This is the seventh post in a series entitled: The Principles of International Negotiation: Finding Universal Value in a Complex World
It’s a worldwide phenomenon: You’re on vacation in a foreign country and decide to buy a souvenir. You know you shouldn’t pay the price they’re asking, so you make a lower offer on that “locally produced” carving. The vendor takes it. As your purchase is being wrapped, you’re thinking, “That was too easy. I could have bought it for less.”
We’re not trying to teach you to deprive starving artists of their living. But whenever someone asks for and easily gets a concession, it immediately reduces the perceived value of that concession. In business negotiations, where more is at stake, the requester will often press for even deeper discounts or additional concessions at no extra cost. Not only does the concession appear of little value, but it also encourages additional negotiating – any final agreement will be slower to come. When international negotiations involve significant travel expense, protracting the process can become an expensive proposition.
When concessions are granted during a negotiation, they should be Principled Concessions™ – concessions made with a credible business rationale. Their opposite is arbitrary concessions, which create uncertainty for the person receiving the concession. Principled Concessions help create confidence and credibility. When negotiators take the further step of proving the value of the concession, Principled Concessions help earn trust and respect, and get to closure sooner.
Your job as a negotiator is to understand, in as much detail as possible, why the party across the table is asking for the concession. Then you can link your concession strategy to the rational business reasons for the request and the value-based merits for your offer. Concession requests can be the result of a fundamental business need, or cultural or local factors of which you may not be aware.
A Negotiation Example
Recently, K&R saw a technology supplier offer some “free” equipment to a European water company to do computational work required by the digital water meters the company was about to deploy. There was no reason for this offer, except to “win the business” — it was unprincipled. The supplier also did not understand that the water company was partially funded by the local government, and the funding was dependent on a reduced carbon footprint. The free equipment would increase the water company’s carbon footprint and damage its ability to get government funding. With our guidance, the right concession offer would have been a paid services solution instead of free equipment, because it would preserve government funding, while being principled. The customer could afford to pay for services, but could not afford to accept the free equipment.
Principled Concession Formula
Credible offers are prerequisites to a Principled Concession. A credible offer is a firm offer based on a rationale related to value. A credible offer does not change arbitrarily. It changes if the value assumptions are validly disputed. Those changes are also Principled Concessions.
When a Principled Concession not only has a business rationale, but also is tied to a business value change, it becomes a more powerful motivator.
In international business, it can be ineffective to assume that a value argument that is completely apparent to you will be equally understood and valued by the other party. What cultural or regulatory factors may be playing a part in how the other party views the deal? Again, P&L (patience and listening) together with solid advance research will prepare you to work through concession requests by a negotiator from another part of the world, as illustrated by the above example. This allows you to craft a value argument that is calculated for two levels: business rationale and cultural differences. Being prepared for both means you’re using both your time and the other party’s time in the best way possible — and driving the best deal for everybody.