B2B Street Fighting Blog

two ways to create value in business negotiations

Posted by Marie Dudek Brown on Tue, Jul 31, 2012 @ 10:42 AM

two ways to create value in business negotiationBegin with a goal to "create joint value and divide it given concerns for fairness in the ongoing relationship."  There are numerous small steps involved in attaining this goal, including estimations of the consequences to both sides of not reaching agreement (CNA) and estimations of items each side is interested in including in the deal.  All of this work done so far has been engineered to bring you to this point -- the point at which you can actually begin to create value.  You create value in two ways.

First, you do it by putting a deal on the table that, if agreed to, leaves both you and your customer better off than your alternatives to agreeing - your CNA's.  This can be difficult because many times you find yourself across the table from a buyer who either hasn't truly diagnosed their CNA or, worse yet, has misdiagnosed it and believes that it's better, faster, or cheaper than it really is.

Second, you create value by trading as many prioritized "Wish List" items as possible so you can "expand the pie" that's being negotiated and therefore create more value for both sides to divide.  This is also difficult to accomplish because, more often that not, either one or both sides hasn't even taken the time to think through all the items up for negotiation, much less rank which are most to least important.  In addition, even those customers who have thought through what they want are more than likely to keep that information close to the chest.

Nonetheless, having estimated and validated your own and your customer's most likely CNA and Wish Lists, you already have a great deal of information about your customer, very possibly even more than they do.  Moverover, you're now much closer to answering the two questions that need to be answered if you want to create and divide value between you and your customer.

  1. What are the consequences if we do not reach agreement?
  2. What items are likely to be included if we do reach agreement?

And, most important, having gathered that information, you've shifted the balance in your favor and are now in a position to make use of that information to begin preparing the kind of offers what will enable you to attain your goal.

Note that the word offers was used. The end result will be not one offer that you make to your customer but rather two to four of what we call Multiple Equal Offers (MEOs).  These are essentially offers that are of approximately equal value to you but of varying value to those on the other side.  These offers are also custom made because they are based on the CNA and Wish Lists you've estimated and validated for both sides in each deal.  And they are all designed to provide each side with something better than its Consequences of No Agreement, and to include as many trades as possible, so as to increase the value to both sides.

Although Multiple Equal Offers may sound somewhat like "bundles" they're actually different for several reasons.  Bundles are typically offered "off the shelf" rathen than customized for a particular deal.  They are also typically not packaged to benefit both sides but rather to benefit the seller by loading in high-margin or slow-moving items or services.  And, finally, when a bundle is offered, there's usually only one rather than two to four, as is the case with MEOs.

But exactly how do you develop these offers?  That's a topic for another post.  Can't wait?  Request our article below!

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