Blog

The less you offer the less you have to pay

Once again this week’s Apprentice revealed some hard and fundamental lessons about negotiating.

This week the theme of the whole programme was negotiating, as the teams were sent out to source and then negotiate to buy ten items on Lord Sugar’s shopping list.

The girls’ team found all 10 items and the boys only found 7, and so incurred financial penalties. Yet it was the boys who won, by paying the least for their items overall. So, what does that result and the way in which it was achieved tell us about negotiating?

The girls did a much better job of preparation, in the sense that they planned where to source all the items at the start of the day, and knew exactly what the definition of each item was. However, crucially they had no negotiating strategy for each item. Jamie for the boys at least instructed his team to start each negotiation by asking for a 70% discount from the quoted price. As most effective negotiators will tell you, normally the less you offer the less you end up having to pay. So, having this kind of hard bargaining approach at the outset was always going to stand the boys in good stead.

And so it proved, with the girls negotiating weakly for a singer sewing machine – “We were hoping to start off at £50 and work our way upwards”. They ended up at £57, whereas the boys ended up paying only £35. Similarly the girls started their bidding for the required Tartan at £50 and quickly went up to £69, whereas the boys did their deal at only £23. Finally the girls started their bidding for the truffle at a whopping £200, at least £100 […]

By |December 7th, 2010|Blog|Comments Off on The less you offer the less you have to pay

Cancun failure will generate Climate of fear

This is the last day of the Climate talks in Cancun and it doesn’t look as if a deal is likely to get done. The complexity of striking a deal among so many participants with differing points of view is defeating the process and a simpler approach will need to be adopted if progress is to be made in future.

This may be the last chance to put a new climate change deal in place before the Kyoto Climate agreement expires at the end of 2012. But, when that deal was structured in 1997, it was easier to arrive at consensus.

Then, the industrialised countries clearly accounted for the bulk of the world’s CO2 pollution. The US accounted for 25% on its own, and the OECD countries of Europe accounted for a further 20%. The industrialised world as a whole was responsible for three quarters of emissions. So, it was not difficult to sign up to an agreement that everybody should act in accordance with their “common differentiated responsibilities”. This meant that the Industrialised countries agreed to take on legally binding commitments to reduce their emission of greenhouse gasses, and the developing countries agreed that although this was an important topic, they would not have to make any commitments at all.

The story of the failure at the Copenhagen summit last year and the Cancun summit so far, is the story of the developing countries wanting this agreement to be renewed, and the industrialised countries saying that the world has changed, and the developing countries now have to sign up to pledges of their own. The reason for this hardening of attitude amongst the industrialised countries is that now the developing countries are contributing far more to […]

By |December 10th, 2010|Blog|Comments Off on Cancun failure will generate Climate of fear

When bidding fails to bear fruit

There is a perfectly positioned fruit stall just outside Holborn tube station. Anyone walking along High Holborn has to go straight past it and it is always beautifully arranged first thing in the morning. People frequently stop there and buy fruit for the day or for the office.

It has a lot going for it in terms of bargaining power as there is no other fresh fruit stall nearby, and the trader who runs it seems to have plenty of expertise. There’s only one problem, which is that the stall owner bellows out his offers in a way that is attention-grabbing but impossible to understand. He sounds like an Evening Standard newspaper seller bawling out the name of his paper incomprehensibly – just like the famous Morecambe and Wise sketch where Eric is selling the “Eening Stannit”.

The issue with this is that when negotiating, if you are making a bid, the other side does actually need to understand what you mean. If you are impossible to understand, then it’s less likely that people will accept your offer. I’m sure this fruit stall does pretty well, but how much better might he do if passers by actually understood the offers he was making? Then he really could be top banana…

By |December 12th, 2010|Blog|Comments Off on When bidding fails to bear fruit

Clegg pushes Lib Dems to the edge

The internal negotiations over the lifting of the cap on University tuition fees among the coalition partners have been fascinating to watch.

Both David Cameron and Nick Clegg are natural “pullers” in the way they behave as negotiators. They are usually prepared to focus on the needs of the other side in order to get a deal done – listening, exploring, disclosing – that is how the coalition deal got done in the first place.

However, in this instance they have needed to “push” their MP’s in order to win the vote permitting a substantial increase in tuition fees. This has been less of a problem for David Cameron (only 6 Tory MP’s voted against the Government yesterday), but it has been a real headache for Nick Clegg, whose party had pledged not to increase tuition fees at the election, and he has had to work extremely hard to get enough of his MP’s to vote in favour of the proposal.

What “push” tactics has Clegg had to use in order to overcome a natural reluctance among Lib Dem MP’s to avoid being seen to renege on their promise to the electorate?

He has used deadline pressure, culminating in a make-or break vote in the Commons on Thursday. This kind of pressure can force people into making decisions they would rather not make.

He has also used “budget buster” tactics, making the argument that he really would love to accommodate his reluctant MP’s, but the public purse just won’t stretch to keeping the tuition fees cap in place. This kind of pressure tactic is very frequent in business deals – how often do you hear the phrase – “We’d love to accept your proposal but unfortunately we just can’t […]

By |December 12th, 2010|Blog|Comments Off on Clegg pushes Lib Dems to the edge

Deal or No Deal on Climate Change?

They have tried to dress it up as a big win, but scrutinise the detail of the Climate Change “deal” announced at the last minute in Cancun (or rather, the lack of detail) and it looks as though the only real deal is a fudge to keep the process going.

Whilst everyone has agreed that further commitments on reduced emissions are necessary, there are no legal commitments from any participants (unlike Kyoto in 1997, where at least the industrialised countries undertook to make binding reductions in emissions).

There is apparently a plan to provide developing countries with cash to encourage them to adopt measures which would reduce their emissions, but we don’t know which countries are involved, or how much they would be paid, or who would pay for this initiative.

The industrialised countries are to provide clean-tech expertise to the developing countries, but we don’t know who will provide what to whom or when this would happen.

Significantly, the US and China, the world’s two biggest polluters by far, have not made any commitments to reduce their emissions, and the world remains on course for a temperature change of well in excess of the 2% maximum rise required to avoid global catastrophe.

No wonder Andy Atkins of Friends of the Earth was describing this as “A very weak deal”.

The problem, as outlined in my blog of December 9th, is that the process for agreeing Climate Change is just too complicated for meaningful progress to be agreed. With 200 nations and 15,000 delegates involved, and a clear split in how to proceed between the industrialised nations and the developing nations, some sort of bland outcome was the only way that complete failure could be […]

By |December 14th, 2010|Blog|Comments Off on Deal or No Deal on Climate Change?

Bad weather creates poor negotiating climate for BA

It is interesting to see how the bad weather has disrupted the climate of ongoing dealings between BA and its customers during the height of the snow – mainly for the worse, but occasionally for the best.

I was due to fly down to Lyon University a couple of weeks ago with my stepdaughter, when the snow first kicked in. We turned up at Heathrow Terminal 5 in plenty of time for check-in. There was a massive queue and clearly not enough check-in staff – down to the weather or bad planning or ongoing staff cuts?

It took so long to get to the front of the queue we were only 20 minutes from our scheduled departure time when we got there. We needn’t have worried. We were then told that our flight had been cancelled. Like hundreds of other people standing in that queue we had been waiting for over an hour to check in for a flight that didn’t exist. Shame nobody had told us earlier.

We were directed to another counter to deal with re-booking our flights. We went over there and of course there was another massive queue. Again, we needn’t have worried. A BA lady standing by the counter told us that the counter was about to close anyway and so we had no option but to fend for ourselves for the evening.

The problem with this kind of customer service is that, whatever the cause of the disruption, the impression is given that BA doesn’t care about its passengers. This is a very win/lose attitude and doesn’t encourage passengers to travel with BA again as nobody likes to feel like a loser.

To give BA credit, the next day I had a great […]

By |December 23rd, 2010|Blog|Comments Off on Bad weather creates poor negotiating climate for BA

Crunch time for the Coalition

I think the Coalition deal is going to come under real pressure after the May 5th local elections and referendum.

Firstly the Coalition is going to get hammered in the local elections. Secondly, whatever the result of the AV vote, one half of the Coalition is going to be unhappy. If there is a “Yes” vote then the Tories will be unhappy with Cameron for handing the Lib Dems the opportunity to win more seats at the next general election. If there is a “No” vote, a lot of Lib Dems will feel there is not much point in staying as a part of an unpopular coalition if there is no prospect of voting reform.

The rationale for the deal to get the parties into power, will feel less attractive in these circumstances and I could see the alliance coming under serious internal pressure from the wings of each party – particularly if Vince Cable leaves, which can only be a matter of time.

By |April 21st, 2011|Blog|Comments Off on Crunch time for the Coalition

HMV asks majors for help

A tricky negotiation here for the Majors. HMV are clearly in desperation mode and need the sale or return terms to give them a bit of breathing space. For the Majors this represents a dilemma. If they agree to SOR then they expose themselves to greater risks at a time of plummeting revenues by way of CD sales. Furthermore the risk may have no upside because HMV may go bust anyway.

On the other hand if they leave HMV in the lurch and it goes down without the Majors having tried to help, then the last specialist music chain in the UK disappears from the High street. This is an even worse prospect for the Majors.

I would expect this WATNA (Worst Alternative to a Negotiated Agreement) to govern the Majors attitude and encourage them to find some way of helping HMV in its darkest hour, whether that’s through limited SOR or some other concession.

A response to this article (Musicweek.com)

By |April 18th, 2011|Blog|Comments Off on HMV asks majors for help

Who holds the Aces in your deal?

Good example of the dynamics of bargaining power at a recent “Speed Awareness” Course I attended in Ealing. This course is run by the Police for those who have committed minor speeding offences – just a few miles over the limit. If you go along you are spared 3 points being added to your license.

There were 20 attendees and 1 presenter. At these kinds of events a tacit negotiation always goes on between the presenter and the audience for the audience’s attention. Even if she had been a black belt in karate she could not have prevented us from all getting up and walking out of the door if we had wanted to, so we held the advantages of scale and size in the negotiation with the presenter for our attention.

However, she had a couple of aces too. She had lots of expertise, and she also had the power of the Police behind her – having “law, rules or regulations” on your side is always a good source of bargaining power.

So I would say this was a negotiation where each side held 2 aces. Result? A win/win deal. She worked very hard to keep our attention and we responded by being as good as gold for the whole 4 hour duration of the Course.

It’s always worth working out at the outset who holds the aces of bargaining power in your negotiation. He who holds the Aces normally calls the tune in a deal, so if the Aces are evenly divided a harmonious result like this one is a likely outcome.

By |January 22nd, 2011|Blog|Comments Off on Who holds the Aces in your deal?

EMI look to offer ‘Bundle Deal’

The Music Business has often liked to do deals where in order to get what you want you have to buy something else you don’t particularly want. If you want to retail the hit CD you have to buy the CD by the up and coming artist too. If you want the hits you have to buy the whole album with its filler tracks too.

No doubt, using this analogy, Citigroup would rather sell EMI off in one go rather than in bits. The Publishing company is profitable and an attractive target for other Major Publishers and Funds. The Record label is a less attractive proposition, as despite extensive restructuring it probably lacks the scale to compete effectively as a Major in a very challenging market.

So, it may be easier to sell the record label bundled up with the Publishing Company, than to find a buyer for it on its own.

However, this bundling strategy only works when there are buyers who are prepared to take on the less attractive part of a deal in order to get the bit that they want. The question here is, is there a buyer around who is in that position? Warner seem to have their own funding issues to deal with. BMG Rights are interested in records as well as publishing, but parent Bertelsmann went to some lengths to offload BMG Records to Sony. Would they be keen to take on a full blown record label again?

It may be that this transaction just has to be unbundled, despite Citigroup’s wishes. Just as you no longer have to buy the whole album to get the track you want, it may be that the Publishing Company will get sold without […]

By |April 18th, 2011|Blog|Comments Off on EMI look to offer ‘Bundle Deal’