On negotiation

I had my first class on Negotiation topic today. It was quite a fun class. We spent almost an hour practice a real life negotiation scenario, in which I played the role of a coffee seller. My task was to sell 10.000 pounds of high quality coffee bean at the price of no less than $6.50/pound.

We only had 15 minutes to strategize our negotiation process and in fact I did not come up with many good tactics to assure myself a sure win situation. The most I can think of, was just some reasons to counter my partner’s rationale if he was to ever use it. I was not clear in my mind how I was going to start the negotiation. And to me, that felt like the weakest place to ever be in a negotiation.

I knew that I had to open at a price higher than the bidded price of $7.95. And how I got to that is due to a draught in my coffee supply country, which reduced the total quantity grown and thus pushed the price up to $9. With a higher upper limit, I hope to stretch my Target Point a little bit further to $8.10/coffee pound.

Only until we started the actual negotiation did I really come up with a good plan. Well, it was actually thanked to my partner’s hint that my company was selling coffee to another F&B at the price of $5.95/pound. That scared me off for a few seconds though.

When I was digging for response to that statement, I came up with a strategy to bluff my partner! Basically I would split the coffee into 2 category, the high-end coffee, which was purchased from $8-10/pound and the low-end coffee that costed only $6-8/pound.

At that moments, the dots simply connect in my mind. And I knew exactly at that point that I would walk away better off than my partner. How, you ask? By telling my partner that if she wanted the low-end coffee, she would have to mix-and-match with the high quality coffee. The only thing left to decide was the quantity ratio. How much should I give in low quality coffee?

I made a mistake here by being nice and gave her 7000 pounds in low quality coffee. If she wanted to get 10.000 pounds, she would have to buy 3000 of my high quality coffee. I should have pushed the number of low quality coffee lower. I believe I could touch 6000-5000 and I would still be walking away better off.

Because for the low end quality coffee, I fixed my price at $6.75/pound ($0.8 increased compared to what we provided other companies in another area, according to her). I was successful at setting this base price for low end coffee thanks to the fact that there was a draught earlier in the discussion!!! Hence price increased for both high and low end coffee.

I tried to direct her focus on discounting the high end coffee. Since I put it at $9 initially, I knew that I would get off with at least $8 something. I achieved this by reducing my discount amount over time. Thus, I would started by giving her $0.5 off, then $0.3, and finally hit the nail to the coffin at $0.1 discount.

So near the end, I kept looking at my watch and hoped that I would successfully pressurize her through this nuance action. I put some more drama by saying things like “we have 10 mins left”, “oh it’s only 5 mins, we better get the deal signed”.

We did some math based on the different coffee type and arrived at an average price of $7.155. I believe that I could push the price of low end coffee higher. I could use the reason that her company was the only company in the area, and thus would put the delivery fee up another notch. She did counter this by saying her company would get the coffee from my source. However, I could further say that because her operation was not specialized in delivery, it would cost her more to set up and transport the coffee by herself. So basically she got a discount in the purchase price but overall increased cost.

I walked away winning. I knew that. Because I got more out of the difference between our RPs. However, the more I reflected, the more I believe that, realistically, I did a very bad negotiation.

Why? I used some make-up facts to deceive her. This drilled a very big hole in my strategy. Had she seen through my bluff, she could have easily asked for proof of the 2 coffee types in my documents. That would collapse my whole plan. If that happened, I would be in a much worse situation because I lied in a negotiation and she could just anchored on the low end price.

However, once I think about my responsibility if it was a real life situation, I surely put a lot of unnecessary problem on my company.

Our company did not have 2 types of coffee. What would it turned out in real life? I would have to package my coffee differently and hoped that she did not discover the difference between the 2 types of coffee. That put a lot of risks on our business. Not only the operational cost would rise, but also the brand image could be damaged because I did not deliver what I promised.

But moreover, I believed that I should try my best to reach a win-win situation in a negotiation. Not only does it make me feel better ethically, but also does it create a better long-term relationship that would benefit my future negotiation. The other term in the deal was that my partner would deliver the coffee themselves. I believe that this is a lost on their business, which my company could have helped them and as a result create an even better relationship.

At the end, I walked of winning but feeling like shit