Empathetic Negotiation Saved My Company
Some years ago, one of our family’s trading companies was staring at ruin. We had ordered a large quantity of electrical fixtures from an Indian supplier for resale to our customers. Based on the supplier’s quotation we had offered a good price and had received plenty of orders. We reported this to the supplier and requested that they begin production as soon as possible.
Panic set in very quickly. In the course of a long phone dialogue with the R&D Manager of the Indian company our Managing Director lost his temper and made some regrettable and insulting comments about the supplier’s capabilities and business practices. It was clear to me that the situation threatened to get bogged down in name-calling and blaming, which was only making a bad situation worse.
Part of the problem, I figured, was that neither side really had realized the dire consequences of this business on the other. We didn’t appreciate the supplier’s constraints and they didn’t really appreciate the extremely difficult position that their refusal to honor their original offer and the cancellation of this order would put us in with our clients. On the other hand, neither had they grasped the opportunities that the deal represented for them. Achieving this kind of empathy after such a rocky start wasn’t something to be done by telephone and e-mail, so I suggested that my Managing Director and I go to India together.
We spent several days in Mumbai and had a series of challenging but ultimately successful meetings with the Indian company. We began by simply asking, without heat or indignation and, most importantly, in a face saving manner, why they had so abruptly changed the terms of the deal. With some embarrassment they explained that their accounting department had not included in the estimate the cost of all the materials needed.
Now we at least understood the motivation, and with that understanding came the realization that we would not get them to budge unless we could give them a good reason to. As things stood, yes, they had not been very competent but at least they were avoiding a big loss. Our best way forward, therefore, was to show them that while the price increase would save them losses, it would also have very negative consequences for them because there was a strong likelihood that their company would be shut out of the Greek market.
But we didn’t present that as a threat. Instead, we pointed out that if the supplier could show flexibility on its price now, both companies could expand cooperation to other products and services, thus gaining a foothold in the larger European Market. In other words, they could think of this project as an investment in growth rather than as a short-term profitable deal. After four days of meetings and extensive discussions we were finally able to agree on a price only 10% above the initial offer, which meant that we would break even on the deal.
What really made the difference? I think part of the explanation is to be found in the fact that we had made this long and costly trip to visit them. They also appreciated the effort we had made to keep our emotional temperature low and to save their face by avoiding intimidating accusations.
But the main factor for this successful outcome was the fact that we had genuinely tried to put ourselves in their shoes and realized the big financial loss they would suffer. Our arguments for reducing the price back to where it had been were not based on our interests but rather on an objective analysis of the risks and opportunities they faced. Moreover, the fact that we did not actually make a profit at the new price was a face-saver for the Indian company as it further demonstrated that both sides were making a sacrifice.
By focusing on the dire consequences for them of their refusal to fulfill an order they had confirmed rather than on the moral rights or wrongs of us having to bear the financial costs of their mistake, we were able to find a way out of the crisis that both sides could live with. Finally, the connection we had forged with the supplier proved a strong foundation for many profitable and successful deals in the years that followed.
It was not only a crisis avoided, it was also a remarkable illustration of the power of empathy in negotiations.
I WOULD LIKE TO BECOME YOUR CONSULTANT!
BASIL VENITIS
MANAGEMENT CONSULTANT AND FINANCIAL STRATEGIST
Basil Venitis identifies the highest-value opportunities, addresses the most critical challenges, and transforms management and financial strategies.
The customized approach of Basil Venitis combines deep insight into the dynamics of industries with close collaboration of the client, in order to achieve sustainable competitive advantage.
Venitis seeks to be the agent of change for his clients. He grounds each solution in how his client actually works and positions in the marketplace.
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