Fable Friday negotiation tip: “Does anybody else want two cents worth of licorice?”

In an old Spanky and Our Gang episode, the kids go into the general store and the first to be waited on by the old man behind the counter asks for two cents worth of licorice. So the old guy slides the ladder over, painstakingly climbs up to the top, finds the licorice jar, takes out the candy, puts the lid back on and climbs back down.  He bags the candy, takes the money and waits on the next kid, who asks for two cents worth of licorice.

So of course the guy has to go through all this again, but this time, just as he’s about to put the lid back on the jar, he calls down to the others, “Does anybody else want two cents worth of licorice?”  The kids shake their heads no, so he climbs down, rings up the sale and asks the next kid what he wants. “I want three cents worth of licorice.”

Gregory at Medtronic 10-2010 CroppedYou probably remember this old gag but I’m retelling it here to offer you a useful tip in negotiation.

Let’s suppose you are about to wrap up a complex financial transaction, say a big loan or major investment sale. Before you go back to your company and engage other resources to package the deal, make sure to ask one final question of your customer:  “Let me make sure before I leave today, that I have all the deal points that are important to you. Sometimes customers focus only on price and don’t consider everything. I want to know what else will be important to you other than price.”

Now you can see what might happen if you don’t ask this question. You go back and put everything together, which includes your margin for profit. The customer reads your proposal and then tells you he wants something extra, or some covenant removed, either of which might cut into your profit, or increase risk or delivery time.

You can even take this tactic one step further. Say to the customer, “I’m concerned if we don’t get all the issues on the table that are important to you now, there’s a risk that you may have concerns later on that will be difficult to address without reconfiguring the entire deal.”

Here’s a common example. In a term loan you will have included a prepayment penalty, since your pricing at origination is based on the loan being paid monthly to maturity. If the customer looks at the proposal and says he would like the option to prepay and doesn’t see why he has to pay a penalty, you can accommodate him, but you’ll have to change the rate, and now you’re back-pedaling rather than controlling the deal.

So as a good negotiation rule, try to anticipate what the customer may ask for and make a list of them.  After all, this isn’t your first deal.  Decide in advance how to pre-empt customer demands by explaining the business issues up front.

You don’t want to come down off that ladder, then climb back up it for three cents worth of licorice, do you?

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A cool tip on how to watch your language

Last week we discussed the negative connotation of the word “politics” and yet how important are political awareness and sensitivity to selling, negotiation, coaching and managing. Once you understand political power you can do simple things to make your ideas more compelling to others. Today I’ll give you a cool tip.

Gregory at Medtronic 10-2010 CroppedPolitics is not the only word that evokes a negative connotation. One might argue that “freedom fighter” has a positive connotation and that “terrorist” has a negative connotation. It may also be that they’re the same thing, just called by different names.

So if I’m stumbling around for just the right word in a speech or private conversation, I know that I have choices of many different words I could use.  People who are politically astute use care in all word selection, because they know the power of the selected word can influence the emotions of the listener, and people buy based on emotion.

I do an experiment in my negotiation workshops in which I ask the learners to make lists of words they commonly use in negotiations in order to advance their cause. Why is this important? Negotiations are often delicate and it would be foolish to select words that may cause offense. Here are some of the words my groups have come up with:

Solution, fairness, your idea(s), resolve, reasonable, amicable, helpful, let me share, discuss, achieve, validate, and tell me about.

These words and phrases are like a lubricant to advance the conversation, maintaining the well-being, positive energy and engagement of your counterpart in the negotiation.

I then ask the group to give me a list of the words and phrases that do not work. Some of these will make you wince:

Problem, your problem, argue, argument, I need, disagree, audit, unacceptable, non-starter, deny, reject, disapprove, dispute, non-negotiable, useless, final offer, off the table.

Get the point?

I’ll bet you know people who don’t understand the distinction and are so full of themselves that they often use the second set of words in many sensitive conversations, where simple changes in word choices could make their position more compelling.  This week a friend of mine told me he couldn’t help it that he is “brutally honest,” as though one cannot be honest and kind, only honest and brutal.

These are the people about whom others will say, “He has no filter,” meaning they don’t understand the impact their words have on others’ feelings.  Don’t you be that person.  Choose your words carefully and watch your language. It’s an effective way to…

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What do real estate agents know about pricing anyway?

If you want to seriously influence your prospect’s sense of value, and therefore his willingness to buy at a given price, then you should study the effect of “anchoring” more closely.  I introduced this topic in my newsletter this week, and today I’m going to share two more experiments to show just how powerful it is.

Gregory at Medtronic 10-2010 CroppedIf you either sell real estate or have bought a house, check this out. In a very well-known experiment real estate agents were given an opportunity to assess the value of a house that was already listed on the market.  They visited the house and were given an information booklet which included the listed price.  But half the agents were shown a price substantially higher than the real asking price.  The other half were shown a price way lower.

After the agents had toured the house and reviewed the booklet, they were asked their opinion on the best list price. They were also asked the factors that influenced their judgment, but none stated that the price shown in the booklet influenced them at all.  Of course they were wrong, as those who saw the higher price estimated 41% higher than those who were shown the lower one.  This is an excellent example of anchoring, as the agents were unconsciously influenced by the price they saw in the booklet, yet would not acknowledge it to be so.

Here’s another one, done in a lab experiment.  Psychologist Todd Thorsteinson reports this in the Journal of Applied Social Psychology. Participants in the experiment were given an applicant’s previous salary of $29,000 and were asked to come up with a new offer for the candidate. If the candidate offered a low suggestion or made no suggestion at all, the participants’ average offer was $31,000.

However, when the candidate requested a new salary of $100,000, obviously as a joke, the participants came back with an average offer of $36,000.

Dr. Thorsteinson commented that this could help you in a job interview. You are asked “What kind of salary are you looking to receive?”  If you guess too low, you’re throwing away money, but too high and you might offend.  But you might respond facetiously, “Well, a million would be nice.”  And because you’re obviously saying this in jest, your employer won’t be offended, but it will influence the salary you do receive.

Learn more about anchoring and how it can help you improve your sales techniques.  I got the real estate experiment from Daniel Kahneman’s great book, “Thinking, Fast and Slow,” and in a future post I’ll tie together how it is that the brain functions in this irrational way.

If you want to get better at selling to your customer, you have to…

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“What do I say when someone says to me…?”

Because many of my workshops involve communication skills, I often get asked by the learners what they should say in difficult situations. These people are knowledgeable and skilled, but they often get flummoxed when asked a tough question. I generally tell them that sometimes the best response is simply to ask a question back.

For example, I teach telephone skills, so when I get a call from a telemarketer who greets me with, “This is (name) from (some company or other). How are you today?” I always reply with, “Why do you ask?” And no, I’m not being rude. I’m trying to help the person learn that by getting to the point of the call, he will be more effective and not waste people’s time.

Here’s another example that I’ll bet has happened to you in your personal life.  Some nosy friend or relative will ask an intrusive question, like “So, when are you two going to start having a family?”

Understand that if you are reading this blog, you are probably in sales or work for some financial institution. It’s part of your character to always be polite and to make the assumption that when someone asks you a question you’re obligated to answer.  This isn’t even true if you have been arrested!  You’re under no obligation to answer any question.  If you hear a question like this, simply smile and say, “Why do you ask?”  There is absolutely no response from the asker that works at that point. He or she knows the original question was impolite, and this stops further intrusiveness.

It’s amazing how the right question, as opposed to the right answer is so effective in many situations.  Here’s another example from my negotiation skills workshops. Two companies are in merger talks.  One company proposes to the other, “If word of this merger gets out in the media, and you receive another offer and take it, your company has to pay my company $500,000.”

The CEO of the other company asked in response, “What would you do if you were in my position and someone made a demand like that of you?”

Here’s another situation you’ve been in before. Someone is trying to sell you something and says, “I’ve already had two offers for more than I’m asking you.”  Simply say, “Why did you not accept those offers?  Why are you talking with me?”

In the training room, as the facilitator I get lots of questions that I choose not to answer in an effort to share the learning and encourage people to think for themselves. So when I hear, “What do you say when…?”, I reply, “Well, what do you think you should say?”  Or, “Let’s hear what others would do.”

When asked a tough question as in the examples above, take your time.  Don’t feel like you must answer.  Decide if a question would be more effective in reply, and if so, ask it. Your counterpart will then have to explain his reasoning, and this may be just the opening you need.

Did you learn anything from this post today?  Here’s a pop quiz, like Jeopardy.  I’ll give you the answer and you come up with the best question to ask. This one’s easy:

“Et tu Brute”

Your question should be, “How many pizzas did you eat today, Caesar?”

Sorry.

See you next time, and remember to…

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Let me “sweeten” this deal for you!

As promised in this week’s newsletter, here’s one more easy negotiation tip that can help you get out of a difficult spot, and because today is Fable Friday, it comes with a story to it.

Many years ago when I bought my first house, the seller and I were pretty close on price but had not yet reached agreement.  The agent called me and said, “You know that tool shed in back of the house? The seller is willing to sweeten the deal by giving you all those tools if you agree to this price.”

So along with a revised, lowered price we were getting a big selection of rakes, shovels, weeders, a lawn mower, all the stuff we needed to maintain this beautiful yard.  As for the seller, he was moving to a condo in Florida. He didn’t need the tools, so the offer meant little to him.  We quickly had a deal.

There are all kinds of opportunities to “sweeten” a deal through some non-cash solution, if you just think it through.  Major league sports teams negotiate with hundreds of vendors and concessionaires, and often throw in game tickets that are worth far less than the negotiated price differences.  Why does sweetening work?  Because the buyer often has a different view of the value of the sweetener, just as I did with the tools.

Say you’re selling a car and are close on price.  You say, “I’ll tell you what, if you take the car at the price I’m asking, I’ll get the oil and filter changed, and throw in a full tank of gas.”  That’s a small dollar cost to you, but it might be just the thing to cause the buyer to shake hands.

In preparing for your negotiation, what kind of deal sweeteners could your company offer, that cost you little or nothing, but that might mean the difference between pushback and agreement?  It’s good to think this through in advance, as you might need it if you’re close to yes.

Here are some others:

“I’ll give you a year’s free maintenance.”

“Since I have a pickup truck and you don’t, I’ll even deliver it to your home.”

“We’ll give you a VIP pass to our next customer cocktail party.”

Make sure to position the sweetener in the most positive way.  It’s a communication skill as well as a value proposition.  Say, “Here’s what I’m willing to do for you if we can just get this deal done today.”

Sweeteners take the focus off of money, and you may just get lucky and offer one that resonates with your counterpart.  The trick is to…

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(BTW, if you didn’t get my newsletter this week, it has two useful negotiation tips in it. Write to me if you’d like to see it.)

The most powerful and easiest negotiation tips ever!

Of all the workshops I conduct, my favorite is negotiation.  Today I’ll tell you why, and give you some useful tips to save time and money in your personal life.

We’ll start with this simple premise.  When you study negotiation, there are generally three areas of focus, and I use the acronym TIP to help people remember them:  time, information and power.  Let’s look at all three.

Any time you’re in a negotiation and you have all the time in the world, you’re in the better position.  Example:  you have to sell your house to relocate, having already bought a house in the new location.  Home buyers have all the time in the world to look for a house, but you’re in a hurry as you’re soon to be squeezed for cash.  You’re in the weaker position.

Years ago, American auto-makers and other companies would travel to Japan to negotiate manufacturing contracts.  The Japanese would politely ask the Americans what day they planned to leave “so that we can be sure to achieve all our objectives in time to see you on your way.”  But then they would stall and draw out the negotiations until the day the Americans had to get to the airport. The naïve Americans made all kinds of concessions then, just to get out of there.  Tip?  Never tell your counterpart we have to get this deal done by such and such a time, as you will concede the time advantage.

Another huge component of negotiation is information.  Whoever has more has the advantage, and in workshops I encourage the learners to do as much preparation as possible.  You should never enter the first negotiation meeting with the lame objective: “We’re just going in to sound out the other party on what they want from this deal.”

The final component is power.  It’s pretty easy to tell who has more power in a negotiation setting.  You probably need your job, so negotiating with your boss about the activities you must do to comply is harder on you than on the boss.  As a parent, you allow your kid to use your car but you should have certain rules associated with it.  He wants to drive the car?  He has to study two hours every day.

In my workshops I include a fourth component, which I simply call communication skill.  You can be familiar with the first three, but if you’re a poor communicator, you won’t be much of a negotiator.  So my workshops are different in that I put a great deal of emphasis on how to say things. Here’s one you can and should use in your everyday life.

Someone asks you to take over his project for the summer, or a friend asks you to babysit her kids for a week, or head up some committee. It’s easy to say yes, but then you’re stuck getting it done, and you hate to say no because you aren’t a skilled communicator.

Here’s the trick.  You say, “I’m sorry I can’t, but thanks so much for thinking of me.”  This is the best way to say no, and there is almost no good response to it.  Try it yourself and see the effect.

No blog next Tuesday because my newsletter goes out, and in it I’ll give you a surefire negotiation tip that will save you at least a hundred bucks every time you use it.

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Fable Friday: A quick tip on negotiation skills

Today on Fable Friday I’ll share a quick story about something I learned this week while conducting negotiation skills workshops for corporate bankers. 

Negotiation is one of my favorite workshops because I put most of the emphasis on communication skills, rather than on the mechanics of negotiating items of like value during a deal. I figure the bankers already know how to do that, but they often struggle with language issues.

Here’s the basic premise.  Every time you speak to someone, you make choices about the words you use. This suggests that you can raise or subdue the emotional level of the conversation through those choices, and since emotions can often run high during a negotiation, it’s good practice to choose your words carefully. I have written about this subject in the past.

This week I spent a fair amount of time discussing the best ways to deal with objections during a negotiation, such as “You have plenty of protection with the inventory reliance percentage,” (in dealing with loan advance rates). The class agreed that the best approach was to empathize, “I understand” and then probe around the client’s concerns before addressing the issue.  We even role played this scenario.

But at the end of the workshop I gave them a case study in which the client objected to the advance rate using the same language.  One of the case study questions asked, “What should the banker say when the client objected about the advance rate?”  In every instance, the participants replied that the banker should say something like, “I understand this is a concern for you, but this is not sufficient protection for us and here’s why.”  This is a very poor way to address a client objection, and worse, it indicates that the learners totally forgot the earlier rationale and practice of this important skill.  Maybe I’m not as good a trainer as I thought I was.

What happened is that when the learners knew they were practicing “Handling Difficult Objections” they remained focused on listening for them and responding carefully, but when an objection was thrown at them outside that context, they reacted as they would in everyday conversation with a friend.  In other words, we automatically bring our everyday communication habits into business discussions, and they often don’t serve us well.

Example:  Your spouse says to you, “You came home awfully late last night.”  You say, “No I didn’t,” rather than “I thought you might be concerned.  What time did you think I would be home? I probably didn’t tell you.”

So I’m going to make adjustments to this part of the workshop and incorporate more spontaneous practice in which objections surface unexpectedly, so the participants learn to spot them and practice in context again and again.  It takes a lot of effort to do this skill well and even more to incorporate it into your pattern of speech.

If you’re a trainer, try incorporating a few objections into various role play scenarios within your programs and see if the learners pick up on them and respond professionally.

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