Do You Have a Concession Strategy?

If You Don’t, You Could Destroy Your Deal!

By Joe Hernandez

One of the things that create the most fear and uncertainty going into a negotiation is not knowing what the other side is going to ask you to give up to get the deal done.

Many negotiators jump to irrational conclusions about the motives of the other party. They might assume the things that are most important to them are also most important to the other party.

Further, they assume that the other side values deal elements the same as them. For example, while we believe getting a great price for our product from the other party is the most important and valuable deal element, a lower price may not be the major concern for the other party.

Yet we assume we are going to be at odds on pricing. However, the other party may be willing to pay a higher price. If the defect rate is considerably lower with your offer, or securing an exclusive arrangement with you may bring them greater gains, then they may be willing to pay a higher price.

Develop a Concession Strategy

Developing a concession strategy involves understanding what the other side is trying to accomplish. The best time to find this out is before you get to the negotiating table. This information should be gathered during due diligence if you are a buyer, or during the selling process if you are a seller. We have found that it is very difficult to get at the other party’s motives at the negotiating table.

Most people do not want to provide information at the table because they are worried they will say too much and give the other side the advantage. So, do your best to get this information prior to formal negotiations.

Understanding where you and the other party differ on your needs and wants will help you develop paths to getting a deal done. It is in these differences that you find a way to help them get what they need while getting what you need in the process.

Negotiation should be the exchange of valuable assets, not the hoarding of assets. In other words, you give them what they need so they can get achieve their requirements, and in exchange, you can get what you need to achieve your requirements. This makes for the best outcomes possible for both parties, and in the process, you create an opportunity to expand the value of the deal for both parties.

Clearly, the most treacherous part of the negotiation process is when we start to make concessions. If you get this wrong, it can slowly destroy your deal outcome. Our experience shows that you can do a great job of differentiating yourself from the competition, illustrate a great value proposition, get to the right people to negotiate with, and establish a great foundation for getting your deal done.

But if you blow it during the concession process, that is where deals go to die. If you mess it up here, your top line gets crushed, margins get squeezed, and deals crumble.

Shockingly, we have found that most negotiators have absolutely no plan for how concessions will play out in their negotiation. When we ask negotiators if they have a plan for concessions, the response we typically get is that their plan is to show up to the negotiation table and hear what concessions the other side will ask for…then wing it from there. Really bad plan!

Here’s the thing, the other side is going to ask for concessions, so have a plan. Don’t get surprised! Know what to do when they ask.

At Lionshare we use a powerful concession strategy. It includes five key elements that if followed, have proven to allow you to maintain strong value in your deals. In many cases you can expand the size of your deals by multiples of what you thought it could be.

Here are the five key elements to a strong concession strategy:

1. Plan on Making Concessions – Most negotiators don’t have a plan for how concessions will be made. Don’t try to wing it here.

1. 1. Have a plan…most important, leave yourself to make concessions.
   2. Know how much you have to give away and still have a solid outcome
   3. Understand where you differ on needs and wants
   4. Identify “give and takes” before you get to the table

2. Know Your Concessions and Value Them (before you get to the table)

1. 1. Before you sit down at the negotiating table, make a list of all thinks the other side could possible ask of you in concessions. Will they ask for a price concession, a short term agreement, exclusivity, or something else?
   2. If you haven’t done this before we strongly recommend you do it. It will let you know what the market is asking you to give up. With this knowledge, you may want to adjust your sales or buying strategy. At a minimum, you will know in advance what they could ask for and be ready to handle it effectively. Don’t be surprised by what they might ask you to give up.
   3. Now that you’ve identified all the possible concessions, put a value on each one. If you want a 5-year deal and the other side wants a 3-year deal, and you decide to make that concession…you have just given up two years…what’s that worth? Do this financial calculation for each possible concession. You need to know the value so you know how far you’ve moved the needle toward your target outcome.
   4. Here a revelation!… Now you have a  Now you have a way to measure how well you are doing on a deal real-time! That didn’t exist before. But, there is another big reason why you want to put a value on the concession you are giving. If you don’t do this, they will associate zero value to your concession and not be satisfied.
   5. This is another key finding from our years of negotiating high stakes deals…the other side needs to feel like they have extracted value from you during the negotiation or they won’t feel satisfied with the outcome.

3. Rationalize them – When you make a concession, let them know how you were able to make the concession.

1. 1.  If you don’t explain the rationale behind your concession, they will put zero value on it and not be satisfied. Additionally, you lose credibility because you appear to be arbitrary. The best way to rationalize is to ask for something in return. For example “I can give you an 8% discount if you can extend the term of our agreement by 24 months.”  This allows the other side to understand how you were able to make that concession. You no longer risk being perceived as arbitrary and you maintain credibility during the concession process.

4. Small Increments – When you make concessions, make them in small increments.

1. 1. When you do this, what are you signaling to the other party? First, you were serious about your inital offer. Second, It helps establish more credibility for your initial position. And finally,  it removes the feeling that your discounts are arbitrary. You don’t want the other party to think you are gaming them by providing an outrageous initial offer and then quickly retreating with larger concessions.
   2. You are also letting the other party know that you are willing to be flexible and negotiate. This keeps the dialog going, promotes problem-solving, and leads to the proper give and take required to find a path to a great deal outcome. 
   3. You establish that there is very little room and anything they get from you will be hard-earned. Again, you don’t want the other party to believe you have a lot of room to give. The other discovery we made by conducting our concessions in small increments is that the other side feels much more satisfied with a series of small wins throughout the negotiation! It is much more satisfying to receive several small concessions than receiving a large win early on in the negotiation which feels arbitrary and disingenuous or a large win near the end of the negotiation which feels equally arbitrary and disingenuous.

5. Always Get Something in Return – It is our observation that many negotiators make concessions without asking for anything in return!

1. 1. This is just bad business. Someone is asking you to give up something of true financial value It is only good business that you ask for something of true financial value in exchange. But there are two caveats to consider when asking for something in return.
      1. First, make sure what you ask for actually impacts the bottom line. What you ask for must have a financial value. In other words, this is not the place to ask for a testimonial, referral or the opportunity to bid on the next deal. I’m not suggesting you don’t ever ask for those things, just don’t let this be the place. The reason you shouldn’t ask for these things is because these are not commitments that you can attach a financial value to, or even count on them in the valuation of your total deal outcome. It’s a maybe, and maybes don’t count here.
      2. Second, ask for what you really want! I remember a time when I was negotiating with Verizon and they asked us for an exclusive agreement. Our senior leadership did not want to make this concession as we didn’t want to put all our eggs in one basket. So, we asked if we could huddle in a break-out room to discuss the concession in private. In that session, I asked the group to consider: “What conditions would be needed for us to feel delighted about giving them any concession on exclusivity.” And, one person in the room said that Verizon was doing business with a competitor in 3 other market. This was business we  wanted for years. We decided to ask for those 3 new markets in exchange for limited exclusivity. When we returned to the negotiating table, we provided them limited exclusivity in exchange for those addional markets. This expanded the size of our deal by 4 times what we originally thought the deal was worth!

If you craft a concession strategy that includes these 5 elements, you will immediately see your deal outcomes improve drastically. And, in some cases, even see your deals expand well beyond your initial valuations.

Ultimately, there is nothing like walking into a negotiation prepared to handle any concession they may throw your way. You have already considered all the potential requests and you have determined their value. If you feel it’s time to make a concession, then you make them in small increments with rationale and ask for something in return.

It’s a great feeling to be this prepared. It gives negotiators a strong level of confidence and removes the fear and uncertainty that once caused such tremendous discomfort and anxiety. Not surprising, are the improved results that come with having a tested and proven concession strategy.