Opening Positions in Negotiations – Prepare to Be Surprised

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One of my colleagues is a truly, truly gifted negotiator.  He has negotiated some incredible deals.  However, I recently heard him take a position that I couldn’t disagree more with.  In fact, my position conflicts with most everyone’s perspective on the topic.

The source of conflict of perspective pertains to opening positions in negotiations.  Specifically, who should open negotiations first and throw out the “anchor” as it is called. 

The anchor is very important.  Research and my practice have shown that whoever throws out the anchor first with their position tends to strongly skew final results in their direction. 

However, this tried and true analysis has been over-interpreted and over-applied.  My colleague takes the position that saavy negotiator always throws out their anchor first – setting the opening position in negotiations.

What I have consistently found is that there is a very big exception to this rule, and it is not a minor exception, it is a game changer, and I have seen and experienced this personally.  I’m willing to debate with anyone on this topic.

Read this twice:  The person who should throws out the anchor (the opening position) in negotiations is the person who has more information about those positions. 

Yes, I am upsetting standard beliefs in procurement and in negotiations.  Have you ever had a supplier throw out the anchor first and it meets or even exceeds what you planned to achieve? 

That’s because you had less information than the supplier.  Had you put your anchor out first, the supplier would have been surprised at how supplier friendly your offer was – and then they will pretend that you made such an aggressive offer and they will very reluctantly agree, just to make you believe you got a great deal. 

That’s how suppliers roll, and how they are trained to roll.   Response to a procurement offer is a highly trained art in sales.  Even if the deal is a great one for them and a bad one for you, they will still tell you that you got an incredible deal, you are such a great negotiator, they had to get so many approvals, etc, etc.  Don’t believe it.

Over 80-90% of your time should be spent preparing for negotiations.  In doing so, it is still likely that you end up in a situation, for whatever reason, that you don’t really know how deep the supplier can go in discounts, leadtime, inventory models, warranty support, customer service models, quality levels, etc.

For each of those individual negotiation positions, if there is a substantial gap between what you know and what you need to know about what truly represents a world class deal, then you should not throw out the anchor. 

Think about it.  If you are “thinking” you should get a 12% so you open with a 15% discount just in case, it has to be on some basis. How do you know the supplier isn’t willing to go to 18% or 20%? 

Once you throw out the anchor, you can’t pull it back!  You can’t say “I changed my mind, I don’t want 15%, I want 18%”.  Once you throw it out, it’s too late.  You better make sure you are right.

The best deal I ever negotiated was one where I let the customer (in this case, I was the supplier) throw out the anchor.  I could have bought a small house with what they offered.  And they were still thrilled in the end with the results they got for that investment! 

So you need to do your homework in advance of negotiations.  There are many questions to assess:

  • Who are their top 10 customers and where do you rank? 
  • What % of their divisional business will come from your firm?
  • Is there other business they are doing with your company that you can bundle?
  • What is their MFC/MFN (Most Favored Customer / Most Favored Nation) pricing? 
  • Can you put the item out to bid to gauge market value? 
  • Can cost effective modifications be made to the SOW/Spec without impacting quality/service?
  • Can you do a should cost model to figure out what you should be paying?
  • What is their financial outlook for the current fiscal cycle?  How bad do they need the money this quarter?
  • Are they trying to instantiate, revive, or improve the sales of a particular product/service?
  • Are they trying to break into your industry or geography?

These and MANY more questions need to be understood.  If, despite the best pre-negotiation analysis, you are still unsure about what your anchor should be on ANY particular position (price, quality, leadtime, warranty, etc), then don’t throw out the anchor on that position, period.

In such cases, let the supplier throw out the anchor first.  Set the stage, indicating you are expecting a very aggressive offer based on the research you have done. 

If it turns out that the supplier anchor is one that is below your expectations, then you revert to what you think your opening position should have been all along – “the reason why we think we should get 15% discount is….”.  

If the supplier anchor is unfavorable, ignore it and shift to yours.  By referencing an undesirable supplier anchor, you are reinforcing it and making it the starting point for negotiations.  Don’t do it.  Clean the slate and throw out your anchor and work off of that. 

I could lead a one day talk on this topic alone.  Savvy negotiators will implement it correctly and get better results.  You should be one of those.

Now go off and do something wonderful.

Be your best!

Omid G

“The Godfather of Negotiations” ~ Intel Corp

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