You are in the process of buying a house. You’ve viewed the house three times. You like it, it’s what you’ve been looking for. Now the negotiation begins. You don’t want to pay the asking price. There’s always a better price on the table… You’ve tried to find out as much as possible about the circumstances of the seller. Finally, you make a proposal. The problem is, they accept your offer. It sounds absurd, but isn’t it true that the last word you want to hear when you’ve made your first proposal is … Yes? Maybe you should have offered a lower price, you wonder… just how low a price would they have accepted?
Most of us lead our lives focusing on our own needs, our objectives, our problems. Our hopes, our dreams, our fears. However, you know that to optimise the negotiation, you need to get inside the other party’s head. This will help you achieve not just what you need from the negotiation, but the maximum the other party is able to give you – their “breakpoint”. This is the ultimate measure of success in negotiation. This article is written to explore the concept of breakpoints, as this is one of the topics that raises most interest and discussion in my workshops. I will try to answer some of the most common questions which are often raised.
WHAT DETERMINES BREAKPOINTS?
First of all, given that we want to focus less on our own breakpoint, and more on the other party’s, how do we estimate their breakpoint?
Well, let’s get back to basics. Usually, a breakpoint is dictated by the best possible alternative to this deal, sometimes known as Best Alternative to a Negotiated Agreement (BATNA). The better my alternatives, the stronger my BATNA, the more favourable my breakpoint is. So, for instance, when I was a rice buyer and I was in the market to replenish my stock, the first offer I was made became my BATNA. With this offer in hand, I wouldn’t be prepared to pay more, and so it became my breakpoint. As I tried to negotiate the best price among several suppliers, my last offer in hand was my new BATNA and therefore my breakpoint. So, over the course of the negotiation, my breakpoint changed. If there was excess capacity in the market, my breakpoint became lower over the course of the negotiation. At times of supply shortage, however, price would become less important as my breakpoint shifted onto another variable – obtaining the quantity of rice I needed for my business.
So, as you try to get inside your counterparty’s head and estimate their breakpoints, you need to first of all consider their alternatives. Now, in most negotiations you are not operating in a commodity market like the one I described above, where alternatives are practically identical and the only differentiator is Price. In most situations, there are several factors at play, which could be more important than Price – and often are.
Sometimes during the negotiation your counterparty will allude to, or may even reveal to you, their BATNA or breakpoint. We have all heard “…you realise I have some very good offers on the table already…” or “I can’t pay any more than X…” This is what they say. Examine carefully their likely options. It may well be that the offers on the table are better than yours in terms of Price, however – are they comparing apples with apples? So, for example, a buyer may allude to cheaper offers in the market, but consider the sources of these prices – what is the quality of the product or service, what is the availability like: how realistic or likely is it that the buyer would switch supplier at this juncture? Get inside their head: what other risks will they be considering? Things are often said in negotiation to shift the balance of power; never take them at face value, look beyond the words, try to examine the ramifications of what they are saying – look at the facts.
External factors influence breakpoints too, for example, trends in the economy. You can be sure for example, that the weakening of Sterling in 2016 will have had an impact on many a company’s breakpoints.
Therefore, the first thing to remember is that breakpoints are not fixed, and as internal and external circumstances change, so will breakpoints.
The other aspect is that most of the times people negotiate to obtain the best value, and therefore the negotiation covers several issues; and so, when you reflect on this, truly non-negotiable breakpoints are very few: some will, of course, relate to matters of Health and Safety, or Company policy, or the Law. But mostly, breakpoints relate to the most pressing issues within the Hierarchy of Needs.
So, when you are trying to estimate the other party’s breakpoints, ask yourself – what matters most to them right now? How are they performing? What is their strategy? What are their priorities, objectives? What are their biggest headaches? How important is your business to them? Do they have any deadlines or time pressures? What is their relationship with your competitors like? What macro-economic changes and changes in the cost or energy and raw materials may be affecting their business right now and how?
You need to get inside their heads and figure out their needs, as opposed to the aspirations they like to talk to you about.
ESTIMATING BREAKPOINTS BEFORE THE NEGOTIATION
Given all drivers of breakpoints listed above, estimating your counterparty’s breakpoints is all about information: information is Power. This is why we say that preparation represents 90% of your negotiation success.
History will provide an indication, although remember that changes in circumstances will change breakpoints, and therefore past experience is not necessarily a predictor of the future.
You need to continually gather information about any of the circumstances related to the list of factors above. For example, if your counterparty has an issue with your main competitor, over, say, trading terms or service levels, you may have suddenly become more important to them than before. You are now in a more powerful position. Therefore, their breakpoint in your negotiation will have changed as a result: they may be willing to be more flexible with you on Price or some other variable for example. The problem is that unless you have this information, you will not be able to leverage this new scenario and will therefore sub-optimise the deal. You need to always keep your ears to the ground.
If you don’t have sufficient information about your counterparty, and therefore don’t know enough about their own needs or pressures, you may accredit them with more power than they have – and hence underestimate how far they may be prepared to move.
READING THEIR BREAKPOINTS DURING THE NEGOTIATION
Sometimes people ask – during the negotiation, is there a way to tell if my proposal is “within the other party’s breakpoint”? Negotiation is ultimately a human interaction, and therefore it is as much art as science, but, these are some of the indicators which may be helpful to look out for:
• Are they mentioning or talking about your proposal? Usually, the more they talk about it (even if they are rejecting or criticising it), the more probable it is that it is within their breakpoint. Remember – their breakpoint is not what they want, it’s what they need: by definition, their worst-case scenario. So, of course they will protest, but people rarely mention what is completely unacceptable to them.
• Look out for their body language and facial expressions: they may have “flinched” when you made your first proposal. When this stops, and if they appear less tense, that may be because your offers are now inside their breakpoint. This is the time to stop making concessions.
• The size of their moves may be an indicator of how close they are getting to their breakpoint. If the moves are getting smaller and smaller, it might be that they are getting closer to their breakpoint – or not, maybe they’ve been trained well!
CAN YOU INFLUENCE THEIR BREAKPOINTS?
Having said that there are few “true”, absolute breakpoints, and that most are indicative rather than fixed, they can be broken, under certain circumstances. For instance, as a seller I may agree to an exceptionally low price, below my target even, but that’s because the buyer is signing the order today, for delivery in one consignment next week and payment in advance. And next week is the end of my financial year.
So what can you do to change the circumstances such that your counterparty is willing to “break” their breakpoints, that is, be more flexible?
One thing you can do is become more important for them, increasing their dependency on you. For example, by enhancing the quality of your product or service, or, through innovation – your product’s or service’s USP may be such that they are prepared to pay more for it – their breakpoint on Price becomes higher, or price itself becomes a less important consideration: their breakpoint may now be about getting hold of your product, or getting hold of it at a particular time, with Price now a secondary consideration. I am sure you can think of companies that have created brands that are so desirable to make the buyers’ breakpoint on price very high indeed.
Another way to influence your counterparty’s breakpoint is to increase the number of variables of the negotiation, such that the emphasis shifts away from individual issues to the overall value of the deal. For example, a supplier may want a commitment from its customer to purchase a certain amount of stock over the next year. This amount of stock exceeds the customer’s estimated demand (ie their breakpoint). So, this could be the end of the conversation. Or, the customer may agree to buy more stock than they estimate, if the price is lower and the supplier is prepared to accept a Sale or Return agreement, within a certain limit. Sharing the risk may make it acceptable for the customer to “break” a breakpoint. New variables in the negotiation have put a different slant on the deal.
Therefore, adding new variables in the negotiation moves the attention away from breakpoints on specific variables onto the overall value of the deal, allowing for more possibilities and collaboration.
To uncover possibilities, the type of question we might ask the other party is “what if …”, or “what would it take for you to consider …”, or “under what circumstances would you consider…”. Given the right level of trust, this type of question can spark off a conversation to unearth opportunities which will diminish the importance of some breakpoints and unlock more value from the negotiation.
IS IT ALWAYS DESIRABLE TO EXTRACT YOUR COUNTERPARTY’S BREAKPOINT IN THE NEGOTIATION?
This article began by saying that negotiation is about obtaining the maximum you can from the other party – their breakpoint. I am now going to challenge this notion. Is it always desirable to “push them to their breakpoints”? Well, of course, the answer to this question depends on the circumstances. In hard bargaining situations, where there are few variables, and the focus is on short-term outcomes, the answer is likely to be Yes. You want to achieve the most value from the least effort/cost. If you haven’t got the best deal from the other party, then you have “left money on the table”.
If, on the other hand, you negotiate with the same party on a regular basis, in a context of Partnership, you should aim to obtain your counterpart’s breakpoints on the things that are most important to you. Be tough on your most critical priorities, but be flexible and willing on theirs. When both parties have given – and achieved – each other’s “breakpoints”, you have realised the maximum potential value in in the deal. This takes communication, collaboration, open-mindedness, and trust. This is negotiation at its most productive.
In negotiation, remember that you need to try to focus on the other party’s breakpoints rather than your own. How do you know what they are? Get inside their head, gather information, try to distinguish between their needs and their wants. Many internal and external factors determine breakpoints, so breakpoints change almost constantly, according to changes in circumstances. So, try to continually find out what’s happening in your counterparty’s business and to understand what their breakpoints are – directly, through questioning, and indirectly, through external sources. And finally, remember that while in hard bargaining negotiations the aim is to get the most return from the least effort, in collaborative negotiations you should try to obtain the maximum you can on the things that matter to you most, in return for the maximum you can give in return on the things that matter most to your counterparty. That’s when you are creating value for both parties.