Negotiation Signalling

Signalling: Manage Their Expectations To Get A Better Deal

This article explains how you can guide your negotiation counterparts more effectively using a set of signalling tools to achieve your desired outcome.

A high-tech company pushing through an annual price increase of 8.9% will certainly be met with resistance from its customers who would prefer to maintain current terms. A paper manufacturer closing down one of its divisions requiring lay-offs will need to negotiate a settlement with those whose lives will be impacted. A pharmaceutical division being bought by a competitor will surely reject the first offer. Commercial negotiation implies change: a change in the status quo, a change of terms, a new transaction outcome. Usually, one party is attempting to impose its terms on another. People must find ways to deal with new situations, often not to their liking. This thought piece guides you through 5 steps on how best to help your counterparts manage this change more effectively so that you get a better deal.

A targeted negotiation communication plan, also known as signalling, can help you and your negotiation counterparts become more satisfied with a negotiated outcome. The art of managing their expectations through signalling is a critical component to any negotiation strategy. I once worked with a client who signalled their price increase so successfully that their customer was actually relieved to accept a low double digit price increase having expected a much higher number.

Let’s start by introducing the simple negotiation concept of anchoring. Anchoring in negotiation is at the heart of any signalling strategy. It provides your negotiation counterpart with a benchmark for the variable you are trading: price, contract length, payment terms, product range, profitability etc. When this anchor is introduced, your counterpart should be influenced by it, shifting their mindset in your favour. This is especially true if your opening offer is realistically extreme – at least 25% more than what you want. Hence, the timing and the specifics of how and when you communicate these anchors are crucial.

The fathers of anchoring, psychologists Amos Tversky and the Nobel Laureate Daniel Kahneman published an experiment in 1974 that clearly summarises this important concept. Using a pre-programmed roulette wheel that either stopped on the number 10 or 65, they asked a group of study participants to spin and mark their results. Participants were then asked to identify the percentage of African Member States in the United Nations. The group that landed on the number 10 answered a median percentage of 25 and the group that landed on the number 65 answered a median average of 45. Both groups were strongly influenced by the random roulette anchors. Countless similar experiments have been conducted since, reaffirming the power of anchoring, particularly in commercial negotiation.

Early signalling and anchoring in the negotiation process allows you to set the scene and create the context in which you can negotiate on your terms. Using the following example as a backdrop, you will find below some steps for developing a successful signalling plan:

You are the country-level COO of a multi-national business. Your company is implementing a series of global cost-cutting measures and as a result you need to renegotiate existing contracts with your suppliers. This initiative is driven at the Global level for all regions and the cut needs to be 7.5% across the board. While this message may indeed be true, what it does not show is that you may have more flexibility at the country level. In reality you may only require a 4% decrease for your particular business locally.

1. As early as possible, clearly identify your negotiation objectives and make sure you are aligned within your team on what you want as a preferred commercial outcome. Be as specific as you can. Are you all aligned on the 4% as a target price cut? If you are not, the negotiation will fail.

2. Identify the areas of potential resistance from the other side. Your suppliers in the above example may already be planning something quite different – a price increase of 5.5% for the upcoming year. If so, they will reject your belt-tightening measures outright with their own inflationary counter offers. Try and understand THEIR objectives as precisely as possible. Creatively analysing all potential trades or variables available on the negotiation table can help you think this through.

3. Create a script of key signalling messages that you need to convey not only to your negotiation counterparts but to your organisation internally. The two may vary. By using the concept of anchoring, all supplier touch points in your company should communicate the same message – “we must cut costs by 7.5% across the board.” Communicating this in written form will give this 7.5% anchor even more weight. This gives you room to negotiate a value creating deal on your terms. Other types of signalling messages in this cost-cutting example could include a) showing acts of austerity being undertaken by your organisation including planned lay-offs, b) restructuring initiatives c) personal sacrifices made by you and d) showing that your hands are tied as this is a non-negotiable Global initiative.

4. Use a variety of communication channels where signalling messages can be conveyed. These communication channels fall into two broad categories: a) indirect and b) direct. Indirect scene-setting communications will deliver messages to your counterpart in a less targeted way. Our COO could coordinate with her team to deliver press articles, conference presentations, company blogs and discussions with common 3rd parties to get the message out. Direct communications are more targeted to a specific individual or group who can receive and transmit messages to relevant counterparts directly. Here our operations team could arrange specific phone conversations, informal meetings, especially those not linked to the negotiation, trade event networking exchanges, meeting presentations and regular account reviews prior to a negotiation. The importance is that the message is timely and consistent for all channels.

5. Through signalling, demonstrate that any concessions you could make would be quite difficult to realise. If a concession is easy to make, you don’t have to let the other side know it. Make them work for it – they will value it more. “Moving from our Global 7.5% will be extremely difficult.”

Remember, in negotiation, little is left to chance. If you can help the other side manage their own negotiation agenda through signalling, both parties will walk away more satisfied with the outcome. Advanced communication planning takes time and commitment to deliver. As Abraham Lincoln once said, “Give me six hours to chop down a tree, and I will spend the first four sharpening the axe.”

Karim Davezac is Managing Director of Merindol Negotiation