Consider this situation. Your manager offers you a newly created sales management position that includes an increase in salary and a $30,000 bonus. As you reflect on the offer you realize that if you earn your bonus, your total compensation will increase but not markedly since you are paid a salary plus commission now and you have been maxing out your commission each quarter. In essence you’re going from an individual contributor status to a management position for a slight bump in compensation. Think through some of your potential responses.
A. You could say, “I accept,” thinking that the salary versus commission issue will work its way out over time. (You’ve made a straight-out concession. Could you have gotten a better deal?)
B. You could say, “I can’t accept this salary while losing most of my commissions. It doesn’t make financial sense. The salary would have to be higher or I couldn’t accept your offer.” (It sounds reasonable, but you may have created an ultimatum from your boss’ perspective. As you know ultimatums often produce defensive, even hostile reactions).
C. You could say, “Have you considered that the loss of commission income will greatly offset the bump in my salary? Perhaps we could find a way to combine the two so that there is an increase in salary while retaining some benefits for exceptional performance. In turn I could outline an action plan that helps you achieve your annual performance requirements.” (Now you’re conceding while packaging options into trades and bundles.)
It’s understandable why sales representatives are confused about how to formulate a concession strategy.
What is a Concession Strategy?
A concession strategy is your plan for reaching a “Win-Win” settlement (i.e., satisfy the goals and interests of both parties) through give-and-take. It is sometimes referred to as the “trading plan.”
We begin formulating our concession strategy by listing all the issues or points of potential conflict that may arise. This is called our “bargaining mix.” It will likely include a number of financial and non-financial issues as well as terms and conditions. The bargaining mix must include all of the high priority issues that are important for both parties. Any potential points of disagreement that could obstruct the negotiation or derail discussions must be included. Professional negotiators often meet with their counterpart before the formal negotiating session to identify concerns.
Next experienced negotiators will begin to construct possible “positions.” In collaborative negotiating a position is a thoughtfully conceived option designed to satisfy both parties’ interests on a given issue or point of contention. In this regard, negotiators are problem solvers who are exploring options that may satisfy the interests of both parties. This is where strategy plays an important role. Should I begin with a fairly weak position and enhance my offer over two or three subsequent positions? Should I concede the point early, on a particular issue? Or, should I ask for something of similar value in return?
Many inexperienced negotiators find themselves surprised by their counterpart’s requests or demands and react by conceding a point of contention without testing what they can get in return. When you prepare adequately, you’ll reduce surprises. Your concession strategy derives from your answer to a single question: “What combination of options is most likely to satisfy the underlying interests of both parties on each critical issue?”
Competitive Or Collaborative Approaches?
In spite of your best intentions, not all negotiators are collaborative. Some concession strategies are more effective when both parties are striving for a “win-win” settlement. Early in the negotiations (or in pre-negotiation discussion) try to determine what approach your counter-part seems inclined to pursue. Look for the three “tell” signs of a collaborative approach:
- Willingness to disclose their underlying interests
- Flexibility in considering options
- Willingness to reciprocate concessions
On the other hand, competitive negotiators may:
- Employ threats and ultimatums
- Refuse to discuss or explore underlying interests
- Challenge requests and refuse reciprocity
The 4 Guidelines for Concession Strategy
In building your concession strategy for a complex business negotiation, consider carefully the following guidelines.
- Never concede too early, too quickly or too much. If you begin a negotiating session by making a couple of small concessions (you say to yourself: “let’s build some momentum by conceding on trivial issues”) you risk creating the expectation that you will concede on all issues. Even if you have planned to concede the point, make it a hard fought concession. Research shows that parties perceive greater value from hard fought concessions than easily won agreements.
- Never concede without asking for something in return. Always have something in mind that is of comparable value to you. If you fail to secure the trade off, then request something of lesser value. You can also bundle several elements together and offer the package as a resolution to the issue. Make it difficult for your counterpart to say “no” without appearing unreasonable. Remember: you aren’t just negotiating one issue; you are training your counterpart in the process of give-and-take so that both parties find value.
- Use “bundles” and “trade-offs” wisely. Trade offs and bundles are great ways of satisfying the interests of your counter-part without giving up something that might “break the bank.”
- Always keep score. Complex business negotiations are likely to cover a broad spectrum of issues including current and future pricing, implementation details, timing requirements, guarantees and legal specifications to name a few. Keep close tabs on what you give and receive throughout the negotiation session. Continue to remind your counterpart how much and how often you have conceded.
At the core of building a “Win-Win” settlement is diplomacy through alternatives. As the architect, you must have a concession strategy that offers options and combinations that satisfy the interests of both parties and helps your counter-part discover new ways to win. Your job is to expand the landscape of choices.
Next week in Concession Strategy-Part 2 we will focus on the five skills that you should develop or refine to become a better negotiator.