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The Power of Competition in Negotiation – June 2011 Master Negotiator

Empty Conference Room In a negotiation, the counterpart who has the power is better able to positively leverage or improve their outcome. One of the fastest ways to gain power is to introduce competition into the negotiation. People who make their living by selling a product or service typically do not like it when a buyer tells them they have a different or lower bid from a competitor. It forces a sales person to really “sell” the benefits and value of their proposal. The buyer, on the other hand, loves competition to help improve their deal. When you go out to buy a car from a dealership, and you find the exact same car at three different dealerships, you will achieve a much better outcome by sharing information with one dealer about what the other dealers are willing to do to sell the car.

In the last three weeks, two of our clients have been acquired by larger companies or capital firms. In each case, during the finalization of a deal with the buyer, a second potential buyer entered into the negotiation with an offer to buy the company. The first bidder significantly improved their offer to finalize the deal and eliminate the second bidder from the deal.

Competition holds tremendous power for 3 reasons.

First, competition means you have possible options and outcomes. When you have multiple options, you tend to be less committed to only one option. In a negotiation, it is important to know that the side who is least committed to the negotiation holds the most power. This is true in business and it’s true in personal relationships as well. The best negotiations and relationships flourish when there is equal commitment to a win-win outcome.

Second, one of the biggest implicit needs of any great sales person is the need to make the sale. Great sales people hate to lose a deal to a competitor. Sales people, with the thought of not losing to a competitor going through their mind, have made concessions that they would never make if they were not being compared to a competitor.

Third, competition helps you to build knowledge and gain expertise over the topic of negotiation. The more people you meet with and ask questions, the more you know.
But what if people are using competition against you to improve their deal? With competition holding power, how do you counter competition to ensure you achieve a win-win outcome? Here are five tips:

  1. Call their bluff: A sales person recently told me a competitor was selling the same product he offered for $50,000 less. I told the sales person that something doesn’t sound right. Any smart buyer would call the competitor whose product is $50,000 less and place the order. A one minute phone call to save $50,000 yields an awesome return on investment. I also reminded the sales person of point number two listed below…something is going on in this sale that you either do not understand or see. I encouraged the sales person to let the buyer know he could not reduce his price by $50,000 and was interested in understanding why the buyer does not place the order with his competitor if price is the most important deal point to the buyer.

  2. Uncover the true implicit need: If price was the most important deal point in a negotiation, we would all be driving Yugo cars and the company would still be in business. The reason we do not buy the lowest priced product or service every time is because implicit needs almost always override explicit needs. Explicit needs are deal points like: price, quantity, delivery, warranty, and terms. Implicit needs are seldom spoken and are things like: reputation, fear, image, the need to be right or make a good decision, to have trust in the relationship, and the need to be liked or loved.

  3. Bring your own competition: If you are selling your car and the buyer wants you to deduct $1,000 from the asking price, you might be willing to negotiate this concession until another buyer shows up in your driveway and is willing to get closer to your asking price. At that moment, you will most likely be unwilling to discount your price. Unless, the second buyer took your car for a test drive, came back and told you he was not interested. In negotiation, competition can change the outcome of a deal in a heartbeat.

  4. Walk away: As we have stated before, as long as you have the ability to walk-away from the deal, you will always hold more power in a negotiation. Once you become emotionally committed to a deal and lose the ability to walk away, the power quickly fades.

  5. Remember, power is almost always equally balanced: If your counterpart continues to communicate with you; i.e. returns your calls or your emails or meets with you in person, you have power. If they truly believed that a competitor had the better deal than you, they would stop communication. Almost always, there is an implicit need creating the power that keeps your counterpart engaged.

Competition is a powerful tactic to add to your negotiating repertoire. Whether it is being used against you, or you are using it to benefit your outcome, never underestimate the power of competition.

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