Getting off to a good start
First impressions make a difference. Getting off to a good start with your proposal in business negotiations is likely to influence the final agreement. Your first offer should reflect your best-case scenario, supported by first-class justification. Before you start ask yourself:-
• Who should make the first offer?
• Should it be high (if you are selling) or low (if you are buying)?
• What should you do if your opening offer is rejected?
While some negotiators recommend letting the other side open the discussions, others suggest that making the first offer gives you a tactical advantage. These suggestions are simplistic and generally apply to one-time business deals. Doing business in the global arena is a long-term prospect, where personal relationships are essential. Skilled negotiators create a favourable atmosphere that has a positive impact on the tone, style and progress of negotiations, as well as the final agreement.
Once made, first impressions are difficult to change, particularly if they are negative. We tend to have quicker, stronger and longer-lasting reactions to bad impressions than to positive ones. So, take extra care in formulating opening statements.
For fruitful negotiations, the opening offer should:
1. Stress mutual benefits;
2. Be clear and positive;
3. Imply flexibility;
4. Create interest;
5. Demonstrate confidence; and
6. Promote goodwill.
Understand what the other side needs
The opening phase is the time to find out what the other side is really looking for. Identify their underlying needs and your common interests, and emphasize the mutual benefits to be derived from reaching agreement. At least in the initial stage of the discussions, be prepared to set aside differences of interests and potential obstacles that could derail the negotiations. Your first offer should be viewed as fair and reasonable.
In view of these findings, sellers may be tempted to start high and buyers to begin low to maximise their outcomes. However, as every deal is different, both parties should consider each new negotiation as unique, calling for extreme care in the preparation of opening strategies. Experienced negotiators in international business bear a number of factors in mind when planning their opening stance: cultural norms prevailing in the target market; competition in their line of business; and whether they are seeking repeat orders over the long term.
Should I make the first offer?
Yes, if you wish to take the initiative and set the tone of the discussions. You gain a tactical advantage by submitting your position first, because you establish a reference or anchor point.
No, if you are not familiar with the market in which you are trying to do business. Making an offer without adequate information or a clear understanding of what the other side wants places you in a risky position. For example, having your first offer accepted means that you have underestimated the market.
Should I open high?
Yes, if you can justify the level of your offer. At this early phase of the discussions, any objections to your high offer should be dealt with through questions, not by making concessions. Your best approach to objections is to find out which part of your proposal is acceptable and which elements are considered objectionable.
The main mistake to avoid is to present an offer considered so high by the other side that it results in a deadlock. Another common pitfall is to start with a high offer and not be prepared to justify it. To overcome lack of justification or preparation, negotiators wrongly begin immediately to make concessions, without asking for reciprocity.
Should I make a low offer?
Yes, in special situations. Skilled negotiators may make a low initial offer, near the bottom line – not so much to get the business, but to be invited to the negotiations.
When they hope to enter into new markets or to get a foot in the door with a new customer, business executives often open with a proposal that is close to, or at times below, their bottom line. In such cases, it is vital to explain that the offer is valid for a limited time only.
At times, you may wish to make a low offer in order to secure business with well-known global enterprises. This strategy is common among small and medium-sized firms seeking business deals with world-class companies. Advantages of being associated with large international firms often override the need for immediate profits. This business strategy places the negotiator in a weak position from the beginning, however, and often results in unprofitable agreements. To avoid being caught in this situation, shift the discussions away from the initial offer to the needs of the other side.
In part 6 what to do when your proposals are rejected.