4.1 Making Offers

Welcome to the fourth and final module of this course, Preparation, Planning, and Implementation. In this module, I will talk about specific actions related to planning, making and responding to offers, and options to consider for adding value to your agreement. The most frequently overlooked steps in a negotiation are the planning and preparation steps. It is just not wise to limit your knowledge of the situation to what your counterpart tells you and what is discussed in your meetings and telephone calls. It is critical that you research your counterpart, the organization, the market conditions, the competition, and previous agreements with this organization. It is also critically important to plan each interaction. Plan the questions. Plan the questions you will ask and plan how to present your proposals and your ideas, and plan how you will react to an, anticipated and some unanticipated behaviors on the part of your counterpart. The objectives for this final module are to understand the components and timing of first offers, learn the importance and contents of a framework agreement, learn the importance and contents of a BATNA, review best practices and suggestions for successful negotiations. Let’s assume that you’ve fully researched your counterpart and his or her organization. You have had several discussions, asked many questions, and feel that you have a good understanding of what is needed to achieve both their goals and yours. Now you are ready to develop and deliver a first offer. Many negotiation specialists believe that the likelihood of achieving what you want out of a negotiation is dramatically improved if you make the first offer. Some will go so far as to say that if you do not make the first offer, you are unlikely to achieve your goals. Most will simply say that you simply lose some power and have to work a little harder to regain it. There are others, though, who firmly believe that you lose power and show your hand if you make the first offer. In only one situation is it clear that it is in your best interest not to make the first offer, and that is when the other party knows more about you than you do about them. The important thing to keep in mind, the important things to keep in mind are what is contained in your first offer and when is the best time to present it. When is the timing right? Is it right when you feel that you have a thorough understanding of the array of value options available to you? Which ones had the most significance to your counterpart? You have developed a trusting relationship with your counterpart and you are ready to engage in dialogue about that agreement. In reality, the better prepared both parties are, the less it matters who makes the first offer. There is, of course, the possibility that your counterpart will make the first offer. You have a few choices in this situation. If you feel there is much more information gathering to be done, you can simply say, I’m not yet ready to discuss terms, and continue with your questions and information gathering. Or if you think you are close, then you should have your opening offer prepared before the meeting. If your counterpart offers first, that’s okay. You can follow with a thank you and an explanation that you too have an opening offer which may be quite different, but that you would like to explain it, and hope that the two offers will serve as a springboard for a robust dialogue, leading to a muc, leading to much additional value for both parties. Let’s be clear. We’re talking here about the first offer, not the first interaction. Your first offer should come only after developing trust, creating a shared pool of understanding, and asking many questions designed to help you understand the full set of options available to you and which hold the greatest value for your counterpart. Only after gathering all of this information can you make your opening offer. Of course, this is in a perfect world. In many situations, you do not have the luxury of meeting for information gathering for very long or too many times. You may be under time constraint by your own organizational leadership or simply the need to settle the agreement and get on with business. Therefore, you’ll need to balance the need for information gathering with keeping the process going and keeping your counterpart engaged. Also, if you believe there is tremendous value in making the first offer, then you will want to add your assessment of the likelihood of your counterpart making for, making a first offer into your decision about the timing. The term first offer is important. It is just that. It is not your only offer or your final offer. It is your first offer. Keep, keep this in mind as you define your first offer that your counterpart very often will view it as your stake in the ground and everything following it will be measured against that first offer. You will find that some counterparts may view the value of their win is based on how far they can move you from the initial offer. While this may be the case, keep in mind that the firmer you are about your initial offer, the less credibility you have as you move away from it. I’m not suggesting you be hesitant about the offer, but I am suggesting that you don’t state it as your best or final offer, unless it is. Consider the personality of your counterpart and your relationship as you consider how you will approach this step. You may want to come across as firm but open-minded. Alternatively, you may want to come across as less committal, as in one thing to consider is what the current going rate is for less than ten of these in an order which is, and state the number. This has much to do with the relationship and personality of your counterpart as well as yours. You may want to come across as firm but open-minded. Alternatively, you may want to come across as less committal as in, one thing to consider is what the current going rate is for less than ten of these in an order which is, and then state the number. This has as much to do with the relationship and personality of your counterpart as well as yours. For you, the best preparation for this first offer and future negotiations is to create a template of a best possible agreement in advance of making offers, and making counteroffers. Roger Fisher and William Ury refer to a framework agreement in their book, Getting to Yes. In a framework agreement, you create a template of either a written agreement or an outline of any other type of agreement, in which you’ve included all the variables which you want to be in the agreement, in which you think the counterpart may want to, your counterpart may want to be in the agreement. Define for yourself what a best possible agreement would look like from your perspective, being realistic about the need to create value for your counterpart. It can be as detailed as a draft of an actual agreement or an outline of a specific variables to be included and the targeted members you’re striving for in each case. While there is tremendous value in writing down your first offer, a formal written proposal isn’t necessary at this point. Also, don’t confuse this framework agreement with your BATNA. The BATNA helps you to know when to walk. The framework agreement is your definition of the best possible outcome. The range of possible agreements lies between the two. So how do you decide what your first offer will be? If you have prepared well and gathered information on a wide range of value variables, the points of value you choose to define in your first offer should be apparent to you as you consider the big picture. One way to think about just how high to go for the first offer is to determine a number which you consider to be the highest number or value that you would feel comfortable convincing a neutral party was a fair offer. This is because your first offer is your stake in the ground and is probably a set of options that is the most you can probably achieve. It should be set to be close to, in fact, slightly worse than what you perceive the other party’s barely acceptable terms. If you know or have enough information to predict your counterpart’s BATNA, then your opening offer or the most you can hope to achieve should be set to be slightly worse than the counterpart’s BATNA while being as close as possible to your best possible outcome. Then you can negotiate terms which bring this set of variables to be better than their BATNA and as close as possible to your framework agreement. Some other considerations are the location of your meeting and how you will communicate. The choice of where to meet would be based on your knowledge of the counterpart, and the type of support you might want to have available during your conversation. For example, if one or both of you tend to have many interruptions when in your own offices, perhaps an outside location would be preferable. Also, if you want to have access to samples or informational resources, your location might be pref, your location might be preferable. Considerations such as travel, availability, and comfort level of, and comfort level of your counterpart may also play a role. As far as how to communicate, face-to-face is certainly preferable. Many people believe they are just as comfortable and successful doing negotiations by telephone or email, but studies indicate that there is a significant loss in potential value for both sides when telephone or email are the primary means of communication. In this lecture, we discussed the timing, the content, and the presentation of a first offer. The recommendation is for you to make the first offer and to consider the personality and operating style of your counterpart when you’re planning how you will present the offer.