UNIT 7 NEGOTIATION PROCESS

Structure

7.1 Introduction

Objectives

7.2 Negotiation Defined

7.2.1 Definitions of Negotiation

7.2.2 Principles of Negotiation

7.3 Effective Negotiation Process

7.3.1 Pre-negotiation process

7.3.2 Negotiation Process

7.3.2 Post-negotiation Process

7.4 Closing techniques

7.5 Summary

7.6 Keywords

7.7 References

7.8 Suggested Readings

7.1 Introduction

In the previous unit we have understood activities that are performed to ensure a
successful presentation. We have discussed the pre-presentation activities, various
guidelines for making the presentation and the effective presentation process. Having
achieved the objective of presentation and successfully handling the objections, it’s time
for the sales representative to negotiate and close the deal effectively. Once the
customers are satisfied they would like to negotiate the price and other features like
warranty period, after sales services, discount on add-on products and so on. So,
negotiations are the part and parcel of the sales process before getting an order.

During the negotiation process the customer will like to have the best price for the
product/ service. The customers are always intelligent enough to know that the price
quoted by the sales representative can always be negotiable. Negotiations will happen
until both the customer and the sales representative negotiations comes to an
equilibrium point. It is always important to understand that the customer will try to
negotiate the price to such an extent that there would be no profit left for the
product/service sold. It is the skill of the sales representative to successfully negotiate
the deal such that a profitable relationship can be built both for the company and the
customer. So, let’s now understand the negotiation skills a sales representative must
possess to successfully handle the deal. After the negotiations sales representative will
use the closing techniques to close the deal and make the agreement of the sale.

Objectives

After studying this unit you will be able to:-

1) Define negotiation and its objectives

2) Identify the underlying principles of negotiation

3) Explain the pre-negotiation, negotiation and the post-negotiation processes in

handling the deal effectively

4) Understand the objective of closing techniques

 5) Use the appropriate closing techniques according to various situations in the
sales process

7.2 Negotiation defined

After the sales representative knows that the customer is willing to make the purchase
but has some concern related to price or features then he/she will enter into a
negotiation process.

7.2.1 Definitions of negotiation

Let’s start this section by identifying by defining the term “Negotiation”. Negotiation can
be thought of as “a process between two or more parties to arrive at a mutually
beneficial agreement or relationship”. Various other definitions given by some of the
scholars include as follows:-

Î Steven Cohen (2002) describes negotiation as “the process of two or more

parties working together to arrive at a mutually acceptable resolution of one or
more issues, such as a commercial transaction, a contract, or a deal of any sort”.

Î Fowler (1996) describes negotiation as “a process of interaction by which two or

more parties who consider they need to be jointly involved in an outcome, but
who initially have different objectives, seek by the use of argument and
persuasion to resolve their differences in order to achieve a mutually acceptable
solution”.

7.2.2 Principles of negotiation

Flower (1996) describes that there are seven principles to any form of negotiation. Let’s
look at them in detail:-

a) Negotiation is the process which will require both the parties to reach to a desired
outcome. Both the parties show some common interests in either the subject matter or
in the negotiation context, which shall hold them in the negotiation process. For e.g. If
you are selling a technical software such as anti-virus to the company, then your
objective might be to sell as many copies as possible with a reasonable profit margin
and the customer objective might be to get the copies at the least cost possible. Here
both the customer and the sales representative objective are to get best value from the
deal. This holds them in the negotiation process.

b) The discussion in negotiation process will normally start off with different objectives
which will initially prevent the achievement of the outcome. For example, in the previous
example, the customer who is buying the anti-virus product might say he will be
interested to take 50 copies if the discount is 30 percent. But the sales representative
might say the maximum discount he will consider giving is 15 percent. So, here both the
parties started off with different objectives which don’t allow them to come to a
conclusion easily.

c) At least initially, both the parties will opt for negotiation as a satisfactory way of
resolving the differences rather than forcing to them to abide by the agreements. For
example, when the sales representative says the maximum discount he can give is 15
percent and the customer is expecting a 30 percent. Then both the parties will proceed
to negotiate further rather than the sales representatives forcing themselves to give the
30 percent discount or the customer buying the product for a 15 percent discount.

d) There is a belief in negotiation that each party can persuade the other to change
his/her stand on the original position. As stated in the previous principle, both the parties
initially look for the negotiations. As per this principle, the customer will believe that he
can get more discount than 15 percent from the sales representative and the sales
representation will proceed with a belief that he can persuade the customer to buy the
product at reasonable profit margin to the company.

e) The next principle states “both the parties feels that there is still some hope left even
if there ideal outcomes are unattainable”. For example, if the sales person feels that the
customer is not going to place the order at 15 percent discount at any cost, then there
can still be some hope left that the customer will buy the product at 15 percent if the
benefits of the product are explained once again to the customer.
f) The next principle states that there is no point to participate in the negotiation
process if one party is having influence or power which is real or assumed over the
other party which is completely powerless. For example, if the customer whom you are
selling the antivirus product is your elite or No.1 profitable customer in the past for your
company, then there is no point in arguing much and sticking to your 15 percent. It
would be better to increase your discount rate may be to 20-25 percent and proceed the
negotiations. On the other way, if your antivirus product is the No.1 in the market and is
the only antivirus which can cater to the needs of the customer, then you shall have the
power or influence during the negotiation process. In this case, you can just stick to your
15 percent or may just give a little consideration and increase the discount to 17 or 18
percent.

g) The final principle states that the negation process is carried mostly by human
element with verbal interactions. Hence, the negotiation is strongly influenced by the
emotions and attitudes rather than the facts in the each party’s arguments. This is
where the negotiation skills come into play a lot. The sales representative must
understand that he can still win a better deal even if the customer is adamant by using
his/her negotiation skills.

SAQ 1

1) Define negotiation in your own words

2) Explain the principles of negotiation

7.3 Negotiation process

Negotiation is all about give and take with the aim of both the parties getting satisfied. In
this process various issues are to be handled well. Negotiation process can be thought
of as a three step process namely:-

Î Pre-negotiation process

Î Negotiation process
 Î Post-Negotiation process

Let’s now discuss then in detail.

7.3.1 Pre-negotiation process

Before entering into the negotiation it is always advisable to get prepared for the
negotiation. You should remember that if the negotiations are not handled properly you
may lose the customer and also his referrals. Hence some of the steps which you need
to follow in the pre-negotiation process involve the following:-

Î Identify the customer group

Î Collection as much customer data as possible

Î Identify whom to involve in negotiation process

Î Make a check-list of possible scenarios that may arise during the negotiation
process

Î Prepare for the scenarios and alternate ways to handle

Î Make sure you and your team members are fully aware of the objectives of the
negotiation process

Depending upon the type of sale, the team for the sales negotiation can be a single
sales representative or many. Normally, in door-to-door sales like FMCG and consumer
care products involves only a single sales representative. In such case, he/she must be
fully aware about the customer details and preferences. The sales representative
should be prepared for scenarios where the customer might ask for a more discount or
any add on benefits along with the product/service.

In the Institutional and Industrial sales there will be a team of members who will
participate in the negotiation process. Once the presentation process is completed and
the customer is willing to give an order but express for some concerns and want a
negotiation to be done, it’s time for the sales team to be prepared for the negotiation
process. Company expects that nothing wrong would happen during the negotiation
process in such big deals with the industrial or institutional sales. So, the first important
step is to choose a team who are capable of handling the negotiation process
effectively. The team can involve not only the people from the sales team but may also
include members from other departments like technical, testing, hardware, finance and
HR. The team depends mainly on the type of product/service being sold in the
negotiation process.

For example, if the sale is about a multi-million dollar CRM product, then team for
negotiations may include the technical, finance, testing and the sales team. Every team
member is associated in the creation of the CRM product and so his/her approval may
be required when giving the discounts. One must understand that the customer may ask
discount on some features of the CRM products like the cost for testing services, then it
is important that the testing team member approval has to be taken to give such a
discount.

Knowing about your customer is very important before entering the negotiation process.
This process can be very tedious in big industrial or institutional deals. If it’s the
previous customer you may look into the existing past data of the customer and judge
his buying behaviour and interests. Other ways of knowing more about the customer
interests include looking at the financial status, knowing details from some referrals,
browsing the past and present business activities of the customer etc. With the help of
such information you can know whether the customer would be adamant about the price
or choose the best features and cost is a secondary importance.

During the negotiation process various scenarios may arise from the customer side
such as the customer requesting to increase the warranty periods, decrease the cost,
free add on products/services, and decrease the cost of extra warranty periods and so
on. So it is always better to know about the possible situations that may arise in the
negotiation process by looking at the previous experiences with the same or other
customers in the similar deals. If the deal is a new deal and haven’t come across earlier,
it will be always better to prepare for all the situations that may arise during the
negotiation process. Expert advises can be taken who may be the industry leaders for
knowing the possible scenarios.
Finally before going for the negotiation process, your objectives must be clear about the
offer or agreement you do in the negotiation process. Let us now look at the negotiation
process.

7.3.2 Negotiation process

Let’s understand in this how the negotiation process will proceed in general. Flower
(1996) described the pattern which is followed by most of the effective negotiations.
Let’s understand the pattern in detail:-

a) Both the parties lay down their issues and decide what they are willing to negotiate in
the process.

b) After the issues are set out then one of the party will set the claim which will be
responded by the other party. Here both the parties will define their initial positions.

c) Then there would be the discussion in order to test the initial positions of both the
parties.

d) During this discussion both the parties try to explore all other possible outcomes.

e) After analyzing all the possible alternatives, formal proposals are made which will be
discussed and modified

f) Finally the proposal after several modifications will be treated as final and then an
agreement will be made. This agreement phase can be thought of as the post-
negotiation process

7.3.3 Post-Negotiation process

After the negotiation process the sales representative will use the closing technique to
close the deal and prepare the agreement between the parties. It is always better to
have the final proposal which is agreed by both the parties to be presented in a written
format. This printed document is also known as service-level-agreements (SLA’s).
Some of the issues have to be taken care of so that the agreement may not lead to an
implementation failure. Those issues or concerns include:-
 Î Be clear on what is going to be written in an agreement

Î Take the approval from both the party members

Î Cross check that any higher authority hasn’t been missed out for informing about
the agreement

Î Ensure that the method of implementation and the level of service are clearly
stated in the agreement i.e. ETA (Estimated time of arrival), number of
employees working on the project, type of resources used, etc.

Î Cross check the details in the agreement with all the members before signing the
contract

SAQ 2

1) Describe various objectives of the negotiation process.

2) Explain the need of a well documented SLA after the negotiation process

3) Explain the need for understanding the customer group before starting the
negotiation process

4) Explain the pattern which is generally followed during the negotiation process

7.4 Closing Techniques

A close refers to end the process and in sale it means to end the selling process after
the negotiations are completed. The main objective of the closing technique is
successfully close effectively and gets the agreement signed between the parties. Most
of the times customer might show some resistance to make the decisions fast enough,
hence closing technique serve the purpose of helping or assisting the customer to make
the decision quickly and close the sale. It is the skill set of the sales representative to
know when and what closing techniques are to be used. There are many closing
techniques which can be applied depending upon the situation in the presentation
process. A sales representative may use a single or multiple closing techniques to
effectively close the deal.

We have already learnt about some of the closing techniques in the 3rd unit ‘Personal
Selling”, let’s now look at some more closing techniques which are given in the website
changingminds.org:-

a) 1-2-3 close: In this closing technique the sales representative will try to summarize
the benefits of the product in a sentence with three items. For example “This product is
hassle-free, faster and efficient in removing the virus from your computer” or “this
service is the cheaper, reliable and has a plenty of features than the competitors”. In
this closing technique the main aim is to give a great impetus to the customer to feel
that the product/service is the best in the market. This type of closing techniques is used
widely in the sale of low value products where the sales process may take place within
a day. For larger sales where the discussions run over weeks, this might not be the only
technique used.

b) Adjournment close: This type of closing technique assumes that the customer will
not be able to make the decision right away and will require some time. So here you will
ask the customer to take his/her own time in making the decision and you will adjourn
the meeting to follow up on some other day. This closing technique is ideal when:-

Î The deal involves a lot of issues and value where the customer has to discuss
with his/her higher authorities
Î When the deal is done during the budgetary period or when the funds are low
Î You have a feeling that customer will definitely come back and make more
purchase. During the time given to customer he/she may do an analysis of other
competitor’s product/services and will return to you
Î You are the market leader and providing the best service

c) Affordable close: This type of closing technique is used when you know that the
price of the product is way too high for the customer pocket and you need to do
something to reduce the price or offer some other alternatives. This type of closing
technique is used very common in both the door-to-door sale and the institutional or
industrial sale. Some of the situations in which you may use this technique are:-

Î When you feel that the customer doesn’t have budgets to buy the software or
hardware, then you may give an option to the customer that the software need
not be purchased fully but also can be taken as a service, paying the rent for
every month or quarter while using. This is a wide trend which is used now a
days and the concept is known as software-as-a-service.
Î If you are selling the car or a house to the customer, then you may help the
customer in making the payment through some loans or in easy-monthly-
installments. Always try to find out the best installments or loan facility which
doesn’t make the customer to go in debt and will not be able to make the timely
payments.
Î If the customer feels that your product cost is very high, you may inform him that
the price is justified because the maintenance cost is very low. Try to make the
customer feel that the price is affordable for long term usage

d) Alternative close: This type of closing technique is used when you have a feeling
that the customer is willing to make the purchase and then you may present some
alternatives which the customer can choose according to his preference. For example, if
you are selling the laptops then you may ask the customer “would you like the laptop to
have a 2 GB Ram or 3GB RAM?” or “Would you like to have the Intel i3 processor or i5
processor?” and so on. This can make the customer to make the decision faster and
close the deal.

e) Assumptive close: In this closing technique the sales representative will assume
that the customer has already made the decision and the next step is to take the order.
For example, the customer may be asked “Where do you want the product to be
delivered to the head office or at your branch office?” or “Will one year license be
enough for your product?” and so on. This technique is closely related to the alternative
close and often used along with it during the sale.
f) Best time close: In this closing technique the sales representative will explain the
customer how this is the best time to make the purchase. Some of the statements used
in this technique are:-

Î We have this stock only in this festival season

Î This is the first time the product/service is sold at 20 percent concession
Î This is a limited offer where you get extra one year free onsite service
Î Having the summer approaching it would be the best time to have an AC
Î Having got recently married it is the best time to think about having your own
apartment

These are some of the closing techniques which might help you in different situations in
the sales process. For more closing techniques you may look at the website address
given in the reference section. Many-a-times negotiations and closing techniques go
hand in hand to close the deal effectively. If the closing technique is not working then
the sales representative might negotiate the price or other features and will try again for
closing the sale using an appropriate technique.

SAQ 3

1) Explain any two scenarios where you would use assumptive close

2) If the customer says that they are having tight budgets in this quarter, then which
type of closing technique would you apply? Justify your answer.

3) If the customer is not sure which laptop model to select, then which closing
technique would you find appropriate to use?

7.5 Summary

In this unit we have understood the various closing techniques which can be applied to
know the willingness of the customer to close the deal. We have also understood that
most of the sales process wouldn’t be completed without the negotiation phase. We
have defined negotiation and understood the several principles of negotiation. We have
identified the entire negotiation process would be completed in three process namely
pre-negotiation process, negotiation process and the post-negotiation process. Before
any negotiation process it’s important to be prepared and so we have understood the
various activities that need to be done to ensure an effective negotiation process. We
have understood the six key steps which are followed in most of the effective
negotiation processes. Finally in this unit we have learnt the important issues that need
to be taken care of so that the negotiation agreement of the sale may not lead to an
implementation failure in future.

7.6 Keywords

1) SLA Service Level Agreement is a document which

states the terms and conditions that define the
level of service being provided by the
product/service to the customer.

2) ETA Estimated time of arrival is the time at which

the product/service will be available for delivery

7.7 References

1. Steven Cohen (2002), “Negotiation skills for managers”, Tata McGraw-Hill, USA.

2. Alan Flower (1996), “Negotiation skills and strategies”, Universities Press

Limited, India.

3. http://changingminds.org/disciplines/sales/closing/closing_techniques.htm

7.8 Suggested Readings

1. Lisa J Downs (2008), “Negotiation skills training”, ASTD Press, USA.

2. Chris Newby (2004), “Sales strategies: negotiating and winning corporate deals”,
Kogan Page Limited, UK.