal. Suppose you are buying a car and having looked around it, you’ve decided it’s exactly what you want. The sticker price on the car is 3,950 ‘or nearest offer’. So what does ‘or nearest offer’ tell you? It means the vendor doesn’t expect to get 3,950 at all. And what do you think he might be aiming to get?

So now you’re thinking he’d be happy with 3,700 and you haven’t done a thing yet.

How to Relax and Put Your Negotiations on Auto-Pilot

You are in the middle of an intense negotiation for a big contract with a large company. If you are able to come to an agreement, you will make one of the largest commissions you’ve ever made. You are almost there, and then your negotiating opponent throws you for a loop by asking for a last-minute concession on the price.

What do you do?

If you have a proper system of negotiation in place, it will be easy for you. You will just react based on pre-defined rules that you’ve already set for yourself before starting the negotiations.

You do have a set of rules and a system in place, don’t you?

If not, it’s time to put one into place.

First, you will need to define the desired outcome of the negotiation. What is your ultimate mission and purpose? What does a successful outcome look like for you?

Within that framework, there will be plenty of smaller agreements to come to before the big agreement is made. So, you will need to draw out a map, at least in your mind and preferably on paper.

Start at square one and list all of the potential forks in the road. What decisions could you possibly have to make during the course of the negotiation? If you are offering consulting services for example, you may think of some of the following:

How many hours will you be expected to dedicate to this client?

Will you be working on-site or off-site?

Will you be the only one working on the client’s project or will there be a team available?

Are you offering a guaranteed level of performance?

Are you going to bill up-front, after the work is done, or in small increments throughout?

For each one of these questions, you should already have an answer.

Review: The Ultimate Question: Driving Good Profits and True Growth

One Question Can Determine Your Businesss Future. Do You Know the Answer?

CEOs regularly announce ambitious growth targets, then fail to achieve them. The reason? Their growing addiction to bad profits. These corporate steroids boost short-term earnings but alienate customers. They undermine growth by creating legions of detractorscustomers who complain loudly about the company and switch to competitors at the earliest opportunity.

Now loyalty expert Fred Reichheld shows how to reverse the equation, turning customers into promoters who generate good profits and true, sustainable growth. The key: one simple questionWould you recommend us to a friend?that allows companies to track promoters and detractors and produces a clear measure of an organizations performance through its customers eyes. In industry after industry, this “Net Promoter Score” is the single most reliable indicator of a companys ability to grow.

Based on extensive research, The Ultimate Question shows how companies can rigorously measure Net Promoter statistics, help managers improve them, and create communities of passionate advocates that stimulate innovation. Vivid stories from leading-edge organizations illustrate the ideas in practice.

Practical and compelling, this is the one bookand the one toolno growth-minded leader can afford to miss.

Frederick Reichheld’s latest effort to enlighten CEOs and other business leaders is at its best mildly entertaining, but at its worst it is misleading and could result is some very costly and wrong decisions by potential users.

There are several critical weaknesses of this work-I will only mention a few.

First, there are many contradictions, reversals and logical inconsistencies throughout the book. Examples abound and can be discovered by anyone who spends a modicum of time with the book. Among the biggest is the reinterpretation of the satisfaction measure used by Enterprise Rental Car as a measure of net promoters (p.63). This is very confusing because earlier in the book the reader is led to believe that one needs to measure “recommendation” not “satisfaction” because Mr. Reichheld alleges that satisfaction is unrelated to revenue or profit growth. So why does the satisfaction measure works for Enterprise? More astounding Mr. Reichheld continually uses the Enterprise case throughout the book as justification for using the NPS measure.

Second, the entire premise of the Net Promoter approach is unsupported by third party peer-reviewed research articles in psychology, marketing research, or social science journals. All of the support provided in the book is based upon Mr. Reichheld’s claims of research conducted by the firms he works with (Bain and Satmetrix) none of which has been reported in the aforementioned scientific publishing outlets. In fairness, the Net Promoter idea was originally promoted in a Harvard Business Review article, but HBR is not a research journal and its articles are not peer reviewed. Publication in HBR is somewhat equivalent to publication in Business Week or Fortune, and certainly does not qualify as scientific review.

Third, Mr. Reichheld confuses cause and effect with correlation. Recommendation is an effect not a cause. It occurs because something else (like a satisfactory experience) causes it to occur. Yet throughout the book, Mr. Reichheld continuously claims that recommendation’s correlation with sales growth proves that it is a driver of growth. Correlation is simply a measure of association that says nothing about cause and effect. Consider the correlation between the number of churches in a community and beer sales. They are probably correlated but does one cause the other? More likely there is a third factor that is causing both to move together-like population growth. The same is true of the Net Promoter measure-it is likely being caused by something else-like satisfaction. Its correlation with sales growth is spurious and is not causal. If one examines the evidence provided by Mr. Reichheld in Appendix A this confusion of cause and effect is even more apparent-in every case shown, the time periods for the sales data predates the time periods when the Net Promoter Scores were collected. So what is causing what?

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