Negotiation Settlement Range Planning

Posted on 11/01/2006 in Sales Negotiation Skills

Successful negotiators differentiate themselves from average negotiators in several ways, starting with how they plan and prepare for a negotiation.  This newsletter is the second in a three-part series on the planning process followed by the most successful negotiators.

Negotiation Planning Process

Four interrelated steps constitute the planning process followed by successful negotiators:

Step 1: Identifying and ranking their critical needs and issues
Step 2: Asking questions to identify the other side’s critical needs/issues
Step 3: Planning their Settlement Range 
Step 4: Creativity on Currencies and Concessions*

STAR's October newsletter focused on the first two steps.  This month’s newsletter will highlight Settlement Range factors (Step 3), and next month will highlight Step 4.  Please visit our website to view previous blogs.

Planning Your Settlement Range

Every negotiation involves one or more issues.  Successful negotiators plan a Settlement Range of acceptable outcomes for each issue, whereas average negotiators plan a single point.  The Settlement Range consists of three elements:

1. Opening Position (OP): This is the initial amount that you will request. Typically, sellers ask for more (higher price, longer contract duration, additional services, and so on) and buyers ask for less (lower price, shorter contract duration, unbundled services, and so on)
 
2. Desired Settlement Point (DSP): This is an acceptable outcome for that particular issue.  In other words, you would be satisfied if the final agreement matched your DSP.  Another synonym for DSP is your "aspiration level”.   

3. Walkaway (WA): This is the worst that you would accept for a particular issue. For example: the lowest price that the seller would accept or the highest price that the buyer would pay.  Please note that Walkaway can be both a strategic negotiation concept (when used in the planning process) and a negotiation tactic (you can ‘threaten’ to walk away during the negotiation to test how strongly the other side feels about their position).  Today we are focusing on the strategic use of the Walkaway.

Settlement Range Tips and Guidelines

1. Your Opening Position must strike a balance between being realistic yet optimistic.  The cliché, "successful negotiators ask for more and get more,” does have much truth. But, if you ask for too much, you increase the risk of deadlock (no deal).  Average negotiators tend to open too conservatively.  How can you set a realistic-yet-optimistic OP?  Factors include knowledge of the market, your competitors, your skill level, and whether or not you and the other party have other alternatives.

2. Consider the following, Here is a key planning question: How much room should you set between your OP and DSP?  In general, you need to have enough room to allow for the expected give-and-take of concessions by both sides.  Average negotiators don’t allow enough room, and tend to settle for less than their DSP.

3. Although it sounds obvious, always set a Walkaway.  Failure to set a WA increases the likelihood that you will make a bad deal. Average negotiators often believe that "no deal” is a sign of failure, and consequently don’t set or honor their WA. 

4. Finally, we are NOT saying that the desired goal of your negotiation is to walkway.  Next month we will focus on the skillful use of Currencies and Concessions to increase the likelihood that you reach an agreement that is mutually beneficial to both sides.

For more details, visit our Negotiating for Success Workshop page and our Giving and Getting Concessions while Negotiating Sales Meeting Kit page. STAR helps clients prepare for upcoming negotiations. Call or email to learn more about our 1-on-1 coaching services. 

 

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