What is Wrong with the Win-Win Negotiation Concept?

On several groups on LinkedIn, a discussion was started with the hypothesis that win-win does not work in sales negotiations. One contribution to the discussion caught my particular attention. Someone answered by quoting Einstein who taught physicists that the result of observations depends on the position of the observer. I think this is the perfect short answer. Here is the long answer why I believe so.

Let me introduce the concept of the Negotiation Matrix. There are two parties (A and B). They both come to the negotiation table having defined their Walk Away Point (WAP); meaning if they were forced to make concession beyond this point, they would walk away from the negotiation table. Just as an aside the win-win concept might already let us forget this walk away option.

In the Negotiation Matrix, we represent the negotiation options of A on the horizontal axis. All negotiation results to right of the WAP, A considers as a win . Outcomes on the left of the WAP are perceived as a loss by A. The negotiation options of B are represented on the vertical axis. B considers a negotiation outcome as a win if it is above the WAP. Results below the WAP are perceived as a loss by B. The two axis cross at the respective WAP.

This can also be considered the optimal negotiation outcome. At this point, both parties have obtained a maximum of concessions from each other without any party feeling as loser yet. However the win-win concept will accept any negotiation result in quadrant I as a desired outcome ( win-win) of a negotiation. But this is an altruistic concept from the point of view of A and B.

Neurological research carried out with fERM have shown that the human brain has a specific Altruistic area but also a specific Lust area. For judging the suitability of the win-win concept for commercial negotiations, two findings are of crucial importance. First, the Lust center can be triggered by presenting the potential of winning monetary awards. Second, when both the Altruistic center and the Lust center are triggered, the Lust center is stronger and will force the decision in its favor.

This triggering of both centers is exactly what happens in a commercial negotiation. The Altruistic center of both the seller and buyer is triggered because we have been taught to strive for a win-win result in order to maintain an established relationship. For the seller, the Lust center is triggered because of the commission check that can be expected by winning the deal or at least by the desire to get as much cash as possible from the sale. The buyer might have personal monetary incentives in form of a bonus or is at least motivated to outlay as little cash as possible for the purchase. The Lust center being stronger, quadrant I is hardly the desired outcome for neither A nor B. Only for an observer C not involved in the negotiation, this is the optimal quadrant. There is no stimulus to the Lust center.

The seller (lets assume he is A) and the buyer (let say she is B) from their point of view, due to the force of the Lust center might though rather end up in a win-lose (quadrant IV) or a lose-win (quadrant II) situation. What probably both try to avoid is ending up in a lose-lose situation (quadrant III).

Negotiation results ending in quadrant IV or quadrant II are though, contrary to what the win-win concept would stipulate, not necessarily harmful to a relation. It is acceptable that A sees himself in quadrant I and positions B in quadrant IV if simultaneously B sees herself in quadrant I and projects A in quadrant II. For the external observer this still is a win-win situation, because both A and B will manifest a probably even stronger feeling to walk away as winners as they think they have defeated their opponent.

As a seller or buyer, you must thus take care that your vis-à-vis does not perceive him/herself as a loser. From your own perspective you are not obliged to see your vis-à- vis as a winner and thus a win-win outcome for the negotiation. I believe knowing this will make you more at ease in negotiations and is probably more in line with how human brains work.

A Strategic Guide Through the Perfect Storm for Sales Management

Changed customer behavior and increased negotiation power of the customer induced by technology together with the tough economic conditions create the conditions for a perfect storm that hardly can be weathered by sales management with tried and trusted old tactics.

The book “Rethinking Sales Management” by Beth Rogers is,as the subtitle suggests, “a practical guide for practitioners” how to become more strategic to cope with the challenges of these new normal times.

Beth Rogers has extensive practical experience in marketing and sales roles which she has complemented by in-depth consultancy, research and teaching. Her book therefore stands out from most sales and sales management books. Her advise is not of the type “here is how I was successful and I do not see why this should not work for you”. Instead, she provides the readers with strategic models and facts helping them to understand the 'Why' of a situation and then deduct the best course of action suited to context they are in.

In the era of customer orientation, Rogers argues, CSOs should have a seat at the strategy table of their enterprises. The first part of the book is an introduction into strategy; enabling CSOs to get familiar with the language talked there . The first chapter introduces well known strategic concepts like the business portfolio matrix (BCG matrix) used to categorize strategies from a enterprise point of view. (inside -out)

In the second chapter, the focus is on the purchaser's perspective of strategy (outside- in). Rogers suggest the purchaser's portfolio matrix as the vehicle to analyze this point of view. This concept is probably less known among C-level executives. Understanding it gives the CSO the opportunity to bring added value to the strategy discussion.

The purchaser's portfolio matrix first presented by Peter Kraljic in an article of the August-September 1983 issue of the Harvard Business review and then reintroduced by Rackham and DeVincentis in their book “Rethinking the Sales Force” recommends that purchasers should adapt their strategy depending on the complexity of the supply market and the financial impact of the purchase on the enterprise.

In the third chapter, the B2B Relationship Development Box is discussed in depth. This box, also a 2 by 2 matrix, combines the enterprise (internal) view with the purchaser's (external) view. This model suggests that the nature of customer relationships depends on the value the customers bring to the enterprise and the value the enterprise provides to customers (in their view).

The Relationship Development Box is the essential tool for CSO's to understand how to organize their resources to execute on their strategies. The second part of the book therefore shows how this tool is used. Each quadrant of the relationship matrix is explained in a separate chapter As not all relationships are worth to be maintained, this part also contains a chapter about exit strategies.

The four relationships discussed are:

• Strategic (value of the customer to enterprise is high and value of the enterprise to the customer is high). This is the quadrant where Key Account Management is the best fit.

• Prospective (value of the customer to the enterprise is high and value of the enterprise to the customer is low). This relationship is of transitory nature. Business development is the strategy that can elevate this relationship to a strategic one. But one cannot exclude that the value of the enterprise to the customer cannot be increased. In this case, the enterprise should move the relationship to the tactical quadrant in order to avoid continuous over investment in the relationship.

• Tactical (value of the customer to the enterprise is low and value of the enterprise to the customer is low). This quadrant is often considered as not very attractive. Considering the use of other channels than a direct field sales force (e.g. Telesales or Channel Partners) is though more viable than considering this relationship as transitory and trying to elevate it to a strategic one.

• Cooperative (value of the customer to the enterprise is low, value of the enterprise to the customer is high). This is probably the most delicate quadrant to handle. The balance must be found between avoiding over investing in the account and risking competitive vulnerability. The cooperative relationship might therefore also be of transitory nature.

The third part of the book entitled Strategic Focus for 21-st Century Sales Management

addresses four weaknesses observed in the management of the sales function.

• Reputation Management can be seen as a part of corporate reputation management brought to the fore by new regulations like the Sarbanes-Oxley Act. Rogers though also cites results from own studies where “breach of trust” was quoted as the single most likely cause of the disintegration of a customer relationship. Maintaining integrity of the sales people as a form of reputation management has though also a direct impact on sales performance. Undue internal pressure and variable pay schemes can negatively influence this performance.

• Working with Marketing can be a source of so far untapped profitability. Kotler, Rackham and Krishnaswamy in their article in the Harvard Business Review of July/August 2006 believe that there can easily be a gap of 20% in profits between organizations where marketing and sales are aligned compared to companies where sales and marketing work independently in separate silos or even worse fight each other. Also this chapter has a link to the Relationship Box. Rogers suggest that Marketing should have the lead for tactical relationships, whereas Sales should be leading for strategic relationships.

• Leadership: Five tools are discussed: Awareness (incorporating self awareness and awareness of others), Framework (strategy and values), Extensive Communications, Coaching and Development and finally Trumpeting. The last point is probably not readily understood. It means telling and rewarding people for things they have done right. Although financial rewards are the culture of sales, those rewards do not necessarily have to be only in monetary form.

• Process Management as a necessary prerequisite for continuous improvement is discussed in this chapter.

This book is a great eye opener to sales people contemplating to become sales managers. After having read it, they will understand the kind of strategic thinking needed to succeed in this role. For sales managers and executives, coming to the realization that their current approach will not bring the expected results in the future, it is an excellent source for understanding how they can evolve their role and being more successful with a strategic approach.

How Specific do Value Propositions Need to be?

It depends on who is delivering it when in the customer buying cycle.

Early in the buying cycle, marketing and sales can use generic statements. Later in the buying cycle, salespeople must be able to articulate very specific statements, tailored to the individual customer, demonstrating specific value to the customer as well as superiority and differentiation against the competition.

This is how I would summarize the message of my Masterclass “The Dynamic Value Proposition” I gave over at the Top Sales Experts last month. It was also the consensus from a discussion I triggered with the blog post “Can Value Propositions be Generic”.

My friend Dave Brock was the most vocal supporter of the idea by publishing an own blog post. He has actually written a second post since; further elaborating on the dynamic character of a value proposition.

Although having a dynamic value proposition following the customer's buying cycle and the evolution of ones competitive position is necessary, it is not sufficient if salespeople want to follow the recommendation of an IDC Customer Experience Panel in January 2009. They identified that “Putting aside the generic pitch” as the #1 item to be improved by sales people to bring more value to the relationship with the customer.

Even an objectively and technically well crafted message, delivered by the salesperson, has a high chance not to pass with the individual at the customer's organization as we all interpret messages in our own context.

In my next Masterclass “The Adaptive Value Proposition” on November 10, 2009 I will suggest to pay attention to three aspects of the receiver's context (customer persona) to facilitate reception of the value proposition:

• Functional Position

• Attitude to Change

• Sensory Predicates

I discussed why they can be inhibitors for your message to pass and give you suggestions how to overcome them.

If you scroll down on this page, you will find the slide deck used for this presentation.

If you want to know more about what Dave Brock had to say on the value propositions you can follow these links: Post 1, Post 2.

This link will lead you to my post “Can Value Propositions be Generic”where I discuss the dynamic aspect in the context of the customer's buying cycle.