By Seth Freeman, Ph.D., New York University
The best negotiators know that the most reliable tool for attaining a beneficial outcome is planning well in advance. But there’s a catch—you must know how to plan successfully. But what, exactly, does a successful plan look like?
Planning: the Most Common of All Negotiation Pitfalls
Planning and research can make all the difference to help you avoid this common negotiation pitfall. To demonstrate this, let’s review a troubling true story that illustrates this point. My students never fail to be amazed and appalled by it.
It’s December of 1984, and Jean Fontaine, an executive at an Oklahoma plastics company called Pacific Oil, is worried. For the last few years, sales have been strong, competition weak, and a couple of years ago, Pacific Oil easily re-signed its biggest customer, a German firm called Reliant Chemical, to a nice second four-year deal.
This is a transcript from the video series The Art of Negotiating the Best Deal. Watch it now, on Wondrium.
Suddenly, Fontaine realized things were about to change. As he reviewed all his contracts and read up on market trends, he noticed a glut was coming: within 18 months, competitors would flood the market with new supplies of cheap plastic. Fontaine worried Pacific Oil’s competitors would tempt Reliant away when their new contract ended in two years. He predicted his firm faced big trouble, because there weren’t many large buyers at the time like Reliant. What to do?
He decided on a daring strategy: he would ask Reliant a couple of years early to renew and extend its current contract, locking them in till the end of the decade and beyond. To get ready, he wrote down several arguments he planned to make. Fontaine chose to emphasize their excellent relationship and Pacific Oil’s excellent service and quality. He would remind them the company built a pipeline for Reliant, which was no small thing. He was even ready to cut the price a tiny bit, maybe a quarter of a cent per pound.
Basing his assessment on the terms of the last renewal as an indication, it wasn’t probably necessary. In fact, he told his aide, things should go pretty quickly. Reliant would likely renew on similar terms. Fontaine called Reliant, expecting to speak to his old counterpart. However, there was a new executive, Frederich Hauptmann, who was the current lead negotiator. Hauptmann was interested in the negotiation. “Come see us,” he said. Fontaine and his aide flew to Reliant’s headquarters in Berlin to discuss renewing their contract early.
Learn more: The Other Negotiator
Negotiations Last Longer Than Expected
So began an odyssey that lasted over a year. To Fontaine’s surprise, every time the two met, Hauptmann would say, “We are making very good progress; we are very close to an agreement; there is just one more thing we need.” Each time, Hauptmann made a spectacular, one-sided demand Fontaine hadn’t been expecting.
Hauptmann was adamant about his demands each time: “This is what we want and we cannot make any further progress on any other issue unless we get it.” Fontaine was often surprised. However, he conceded on every point. Sometimes, Fontaine would briefly try to counteroffer, only to find that Hauptmann was implacable. Hauptmann was only willing to concede a little, and then, only grudgingly.
Learn more: The Art of Skilled Listening
Demands Escalate
Over the months, Hauptmann’s demands escalated: lower prices, a lower minimum volume, price guarantees, only a two-year contract extension, and even larger concessions to the current contract. Fontaine agreed to each demand. The talks stretched on for thirteen months with no end in sight. At a climactic point, Hauptmann demanded the right to resell the raw plastic, and potentially become Pacific Oil’s competitor if it wanted to.
By this point, Fontaine’s bosses were getting worried. But, after careful thought, Fontaine agreed to this last concession. “Do we have a deal?” He asked. “This is very good news,” said Hauptmann. “There’s just one more thing we need.”
Although we are not aware of the final terms for both companies, it doesn’t matter. If Pacific Oil signs this terrible deal, they may come close to bankrupting themselves. And if they don’t, Reliant will say, “No problem. We’ll just file it away. When it’s time to renew, we’ll take it out and start there, knowing we’ll have lots of other suppliers to buy from, unless we get everything we want.”
A Cautionary Tale About Being Prepared
The Pacific Oil case is a cautionary tale. As my students dissect what went wrong, they quickly realize the problem: Fontaine was unprepared. There were many things he should have learned and considered beforehand: lower prices, volumes, contract extensions, resale rights. But he never did any of those things. After he decided to negotiate, he just jotted down some not-so-convincing arguments and expected smooth sailing.
Learn more about negotiating creatively
The scary thing is that Fontaine looked ready: he was foresighted, proactive, diligent, and clearly did some homework to discover the coming glut. But he didn’t come close to being prepared for the talks themselves. As a result, he invited his counterpart to be completely positional, to use a variety of sharp bargaining tactics, and so produce an extraordinarily one-sided deal. It’s a slow-motion train wreck, a true story, and a tragedy.
Be of good cheer. We can learn from Fontaine’s mistakes and transcend them, discovering efficient ways to prepare well that often can make you far more effective than you first imagined.
Learning from Fontaine’s mistakes, we can enter into a situation knowing we are well prepared to negotiate with success. It’s as simple as remembering the mnemonic “I FORESAW IT”. That’s exactly what we’ll discuss in the next article in this series—Advanced Negotiation Tactics—One Powerful Mnemonic to Know
Common Questions About Negotiation Pitfalls
In a negotiation, you should not be shy about stating your desires and being assertive, talk so much that you don’t listen to the other person involved, rush to get to the deal, or show up unprepared.
When negotiating, you should pay attention to the other person’s body language—this will tell you when he/she is ready to close the deal.
To win a negotiation, you should put yourself in the other person’s shoes, be sensitive about the other’s feelings, use honesty, and spend more time listening than talking.
In a negotiation, there are certain pitfalls you should avoid. These include being so focused on your words that you lose sight of the other person, giving up too easily, and not taking your opponent’s background and culture into account.
