Purchasing and Negotiation Training

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

No discussion of negotiation is complete without exploring the amorphous concept of Power.  Most authoritaties refer to the three essentials of negotiation as power, time, and information.  Our treatment of the purchase and sale negotiation takes a different approach.  We devote much effort to the preparation stage, involving extensive information gathering and analysis tools.  This business treatment of information largely isolates and minimizes the time factor.   While time and information are quantifiable commodities, power is far more elusive.   

 The intangible notion of power intrigues us.  Our definition for negotiation purposes is the ability to say no and to live with the result.  This is not the same as tact.  Tact is the ability to tell the other guy to go to blazes and to make him look forward to the journey.  Power has many different manifestations but one common quality, perception.  Power resides in the perception of the parties. 

 How would you answer this question? 

“Who has more power in buy/sell settings?”  Virtually always, the immediate response from buyer and seller alike is, “The buyer”.  If so, answer this follow up.  “Well, why then should we bother negotiating with them if we have all this power?”  

Further, power has a migratory effect.  If you think that you have it, you have it.  If you think that they have it, they have it.  Do not assume that the other guy has more power.  

Sacred Writings combined with Power  

Nothing is standard about the “standard contract form,” yet otherwise sophisticated business folks frequently fall for this feint.  So called standard agreements act as biblical papyrus in the eyes of many.  The biggest impediment to modifying a standard contract form is the person in the mirror.  A business can back itself into a corner by thinking that they must have a certain deal or contract.  An analogous feeling of resignation arises in the banking customer.  A borrower may readily cede the perception and thus the reality of that power to the bank in a mortgage relationship.  Banks understand and respect power, so they project that image.  Their preprinted forms are a tactic to reinforce the image.  

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Some years ago, my wife and I restructured our real estate portfolio.  In dealing with the bank, we encountered the customary paperwork delay.  I am certain many financial institutions plan the delay, then work to convince customer of the bank’s willingness to bend over backwards.  In retail banking, many customers feel the crush of over whelming odds so they don’t even question the reams of legal forms set before them at a closing.  

At our closing for a small mortgage, the bank presented a preprinted form requiring advance escrow deposits for taxes and insurance.  The bank’s attorney at the closing insisted the form could not be changed.  This tactic is called nibbling because it is a feeble attempt to bite off a sweeter deal.  My retort was that we eliminate the form since I planned to pay the amounts directly when they fell due, not a year in advance so the bank had my money interest free. 

Upon returning to the closing, the attorney had another preprinted form that bumped the rate up a fractional percentage to compensate for the banks ‘loss’ of value.  I informed the attorney that my patience was exhausted and that I was prepared to forsake the mortgage entirely unless the substitution of terms contrary to those agreed was halted.  The balance of the closing went through quite smoothly, with no further power plays on the banks part. 

 My walk away position was that I did not need the mortgage, although I would have preferred to have the cash for available capital.   The bank makes money when it sells loans.  When called on its obvious attempt to fatten its purse, the bank folded.  Call a foul when you see one. 

Power is perception

If you think that you have it, you have it!  If you think that they have it, they have it.  A buyer negotiating with a large company may feel powerless.  In that case, he is.  But buyer and seller do not want the same thing.  In our capitalist system, each party has power over what it owns.  If the other party wants what we have, the stage for negotiation is set.  A large seller may have a motivation independent of the small volume to be gained in the sale at hand.  Consider power to be audacity, confidence, or just a mastery of the process. 

Another manifestation of power is reluctance.  The aphorism is, “He who wants it most loses” applies.  If you want it bad, expect to get it bad.  Ironically, power flows in the direction of the party that wants the deal least.  This is the basis for the reluctant buyer tactic.  

I discovered this tactic quite by accident.  I had a peculiar client for many years.  We were not personally close, but the work and the billings were rewarding.  He would call at the last minute and make outrageous demands such as traveling overseas with about a week’s notice.  On one important occasion, I had prior binding commitments.  My refusal was not a tactical response, but a candid statement of regret.  I feared riling this fellow because of the relationship and future potential.  He persisted to the extent of sweetening the compensation.  It made sense to me to consider rescheduling the other commitments.  I made a concerted effort, offered concessions to other clients to get the time slots, and learned a valuable lesson about negotiation.

Power, much as tactics, is another tool in the negotiation workshop.  By itself, no tool can compensate for poor skill or inadequate preparation.  Rather, the tools in the heads of skilled negotiators advance the process toward acheivement of the strategy.