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.