Negotiation Institute By Marty Latz
I was recently asked "How much authority should we give our front-line negotiators? They constantly ask for more, but the more we give, the more they use. On the other hand, they aren’t taken seriously if we don’t give them enough."
This is a challenging strategic decision for every manager of front-line negotiators, especially for those in sales. So consider these factors in making this decision.
1. The Authority Pattern
Make sure you know what authority levels ˆ and concessions above that authority ˆ have traditionally existed in your environment. If you are a regional VP of sales of a large software vendor and manage VPs of sales who manage front-line sales folks, know how often your front-line folks use up their authority and ask for more. Know the same for your VPs.
These patterns drive everyone’s expectations, and those expectations drive everyone’s behavior and negotiation moves.
Harvard Business School Professor Ian Larkin found in a study of sales folks at a large company, as noted in Harvard’s Negotiation Newsletter, that „for the majority of deals [he] studied, the discount given to the customer fell exactly at the limit of an employee’s authority level. For example, many deals contained a 20 percent discount, the most a salesperson could give without asking a manager, and only a small percentage were discounted by less. There were a mass of deals at a 30 percent discount, the maximum discount at which the district manager had approval authority, and also at a 40 percent discount, the limit of regional manager authority.‰
This is not surprising given that most salespeople have a huge incentive to discount as much as they can because they get nothing if a deal craters. And if it closes, even at a big discount, they get kudos and a commission.
If you are a regional sales VP, know those patterns. Also research those patterns if you are a customer.
2. Psychological Benefit
"I know we got a good deal because they had to call their manager for more authority twice near the end." This statement reflects the psychological sense that many consider how well they do and how close you are to your endpoint to be partially based on how many times they have "forced" you to get more authority. Understand this and, in many negotiations, build in at least some of these authority steps.
3. Managers’ Time and Front-Line Negotiator’s Credibility
Of course, don’t build in too many steps as it’s inefficient and ineffective for managers to field multiple authority requests on every deal. And it sends the wrong signal to your counterparts if your front-line folks on significant deals can only make extremely minor concessions (if this were true, front-line folks might revolt as it undermines their credibility and their counterparts would just insist on going straight to their managers).
Bottom line: Balance these interests. Keep in mind, too, that sophisticated front-line folks often want limited authority. It can give them the flexibility to be the good cop to their manager’s bad cop and use this to build their counterpart relationships.
Of course, if you’re the front-line negotiator and set up your boss as the bad cop, make sure your boss knows it. What you say will have an impact on your boss’ reputation.
Originally printed in the Arizona Republic.
From Marty Latz's Expert Negotiator Blog"We’re selling our company and trying really hard to be fair and reasonable, but the buyer with the most synergy is now being stubborn and...By Marty Latz
Doug Noll discusses the future of litigated and non-litigated cases. See the full transcript below. My name is Doug Noll. I am a mediator from California, and I have...By Douglas Noll