When You Negotiate, You’re Taking A Risk

If you don’t take risks, then you’ll never get the deal you’re looking for
Image Credit: Stuart Caie

A quick show of hands please: who among us likes taking risks? Hmm, not very many hands are up. That’s pretty much par for the course. However, no matter what negotiation styles or negotiating techniques are being used, risk plays a big part in every negotiation that we take part in. In fact, risk is a critical part of each negotiation. One definition of negotiation states that it consists of three things: looking at what is desired, discovering the other side’s position, and taking risks. During a negotiation, if you are more willing to take risks than the other side is, then you have an advantage.

Why Risk Is An Important Part Of A Negotiation

As much as a lot of us may shy away from risk, it turns out that it actually plays an important role in every negotiation. An example of this occurs when we are trying to sell something to the other side. We need to realize that if they are already buying from us, then switching to another supplier represents risk to them. They probably don’t know the other supplier as well as they know us and by switching suppliers they may put current projects at risk. These are risks that the other side may not be willing to take.

Just because they are facing these risks does not mean that the other side is not going to show up ready to negotiate with you. They will negotiate; however, they have a number of limitations on what they can do. The larger the firm that they work for, the less they will be encouraged to take risks such as switching suppliers. Even if they end up paying more, staying the course represents a less risky path. Additionally, they probably have their senior management watching over them to make sure that they don’t screw things up.

During a negotiation if you come to realize that the other side is facing a set of risks that may limit their actions, then you can take advantage of this information. You clearly have an advantage. Things that you can do are to resist lowering your price and to be willing to take on additional risk yourself. This can all lead to you walking away with a much better deal. If you believe that there are risks that the other side is facing that they may not realize or may have forgotten, then it is your job as a negotiator to subtly remind them of them.

How You Can Use Risk In A Negotiation

As a seller, it is your job to point out risks to the other side of the table that they may or may not be aware of. Your goal needs to be to explain to the other side the pitfalls of making a purchase of your type of product or service and do it in a way that makes it appear as though you are educating them. Your goal is to point out that any time you make a purchase, there are risks. The company that they are doing business with may not be able to make the product fast enough, they may not be able to deliver on time, in fact there is also the possibility that the product may not work.

As the person who is trying to sell something to the other side, it basically is your job to take the time to show the other side that there are risks in doing business with anyone besides you. There is always the possibility that there may be risks in the mind of the other side of the table that don’t really exist. When you detect these, it will be your job to assure them that you have the ability to take care of them.

Often buyers have a great deal of fear in doing business with someone that they have never done business before. They perceive that their level of risk in doing such a transaction is very high. Additionally, they may have never seen the product. As the person who is trying to sell this to them, you need to take steps to alleviate these issues. One great way to go about doing this is to offer a “money back” guarantee. With this simple addition to your offering that you will probably never need to use, you completely eliminate the other side’s sense of risk.

What All Of This Means For You

Risk is something that most of us generally try to avoid. However, it turns out that risk is actually a very important part of every principled negotiation . If you are willing to take more risk than the other side of the table, then you are going to find yourself in a more powerful position.

When we are trying to sell something to the other side of the table, knowing that they are facing risks if they select another vendor provides us with more power in the negotiations. Even knowing these risks, the other side will still show up ready to negotiate with you. However, they are limited in what they can do. If you understand that they are limited, then you can take action to capitalize on their fear of risks. You may need to point out to them what risks they are facing. One way that you can make many of the risks that they believe that they are facing go away would be to offer them a “money back guarantee”.

Try as we might, we can’t make risk go away. It’s going to be a part of every negotiation that we participate in. The good news is that the other side is going to be facing the same (or more) set of risks. When we are trying to sell something to someone, we can use the risks that they are facing to make it easier to get the deal that we want.

– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Negotiating Skills™

Question For You: If you find that you are facing risks in a negotiation, what steps can you take in order to minimize them?



What We’ll Be Talking About Next Time

It’s actually sorta interesting. As negotiators we go into a negotiation expecting to use our negotiation styles and negotiating techniques to have an extended discussion with the other side regarding the deal that is on the table before us. Depending on what is at stake, these discussions may continue for quite some time and may even end up spanning several different meetings. What we would really like to happen is to have the other side just agree to the proposal that we’ve presented them with. Although we can’t actually make this happen, there is a way that we can get things to move along quicker. This can happen when we use the power of legitimacy.