The amount of knowledge you have about the various elements in a negotiation is crucial. This includes information about what is being negotiated for, the other party or parties, and parameters that might play a part in the transaction such as the way the transaction might be handled. You could think of this as the What, Who, and How of the negotiation. Knowledge of your BATNA is an essential what as it can serve as your fallback position and a potential point of leverage.

What
If you are negotiating for a product, the more you know about that product the better. It means solid knowledge of what – the subject – of the negotiation. Aspects that may be helpful would be quality, similar products, typical price, options, or conditions that might be involved in the transaction. For example, if you were interested in purchasing a new motor vehicle it would be important to be familiar with the price range, maintenance costs, financing options, and any special offers that might be available. Knowledge is about doing your homework, taking advantage of any sources of information you can find, and entering the negotiation well prepared. You can be sure that a salesperson will be armed with plenty of marketing information and has been trained in how to present a compelling case for the product.

Whether you are negotiating for products or services it is always good to know about competing or similar products or services. That is part of the knowledge of what. Good shoppers know that competition can create benefits for the consumer, so you need to be armed with information about comparable products or services to get that benefit. Products that are interchangeable or commodities offer the biggest opportunity in this regard. Before any negotiation it is wise to do research to seek pricing, maintenance, options, and other information of similar products or services related to the transaction.

If you needed to buy a new truck, you would probably want to gather information on trucks before visiting a dealership. Information on price, features, maintenance costs, and fuel efficiency might be some of what you would want to know. A savvy consumer would probably compare different makes and models in narrowing choices and to understand the pros and cons. The more you know about the product you are buying and the terms before negotiating can make a big difference. For example, you might learn that one car dealership is offering special financing or including free maintenance for a limited time. Even if you do not take advantage of such an offer you could use it as comparison if you negotiate with a different dealership. What you learn in advance can work to your advantage. Competition can work in favor of the consumer who is well informed. And the more information you have, the more ammunition you have when dealing with an experienced salesperson.

Even if it is not a competitive negotiation, you still need as much information as possible. Let’s say you are looking to buy a house. Working with a real estate agent you find a house that meets your interests. It seems like the perfect house. If you make a full price offer the house can be yours. Before making that offer, however, you might want to get more information – more knowledge – about the property. You hire an inspector to provide an expert analysis of the property. The inspection identifies several problems that you did not know about and would cost thousands of dollars to remedy. Those problems, documented in the inspector’s report, represent information you can use in forming your offer. What you learned from the inspection is beneficial knowledge. Not knowing about those problems up front, you might have offered the full price and had to deal with those issues later at your own expense. Armed with that information, you can factor it into your offer. You could, for example, offer a lower price or ask that those issues be addressed prior to closing.

Who
Knowledge of the party you are negotiating with and any conditions that might affect them is also important. It means knowing who you are dealing and what might affect them in that transaction. Is the person you are negotiating with a seasoned negotiator? Are they representing themselves or an organization? Will they be the decision maker? Is there anything you know about them that might affect your approach to the negotiation? Anything you can learn about who you are negotiating with can be helpful.

I once visited a car dealership interested in replacing an older vehicle. I had a specific model in mind, did a test drive, and was prepared to negotiate to purchase the vehicle. While my salesman was out of his office, I overheard a conversation between two other salespeople. It was near closing time on the last day of the month and I heard them mention that my salesman only needed to close one more deal to win that month’s sales contest that would pay him a large bonus. Needless to say, that made me think he would be extra eager to close a sale. Since I was the only customer present I anticipated a good deal. That proved true when we negotiated price and he accepted a really low offer I threw out as an ‘opening bid’. I purchased the vehicle at a steep discount and got free maintenance and extras included. At the same time, my salesman celebrated winning his sales contest. Because I knew he had an added incentive I took a more aggressive approach than I would have otherwise. That overheard conversation provided knowledge about the salesman – who I was dealing with – that provided tremendous value.

How
Understanding the way a negotiation will be handled in advance, the how of the transaction is extremely helpful. Most salespeople are skilled negotiators and often have the advantage of experience in the way their product or service is negotiated. In the case of a vehicle negotiation, the salesperson’s familiarity with the process through repetition and a variety of transactions can give them the upper hand. In addition, salespeople are trained in techniques that always work to the benefit of the dealership. Lack of familiarity and experience in negotiating is a major reason many people feel somewhat intimidated in this situation. It is not just that the average person knows they are less experienced. They also know that the salesperson knows they are less experienced. To combat the upper hand that the salesperson has requires understanding the process and how to steer it to your advantage. There are services that exist to learn about the process of buying a vehicle and a potential buyer could even practice buying a vehicle to gain awareness and build confidence. Experience is a valuable asset in these and other negotiations. And simply understanding how the transaction might transpire ahead of time is always helpful, even if experience is limited.

Every negotiation situation is different. In the vehicle purchase example above, the negotiation process is fairly well defined by the dealership. In that kind of situation your ability to affect the how of the negotiation may be limited. At other times you may actually be able to determine the process, regardless of which side of the negotiation you are on. For example, let’s say your objective is to have new landscaping done at your home. As a consumer of this service you will make the decision which landscaper you will hire. You can decide how many competing bids you will get, the criteria for the decision, and the timing. In this situation, hiring a landscaper, you have more control over the how of the negotiation process than in the vehicle purchase example. Where a negotiation occurs can also affect the outcome. At the dealership you are on their turf, at your home you are on your turf. Skilled negotiators sometimes try to tilt the transaction in their favor through the use of location. Even the psychological advantage of where the negotiation happens can sometimes have a significant effect.

Understanding the process for the negotiation you are entering can help with preparation. If the process is determined by the other party you will want to be aware of that up front. In fact, in that case you should ask questions to clarify the process early so you are not surprised by it late in negotiations. Whenever you control the process you should plan it out ahead of time to maximize your advantage. Where the negotiation happens is another aspect to be aware of when it might affect the outcome. And if you can determine the location to help your cause you should give it some consideration.

Can you create a BATNA?
At one point in my IT career I was responsible for the mainframe computing environment for a large retail company. That company had a very strong relationship with IBM and had always used IBM mainframe computers. We were near the end of a lease on one of our IBM mainframes, and we needed the computing capacity that mainframe provided, so we wanted to renew the lease. We had a new sales representative who was eager to impress his boss by increasing revenue. This was obvious when he offered us pricing that was 50% higher than the existing lease. In the past, IBM had always decreased lease prices on used equipment, so the fact that they were increasing the lease price was surprising. We had not budgeted for an increase and we pushed back trying to get him to lower the price. He would not budge because IBM, having driven all competitors from the market, was the only company still manufacturing mainframe computers. His position was that IBM had a monopoly and therefore we would be forced to agree to their terms. Because our lease was expiring and IBM owned the mainframe, we were in a difficult position. There did not seem to be an alternative to the overpriced IBM mainframe lease. In other words, we did not seem to have a BATNA. This was a terrible situation because not only would I exceed my budget by 50%, we also had another IBM mainframe expiring in the following year. If we were forced to agree to IBM’s lease pricing they would most likely take the same approach with the other mainframe lease.

We had an idea on how to create an alternative, but it was a long shot. A mainframe computer company, Amdahl, was no longer manufacturing mainframes, yet still offering support for their existing used mainframes. My previous experience at a large insurance company using Amdahl products had been extremely positive, so I viewed a used Amdahl mainframe as a viable solution. However, our company was extremely loyal to IBM and very conservative. There was a popular saying at that time: ‘No one gets fired for making an IBM decision’, and it was quite true. Our management had never heard of Amdahl and was unaware of their strong track record. Convincing our management to abandon IBM and take a chance on a used mainframe from a company they were unfamiliar with would be a difficult task. It was our only hope to create a BATNA and avoid a Win-Lose outcome. Three things were in our favor: 1) We had recently hired an ex-Amdahl engineer who was a mainframe expert, 2) My positive experiences with Amdahl solutions at that large insurance company were documentable, and 3) Amdahl was eager to sell their used mainframes. Our ex-Amdahl engineer identified a specific used mainframe Amdahl had available that he was intimately familiar with, identifying it by its serial number. He had personally conducted hundreds of hours of quality and operational testing on that device and it performed flawlessly. He was confident it could replace the IBM mainframe and presented virtually no risk. The Amdahl solution had an added advantage over the IBM solution; the ability to dynamically modify processing power. Because of how software costs were assessed at that time, that feature could save us hundreds of thousands of dollars in software licensing. We encouraged our Amdahl rep to put together the most generous offer possible. Working with him, we developed a proposal with contrasts to the IBM offer and prepared it for our management. The proposal included:

  • Documentation on the historically strong performance of Amdahl solutions
  • The resume of our new engineer with 20+ years of Amdahl technology experience
  • Test results of this specific machine that our engineer still had in his possession
  • Projected cost savings from software licensing associated with the Amdahl solution
  • The lower cost for the Amdahl hardware – literally half the cost of the IBM solution
  • 3 years of Amdahl maintenance at no cost (IBM’s solution had add on maintenance costs)

Before we submitted the Amdahl proposal, we made our IBM rep aware of it. Our hope was that having the Amdahl solution as an alternative would prompt IBM to drop their price. Instead, the IBM rep went to our management and disparaged the Amdahl solution, telling them it was risky and an inferior product. After he met with them, he visited me in my office and told me defiantly, “Your management will never switch from IBM. You have no choice but to accept our offer”. With that statement, it was obvious there would be no further negotiation with IBM.

Since IBM would not negotiate and their pricing was extremely high, we were determined to pursue the Amdahl solution as our BATNA. We met with our management to review our proposal and answer their questions. We emphasized that despite IBM’s claims the Amdahl mainframe presented almost no risk and offered significant cost benefits. There was personal risk involved here. I had to basically put my reputation on the line to sell this proposal. If the Amdahl solution resulted in any outages or problems for my company I would be held responsible. I was confident enough in the solution to take that risk.

Ultimately, management approved the proposal and we installed the Amdahl mainframe. It served our company’s needs – flawlessly – for several years, saving over one million dollars in hardware and software costs. IBM’s refusal to negotiate forced us to create a BATNA. Fortunately, we had the knowledge and resources to develop a solution that helped us avoid a Win-Lose scenario.

When negotiating with a weak or non-existent alternative, you may be forced to accept an undesirable outcome. Before conceding that result, consider working to develop a BATNA. It might require creative thinking or a solution that introduces some risk. Crafting an alternative involves using knowledge of your specific needs and pooling whatever resources might be available. It could mean researching a completely new solution or cobbling together a temporary ‘band aid’. You might even consider something more expensive or with stripped down function. Having a BATNA – any alternative – gives you a legitimate reason to consider ‘No Deal’ and automatically increases your stance in a negotiation. The bottom line is: whenever you have a BATNA and make the other party aware of it you increase the chances of a better outcome.

Summary
The amount of knowledge you have can have a dramatic affect on the outcome of a negotiation. The more you know, the greater the opportunity to use that knowledge to advantage. Learning as much about what you are negotiating for, who is involved in the process, and how the transaction might transpire often affects the outcome. Doing research up front about the object of the negotiation, the person(s) you are dealing with, and the process can provide huge benefits. Having a solid BATNA as your fall back is also important whether you use it as point of negotiation or it gives you the confidence to walk away if your interests are not met. When your alternatives are weak or nonexistent you should explore the possibility of creating or improving your BATNA prior to negotiating. In all situations you should ask yourself if there is more information you can acquire to be better prepared. Even a single piece of information, obtained in advance, can be valuable.

 
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