Mapping the Money Conversation Slides

Slide 1

Lesson #1

January 2016

Mapping the

Money

Conversation Jeanette Nyden

January 2016

New Rules for

Negotiating:

10 Minute

Learning Session

Welcome to the New Rules for Negotiating Ten Minute Learning series, a short but comprehensive series of contract negotiation webinars specifically designed for people who negotiate complex customer/supplier agreements. The webinars are based on materials covered in my corporate training sessions, New Rules for Negotiating corporate training manuals, or one of my three books. You should have in front of you Chapter 5 from my New Rules for Negotiating manual, a Money Map, and pen to take notes. If you don’t have the downloaded material, go back to the download page to get your copy.

Slide 2

Many of us are familiar with the

price tug of war.

(c) Jeanette Nyden 2015 2

Many of you are familiar with the price tug of war. It doesn’t have to feel like a tug of war when you understand the predicable patterns when negotiating price, and only price. Understanding these patterns will give you a tremendous advantage at the bargaining table. I say price and only price because the discussions become much more complex as we incorporate tradeoffs, like expedited shipping, and contractual terms and conditions, like unlimited liability. Tradeoffs and T’s and C’s impact price. We’ll be talking about that in future learning sessions.

Slide 3

Jeanette Nyden

Author

Educator

Negotiation Coach


I am Jeanette Nyden, the author and co-author of three books including, Getting to We: Negotiating Agreements for Highly Collaborative Relationships, the Vested Outsourcing Manual and Negotiation Rules. I work with supply chain professionals to maximize key customer/supplier relationships by providing tactical, customized contract negotiation training and coaching from the planning phase through to execution. I’ve worked with both sales and purchasing, usually at the same company at the same time, so my advice is a balanced and multi-faceted approach to supply chain negotiations. That dual approach to supply chain negotiations (customer and supplier facing at the same time) gives me an exceptional view into translating customer demands into supplier performance.

Slide 4

Terms Asking Price

Anchor

Bottom Line

Walk Away Point

Target Price

Zone of Agreement


Let’s define some common negotiation terms so we are all on the same page.

Slide 5


This my Money Map. If you don’t have one, please visit the downloads page to get your copy. Please refer to this map for the rest of this webinar.

Slide 6


A Bottom Line (or the discomfort zone) is the point at which the

negotiator could accept the price, but he or she is not

comfortable with the price.

Looking at the map, the discomfort zone or your bottom line lies immediately within the vertical bars for the seller and the buyer alike. It is also the negotiator’s bottom line—the point at which they were uncomfortable with the price, but still making money on the deal.

Slide 7

The key is not to go lower(seller) or

higher(buyer) than your “bottom line”

(c) 2011-2014 Jeanette Nyden 7

The key is not to go lower (seller) or higher (buyer) than your “bottom line”

Slide 8

A walk

away point

is the point

at which

your

company

will lose

money on

the deal.


A walk away point is the point at which your company will lose money on the deal. This is not a bluff point but a number that your accounting team can validate. Cost accounting can be tricky, but someone somewhere in your organization will know this number. Looking at the map, each company has its own walk away point. You’ll only ever know your walk away point. That is what makes negotiations somewhat difficult—you never really know how close you really are to your counterpart’s walk away point.

Slide 9

The Zone of Potential Agreement (ZOPA) is the statistical

mean, and where each party would like the price to land in

order to reach an agreement.


The Zone of Potential Agreement (ZOPA) is the statistical mean, and where each party would like the price to land in order to reach a profitable agreement. Referring to the map again, it is the area in the middle between the two company’s bottom lines.

Slide 10

An asking price is the

price quoted by the

vendor.


An asking price is the price quoted by the vendor. It is normally the highest price. Occasionally, a buyer’s tradeoffs or T’s & C’s will raise an asking price, especially when those tradeoffs and T’s & C’s are not disclosed to the seller at the time the seller sets their asking price.

Slide 11


The asking price acts like an anchor.

Buyers often take short cuts in the negotiation

and make a counteroffer relative to the asking price (anchor). For

example, when a buyer asks for a 10% discount

rather than doing the calculations to establish

a target price.

The asking price acts like an anchor. Anyone hearing the asking price-for this discussion-is a buyer. Buyers often take short cuts in the negotiation and make a counteroffer to the seller relative to the asking price (anchor). For example, when a buyer asks for a 10% discount rather than doing the calculations to establish a target price. A price anchor acts much like a boat with only one anchor. The price negotiations revolve around the asking price. I’ll show you an example in a few slides.

Slide 12


What is

your

A target price is the preferable price that a buyer wants to pay (or the supplier wants to sell). By setting a target price, you take some control over the money conversation.

Slide 13


Distributive bargaining happens when money gets divided or distributed between two or more organizations. Let’s map out some common distributive bargaining scenarios.

Slide 14

Money Map

$

$$

Anticipated Zone of Agreement

Sellers

bottom line

Buyers

bottom line


The is always middle ground for negotiations.

We have two overlapping circles superimposed on the money map. To the far right is the buyer’s walk away point. To the far left is the seller’s walk away point. The middle represents each company’s price target. If you’ll notice, that price target lies within the zone of agreement.

Slide 15


Sellers

bottom line

Buyers

bottom line

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Seller’s Asking Price Buyer’s Price Target

Mapping Money – Typical Scenario

Ideal Scenario


Final Price

This is the idea scenario. The seller sets an asking price close to the buyers bottom line. The buyer then sets its price target close to the sellers bottom line. Then the companies agree on a final price within the zone of agreement.

Slide 16


Sellers

bottom line

Buyers

bottom line

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Seller’s Asking Price

Asking Price Too High


In this scenario, the vendor sets an asking price that is in the buyers walk away point. That means that the buyer will lose money if it were to agree to the asking price. Unfortunately, this does happen. One of my manufacturing clients will often receive quotes on widgets that exceed the price that they pass on to their customer. In other words, my client quotes a price to the customer which includes 10 screws. My client then sends out a request for quote to their vendor pool to buy the 10 screws, but the quotes literally come back at a higher price than my client is charging their customer for those 10 screws. In that scenario, my client is losing money buying the 10 screws at the vendor’s asking price.

Slide 17


Sellers

bottom line

Buyers

bottom line

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Seller’s Asking Price Buyer’s

Price

Target

Buyer’s Target Too Low


In this scenario, the buyer sets a target price that is in the seller’s walk away point. That means that the seller will lose money if it were to agree to the buyer’s price target. I see this happen when my client’s procurement department sets a price target on INTERNAL data only. In other words, the buyer looks to historical purchase prices without taking into consideration, time of purchase, quantity or supplier’s production schedule.

Slide 18


Sellers

bottom line

Buyers

bottom line

Bu

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Seller’s Asking Price Buyer’s counteroffer

price

Final Price

The anchor.


This is the anchor. In this scenario, the supplier sets the asking price. The buyer then counters based off of the asking price. The buyer has not set the price target. This happens when a buyer (or a seller) counters with a percentage off of the asking price. A buyer will have a “rule of thumb” that she shaves 10% off of the asking price. Maybe that’s fair and maybe its not. She’ll never know if she does not set her price target. On the other hand, the seller will counter to the buyer’s request for a better price by shaving 10% off of the asking price. Maybe that’s fair and maybe its not. She’ll never know if she does not set her price target.

Slide 19

Your Turn!

Map out a Money Conversation

• Choose a recent price

negotiation.

• Place the following on the map

(use Chapter 5 as your guide)

1. Your walk away point

2. Your bottom line (or discomfort

zone)

3. Your Price Target

4. Asking Price

5. Proposed Final Agreed Price


Now you have some preliminary tools to help you understand the back-and-forth process when negotiating money. In future sessions, I’ll build on this concept by talking about how tradeoffs and T’s & C’s impact price negotiations.

Slide 20


If you have any

comments,

questions or

concerns about

an upcoming

negotiation, set

up a 30 minute

appointment

with me.

[email protected]

If you have any comments, questions or concerns about an upcoming negotiation, set up a 30 minute appointment with me. I work with both buy-side and sell-side teams who negotiate a range of contracts from traditional transactions to more complex performance based customer/supplier relationships.

Slide 21


Thank you for listening to the New Rules for Negotiating Ten Minute Learning series and see you next time.

Business

Mapping the Money Conversation Slides