While the thought of negotiating concessions may send salespeople into a tailspin, the principle of trade-offs is a core negotiation skill. Negotiation training and coaching is key to success, as it lays the foundation for tackling more advanced negotiation tactics later.

You have to prepare thoroughly in advance of any complex negotiation. You need to understand all the negotiation variables, then define your upper and lower limits. Then, you’ll understand what you can trade-off and when to introduce it.

This article will give you the tools you need to establish a solid foundation for negotiations involving concessions (trade-offs), allowing you to confidently tackle more complex discussions.

For the purposes of this article, we’ll use the term Trade-Off as it better articulates what you’re doing – it’s an exchange of value between two or more parties.

What Are Trade Offs in a Negotiation?

Put simply, a trade-off is when you are exchanging value with your counter-party. For example “We can reduce the price for X by 5%, if you can commit to a 24 month contract rather than 12 month with no termination for convenience”.

The Pros of Negotiation Trade-Offs

Trade-Offs in our experience are an essential part of negotiating a mutually beneficial deal. Firstly, they can help rescue a negotiation that is not going well, by addressing the points of disagreement or contention. Secondly, trade-offs can help to build relationship trust as it demonstrates flexibility as well as assertiveness.

When a salesperson is willing to make trades, it demonstrates a willingness to find solutions and can create a more positive atmosphere in the negotiation. This, in turn, can help to build trust and strengthen the overall deal.

Negotiation trade-offs can help:

1. Encourage parties to find common ground

By allowing parties to give up something in exchange for something else, negotiation trade-offs can help them to find common ground and come to an agreement that both sides can benefit from.

2. Increase flexibility

Negotiation trade-offs can provide a greater degree of flexibility in negotiations, allowing parties to explore different options and solutions. This can lead to creative solutions and better outcomes. Often deemed to create a win-win outcome, provided, it creates more value for both parties.

3. Build trust

Making trade-offs to reach an agreement can help to build trust between both parties by demonstrating a willingness to work together.

4. Resolve difficult disputes

Giving up something in exchange for something else in order to reach an agreement can help to resolve difficult disputes, as it shows that both parties are willing to make sacrifices to reach a beneficial outcome.

5. Encourage cooperation

By making trade-offs, both parties can demonstrate that they are willing to cooperate and work together to reach a mutually beneficial outcome.

The Cons of Negotiation Trade-Offs

Negotiation trade-offs can have potential downsides as well. If handled badly, they can put the salesperson in a weak position. The key thing is “an exchange of value”. If the salesperson simply yields to the customer, it’s likely to affect the profitability of the deal. Additionally, it can create tension in the negotiation and potentially damage the relationship between the parties.

Other potential issues with trade-offs include:

1. Potential to Create Unfair Outcomes

Trade-Offs can create an unfair outcome for one of the parties if not planned carefully. This can create resentment and distrust, impacting the relationship between both parties.

2. Inconsistency in Negotiation

Too many trade-offs can lead to inconsistency, confusion and miscommunication, which can lead to misunderstandings and a lack of trust.

3. Unproductive Negotiations

If a party is too quick to trade, without understanding the other party’s interests/motivations, they may miss out on potential opportunities to get better terms or a better deal. This leads to unproductive negotiations, certainly for one of the parties.

4. Loss of Leverage

Making too many trade-offs reduces the leverage of one party. This can lead to one-sided negotiations where one party has the upper hand and may take advantage of the situation.

The 4 Guidelines for Trade-Off Strategies

Follow these four trade-off guidelines to improve the quality and value of your negotiations.

1. Label and Signal Your Trade-Offs

Provide clear signposts when you’re making a trade-off “you say you need X, and on reflection, we can do Y, but we’ll need you to do Z”.

This ensures that the customer is clear that you’re not simply yielding, and that you’re ensuring the negotiations can continue in a spirit of cooperation.

2. Require Reciprocity

After clearly communicating the trade-offs that you’re prepared to make, you need to get a reciprocal commitment from the client.

The salesperson must be confident, well-prepared, and strategic in their approach to requiring reciprocation.

3. It’s a Trade-Off, not a Point Scoring Exercise

If the customer suspects you’re trying to score points, manipulate the negotiation, or overuse your leverage, it could be catastrophic. Both parties must have a clear understanding of each other’s concerns/issues, and needs, in order to reach a mutually beneficial outcome.

The important thing is that both parties agree to change something in their deal structure in order to maintain momentum.

4. Make Trade-Offs In Instalments

In other words, this isn’t a game of poker – don’t go “all-in” early. However, this can actually have the opposite effect and make it more difficult to reach an agreement. Break the trade-offs down into smaller pieces and consider when they need to be played.

Additionally, making trade-offs in instalments can make the negotiation feel more like a back-and-forth process, which is more typical and may be expected by the customer. It can also give the salesperson the opportunity to discover that they may not need to make as many trade-offs as they initially thought, and can help to build trust with the customer by demonstrating flexibility and a willingness to accommodate their needs.

Applying The 4 Trade-Off Guidelines To Your Negotiation

Making trade-offs in a negotiation is an important part of reaching an agreement. However, it is important to use them judiciously, as they can potentially lead to an unfair outcome or a one-sided negotiation. 

By following the four guidelines outlined in this article, salespeople can learn how to effectively use trade-offs in their negotiations, while still maintaining a strong position and achieving a mutually beneficial outcome.

For more support in achieving better outcomes from your negotiations, visit our training guides and information pages for more strategies and tactics. 

After investing time, effort and money into upskilling your salespeople, you should feel confident in their ability to negotiate and close better deals. However, being able to create value in negotiations requires more than the application of some tools and tactics. It requires tapping into the experience of seasoned commercial leaders to shape creative deals to get the best outcomes.

Negotiations are an essential part of the sales process. And understanding how to create value in the eyes of the buyer is a key factor in securing a successful outcome. But what does it mean to create value in a negotiation, and how can you do it effectively? In this article, we will reveal some top tips for creating value in your negotiations, helping you to close deals and achieve mutually beneficial agreements. Whether you are a seasoned sales professional or just starting out, these strategies will be valuable in your pursuit of successful negotiations.

What is Value Creation in Negotiation?

Value creation in negotiation is about finding a solution that meets the needs and interests of both parties. It allows both parties to walk away from the negotiation feeling satisfied, rather than one party winning at the expense of the other (i.e. win-lose distributive negotiations). To create more value for both parties (i.e. win-win integrative negotiations), a salesperson has to become a Consultant. They have to:

• Integrate the interests and goals of participants through creative and collaborative problem-solving.
• Focus on the relationship as well as the substance
• Understand the inter-play between complex issues

• Build a clear negotiation process and agree “standards” or “criteria” by mutual agreement.
• Focus on how to increase the size of the pie, not simply carve-up the pie.
• Ask questions, jointly problem-solve, build mutually beneficial solutions
• Constantly build bridges with complex stakeholder groups.

The Link Between Creating and Claiming Value

Creating and claiming value are two crucial aspects of a negotiation strategy. In any negotiation, the parties may choose to adopt a co-operative, competitive, or mixed approach. 

Value is created through the process of interest-based negotiations. This involves finding ways to increase the elements of the negotiation that align with each party’s interests. This can be referred to as “joint gains” and leads to mutually beneficial outcomes, also known as a truly “win-win”, integrative solution. 

On the other hand, claiming value involves one party trying to “win” as much as possible, a process known as “distributive negotiations” or “getting a larger slice of the pie.” This leads to a “win-lose” situation, usually causes tension, and potentially causes the negotiation to break down. To claim value, one party will often try to:

• Minimize, play-down, the value of the other party’s offering.
• Exaggerate the value of their own offering or position.
• Concede slowly/reluctantly
• Out-wait the other party.

Be careful. If this is your natural negotiation style, these tactics may backfire badly. For example, if the other party feels that they are being manipulated, and they’ve thought through their BATNA, they’ll walk-away and spread the word about your aggressive tactics.

What Is A Negotiable Value?

A negotiable value is something that can be used in a negotiation to help both parties reach an agreement. It is important to understand whether the negotiable element you are offering has value to the other party. If the other party genuinely needs or wants what you are offering, it can be used as a trading tool. For example, if a salesperson knows that a customer requires customer support through an app that their company already has in place, they can use this as a value-add in the negotiation.

In simple terms, find something that costs you very little but means a lot to your counterparty.

How To Add Value in a Negotiation and become an Integrative Negotiator

1. Build Trust

Trust is a crucial element in any negotiation, and customers are more likely to engage in meaningful conversations with salespeople they believe have their best interests at heart. Building genuine relationships with customers helps to establish trust and reduce risks.

Sharing information and being vulnerable, while still maintaining appropriate boundaries, can help to build confidence and trust with customers. Be authentic and genuine in your interactions and relationship-building efforts, as customers can easily sense fakes and phonies.

Asking open-ended questions and showing a genuine interest in understanding and solving the customer’s problems helps build trust.

2. Find Uncommon Ground

To create value in a negotiation, it is important to focus on areas where the salesperson and customer have different interests and goals. Instead of addressing each issue individually, it can be more effective to consider multiple differences or issues collectively. This allows the salesperson to find ways to benefit both parties by addressing the uncommon ground between them. Focusing on individual differences or issues can cause the customer to become overly focused on finding a solution for each one, rather than considering the broader context of the negotiation. To avoid this, it is important to keep the bigger picture in mind and not get too caught up in individual issues.

3. Be Agile

Being a successful negotiator requires the ability to think on your feet and handle tricky situations. While preparation is essential, it is also important to be able to adapt to changing circumstances during negotiations. To do this, salespeople should have a clear understanding of their end goal and be able to utilize their negotiation skills and tactics effectively. Listening to the customer’s needs and being open to finding creative solutions to issues that arise is essential in successful negotiations.

4. Focus on a “Win-Win” Agreement

While it may be tempting to focus on claiming value as much as possible in negotiations, it’s ultimately more beneficial for both parties to seek a “win-win” solution. Here are some tips for salespeople looking to strengthen their chances of repeat customers through mutually beneficial negotiations:

1. Be open and honest with the customer and communicate your desire to work towards a mutually beneficial agreement. This can help to build trust and foster a positive relationship.
2. Develop strong interpersonal skills and take the time to build relationships within your industry. These connections can be valuable in providing informal character references and recommendations to customers.
3. You have to help the customer understand the ROI from the solution you’re proposing. This can help to differentiate you from competitors and increase the likelihood of a successful negotiation.

Negotiation Pitfalls to Avoid

Focusing solely on your own interests

You’ve got to consciously find out about and consider your customer’s interests. What are their motivations for doing this deal? What’s in it for them personally? Once you understand their real motivations/interests, you’ll find ways to create value for both parties.

Neglecting to build trust

Don’t slip into the habit of being a highly competitive negotiator (i.e. focused only on the substance of the deal and ignoring the relationships). Building trust with the customer is crucial for successful negotiations and long term benefits for everyone. Being open, honest, and slightly vulnerable can often have surprising results. You’ll need strong interpersonal skills, high EQ, and the ability to show a genuine interest in solving the customer’s problems. To learn more about building trust, watch this excellent 6 minute video https://trustedadvisor.com/why-trust-matters/understanding-trust/understanding-the-trust-equation 

Rushing

Rushing into a negotiation and trying to secure a “win” too quickly often ends badly. It signals to the customer that you aren’t interested in understanding their real needs/issues/interests. If your counterparty is an experienced commercial negotiator, it will also back-fire on you as the complexities reveal themselves. To avoid this, simply slow down, ask open-ended questions, understand the customer’s context, and take the time to think of appropriate solutions/options. 

Lacking Confidence

On the other hand, lacking confidence and becoming overly accommodating can also be detrimental to a negotiation. It can cause customers to lack trust in the salesperson and the process and seek solutions elsewhere. Confidence is a complex topic and there are lots of books on the topic. This article is a good starting point https://hbr.org/2021/08/how-to-build-confidence-at-work 

Personalities getting in the way

In summary, this is the inability to separate the people from the problem. Avoid this by, taking emotions out of the negotiation

Summary

Successful negotiations require careful and thorough preparation, strong interpersonal skills, and the ability to see things from the other person’s perspective. By focusing on creating value for both parties and building trust, you can establish long-term relationships with customers and increase your chances of repeat business. With practice and experience, you can hone your negotiation skills and become an expert in the art of creating value and finding mutually beneficial solutions.

For more training and tips on becoming a more successful negotiator, visit our resources at Piscari.com.

Negotiations are an integral part of business. Negotiating successfully means learning critical foundation techniques to optimise the outcome. One of these foundation techniques is anchoring, which involves setting the initial offer, or target price, to influence the outcome of the negotiation. Anchoring is a powerful tool in your negotiation toolbox, however, used badly, it can destroy a negotiation before you even get started.

Anchoring techniques are vital for sales people during the whole sales cycle, not just at the contract negotiation stage. In this guide to anchoring, we look at what the technique is and how it can be used to achieve better deals.

What are Anchor Points, Target Points and Reservation Values

Let’s get some terminology straight before we start. Here are our definitions:

• Anchor Point: The starting point for your negotiations
• Target Point: Where you’d ideally like to end up
• Reservation Value: Your “least acceptable outcome”

An Anchor Point is typically the starting point of a negotiation. From the Anchor, there is then a negotiation process to land at the end-point for a commercial structure that works for both parties.

A Target Point, also known as the “most desirable outcome”, is not revealed to your counterparty. It’s your ideal outcome if everything went your way. For example, a salesperson may have an ideal price in mind (for a given scope) that they would like to obtain for their products or services.

Your Reservation Value is your end-stop, your line-in-the-sand. You also don’t reveal your reservation value until the end of the negotiation cycle, when it will naturally reveal itself. For example,  “this is my best and final offer, we can’t go beyond this point”. If your counterparty tries to push beyond this point, you should exercise your BATNA.

How is an Anchor Point used in a Negotiation?

Anchoring is an attempt to establish the main reference points that negotiations will revolve around. This anchor point can, and often is, used as a point to make negotiation adjustments – this can be things such as price points, timescales, the output provided, scope, payment terms, contract length, etc. An Anchor point is usually presented early in the sales cycle/negotiations.

There’s been a lot of research into anchoring, and not just in the context of negotiations. All the findings point towards the fact that human beings are psychologically influenced by first anchors.

Therefore, the initial price presented in a negotiation can significantly impact the decision-making process of the customer. This initial figure, or anchor point, serves as your reference point for the customer to consider when determining the value of the deal. 

However, be careful. When planning your initial offer, in order to effectively utilise anchoring bias in the negotiation, it must be realistic. So, what constitutes a realistic anchor? This is a complex topic, but here’s some principles we think you should adhere to:

• As a seller, you should anchor-high, but be realistic. What this means is, buyers aren’t fools. They can easily research the market for value points, and may have bought something similar before.
• Have a justification for when the buyer says “wow, that’s a lot more than I expected”. You need to be able to explain, logically, why your products/services attract a premium.
• Be prepared for the buyer to counter-anchor – see below! You need to be flexible, and ensure that the buyer is in the right psychological mindset to negotiate around your anchor.

Challenges of Anchoring in Negotiation

There are a number of challenges with anchoring which you need to understand before using this powerful technique:

• In a sales situation, you can’t simply throw down a random high-ball number. You’ll get found out really quickly, which will damage your credibility.
• Buyers are savvy, you have to do more research than them to deliver a realistic high-anchor. There has to be a Zone of Possible Agreement (ZOPA).
• Negotiation around the anchor point in order to reach agreement needs to be carefully planned. As you start to negotiate, you’re signalling psychologically with every counter-offer.
• Experienced buyers are trained in counter-anchoring techniques.
• If the buyer is experienced with a seller’s offerings, they’ll immediately start negotiations with their anchor.

If the two parties have wildly different expectations from the beginning, it can lead to breakdowns in communication and early aborted deals. If the customer makes the first offer (anchor) with a much lower price than the seller has in mind, it can be extremely difficult to persuade them to accept a higher price.

How to Make an Effective First Anchor as a Seller

Here’s our 3 step process to making an effective, credible, opening anchor as a seller:

1. Do your research and get your positioning right

Talk to your sales manager/director. Make sure that your proposition pricing strategy has option-trade-offs embedded into it. Check your proposition’s positioning against your close competitors. Make sure you have an ROI argument. Scan the web for recent news articles about your prospect that could impact this deal.

2. Design your Anchor and ZOPA

Based on your research, design your anchor(s) at the top of the market. Make sure there’s room for negotiations and trade-offs. Understand the ZOPA (as far as you can). Work out the negotiation trade-off rounds. Each round of negotiations (ideally a max of 2-3) should signal to your counterparty, psychologically, that you’re getting closer to your best and final offer for those sets of negotiation variables. This is a more advanced technique.

3. Deliver the anchor and defences

Confidence plays a significant part in any negotiation. And confidence, for most of us, is aided significantly by preparation. Take all your preparation, meet with your counterparty, set the scene, then lay out your anchor(s) with the rationale. Note: this doesn’t mean “justifying your anchor” which can be seen as defensive and weakens your position. Again, this is a more advanced technique.

How to Counter-Anchor your Prospect’s Initial Offer

So what happens if your prospect makes the first offer (anchor)? There are proven techniques for overcoming initial anchors from your prospects. Here’s our top 3 tips:

1. Do Your Research in anticipation of their anchor

Effective preparation is crucial for any negotiation. Conducting thorough research on the customer’s background, needs, and budget helps ensure that a selling price can be proposed that is high, yet realistic. Prepare various solutions that address the customer’s needs with different commercial models/price-points. Research the prices and services offered by competitors in order to anticipate and address any references the customer may make during the negotiation.

2. Defuse/refute the anchor point

It’s tempting to go straight to a counter-anchor when faced with an “outrageous” starting anchor from your counterparty – don’t! First, gather your thoughts, calm the mind, and then point out, logically, why their initial anchor isn’t acceptable. Use market data/research to refute the anchor, explain why it’s absolutely not acceptable, and dis-arm your counterparty.

3. Propose A Counter-Anchor

Once you’ve refuted their anchor, provide your own counter-anchor (with a justification). For example:

• A prospect indicates a budget of $35,000 with a poorly defined scope and target outcomes.
• Your minimum price (reservation value) is $40,000 for your well defined scope/value proposition. You know the comparable market price range is $40,000 to $50,000.
• You refute the $35,000 initial anchor as unacceptable,you point to some independent market data/research validating why, you explain the value created by your product/service
• You counter-anchor at $49,000, explaining your offer and illustrating the ROI.

Be prepared to exercise your BATNA if the prospect won’t respond to your counter-anchor. Avoid bad-deals by preparing well, knowing how to counter-anchor, and knowing your value.

Conclusions

What appears at first sight to be a simple technique is in fact far more complex. Use the techniques above to:

• Understand the foundations, and the differences between anchoring, targets and reservation values.
• Plan for making an effective, credible anchor(s), with confidence.
• Know what to do when your prospect makes the first offer instead, in order to get yourself back on track.

For more negotiation tips and training, visit our advice section at Piscari.com

For Better Deals

The art of negotiation is an important skill in any business setting, and the use of a reservation point is one of the keys to success. A reservation point is the lowest point you are willing to accept for selling your product/service – we often call it your “least acceptable outcome”. Knowing how to use it effectively will help you get what you need in your next negotiation. It will also enable you to walk away from bad deals and exercise your BATNA.

This article will provide an overview of what a reservation point is and how to use it to get the best deals in any situation.

What Is The Reservation Point In A Negotiation?

The reservation point in a negotiation is the point at which a negotiator is no longer willing to make any further concessions and is prepared to walk away from the deal. It is the point at which the negotiator feels they have traded as much as they can, and any further concessions would be too costly.

This usually happens when there is an established highest price at which a customer is willing to purchase a product/service and the lowest price that a salesperson is willing to sell the product or service.

Why Is Reservation Point Important?

Having the confidence to walk away from a deal that doesn’t work for you is essential. Part of knowing when to walk away is understanding your reservation point.

Setting clear expectations about reservation points, specifically in relation to price/service offerings, is important for successful sales teams. Sales people need clear guidelines about how much leeway they’ve got when negotiating a deal.

How To Calculate A Reservation Price

In nearly every negotiation, a Best Alternative to a Negotiated Agreement (BATNA) is directly tied to a Reservation Price. Thinking through your BATNA and the trigger points is essential to knowing when it’s time to walk away from a deal and pursue your best alternative.

What Is A BATNA?

A Best Alternative to a Negotiated Agreement (BATNA) is the most favourable alternative course of action a negotiator can take if no agreement is reached or viable. It’s the minimum outcome you are willing to accept from a negotiation before you’ll walk away.

According to HBR/PoN, BATNA , there are four steps to developing your BATNA:

Step 1: List your alternatives. Think about all the alternatives available to you if the current negotiation ends in an impasse. What are your no-deal options?

Step 2: Evaluate your alternatives. Examine each option and calculate the value (financial and non-financial) of pursuing each one.

Step 3: Establish your BATNA. Choose a course of action that would have the highest expected value for you. This is your BATNA—the course you should pursue if the current negotiation fails.

Step 4: Calculate your reservation value. Now that you know your BATNA, calculate your reservation value (i.e. the lowest-valued deal you are willing to accept). If the value of the deal proposed to you is lower than your reservation value, you’ll be better off rejecting the offer and pursuing your BATNA. If the final offer is higher than your reservation value, you should accept it.

Note: The above 4 steps are a direct quote from the source material.

How To Calculate A Reservation Point

Clarity on your reservation point is essential for a salesperson to avoid two mistakes.

• Firstly, it ensures a salesperson avoids accepting a deal that is worse than the established least-acceptable-outcome for this deal.
• Secondly, with the right preparation, it ensures the sales person is mentally prepared to start signalling to the client that you’re reaching the end of the line.

Once a salesperson has identified their BATNA, they’re in a strong position to calculate a Reservation Point – this is a “walk-away” point in the upcoming negotiation. In a negotiation where multiple issues are at stake, a reservation point will include several variables, e.g. price, scope, contract duration, termination rights, etc.

The skill here is building reservation points that enable you to trade off variables with your counterparty. This enables them to get a win, and for you to achieve a deal that is much better than your reservation points.

Should You Reveal Your Reservation Point In Negotiation?

In short, no, never – you should not reveal your reservation point in negotiation.

As much as it can be tempting to be fully open and honest with a customer, salespeople really do need to be aware of the amount of information that is being shared with a potential prospect. 

Revealing a Reservation Point within a negotiation is one of the biggest mistakes that a salesperson can make, as it leaves them wide open to having a weakened proposition exploited. It’s important for a salesperson to play their hand wisely. Under no circumstance should they give up this information when speaking with a customer.

What will become obvious to your customer, is that you’ve reached the limit of the negotiation, beyond which, you’ll walk away and exercise your BATNA. The skilled negotiator knows how to construct an effective deal that is nowhere near their reservation point, yet is still valuable to the customer.

Apply Your Reservation Technique To Your Negotiations

From Anchoring (insert link to Anchoring blog) to Concessions (link to Concessions blog) , there are many tactics which can be included in discussions in order to achieve the desired outcome. 

The Reservation Point within negotiations is another element which can help you to achieve what you want out of your future negotiations. However, as we have seen in this article, you will need to have a clear understanding of your reservation point and BATNA before entering into any negotiation.

For more negotiation techniques and tips, read our advice section at Piscari.