Negotiating in an Economic Downturn

Posted by Staff Writer on Thursday, September 10, 2009 at 5:52pm.

“The best time to negotiate is when you are willing to walk away from the deal,” says Donald Trump. The U.S. real estate mogul and reality TV star should know – one of Trump’s autobiographies is entitled the Art of the Deal. Trump’s entire career is based on putting together seemingly impossible deals, negotiating with buyers, sellers, banks and investors until each gave more than they wanted to.

Negotiating is the norm in life as in commerce – and as business becomes more competitive, entrepreneurs must become better at negotiating. Experts offer a number of negotiating tips for both buyers and sellers.

Know your opponent. Different suppliers have different negotiating strategies. Knowing how an individual has handled bargaining in the past will help you to predict future behavior. For example, some sellers routinely open by asking for twice as much as their product is worth.

Know the product. Whether you are the buyer or the seller, it is important to know everything about the product’s specifications and features. What are similar products selling for?

Know the market. Your position in the market will have a major influence on the success of your negotiations. If you are the only supplier of luxury automobiles in the region, you can virtually name the price. If the economy is poor and the product is sold on every corner, you may have to accept a lower price than you would like.

Establish an “asking price.” Never start the negotiation with your best offer. If you are a seller, ask for more than you genuinely expect to receive. A buyer should offer less than they expect to pay. Ideally, the two will meet at a price near the middle that is marginally acceptable to both.

Sometimes buyers are reluctant to make an offer that is too low for fear of “insulting” the seller. This type of fear can be very expensive. Instead, when buying supplies, the business owner should assume that the asking price is far above market value.

Don’t offer to split the difference. The conventional wisdom is that the first person who offers to “split the difference” will lose the negotiation. Suppose, x wants $1,000 for his used car and Y has offered $750. If X offers to “split the difference,” at $875, Y will almost certainly decline and offer $800 instead.

In reality, “split the difference” usually means the split is 75/25 in your opponents favor.

Add extras – or eliminate them. A simple way to reach an agreement is to add or subtract “extras” until both parties are satisfied. A western-style business suit with jacket, pants and vest may be priced at $1000 KES. The buyer may offer to “throw in” an extra pair of pants rather than drastically reduce the price. If the buyer is still reluctant, the seller may quote a lower price for jacket and pants alone, without the vest or extra pants. The seller’s profit is similar, but the buyer is satisfied that he got a good deal.

Regardless of what industry you are in, adroit negotiation is an essential business skill.

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