28 Jan Relative Power (Part 2)
The Theory of “Relative Power” (Part 2)
Here’s how I learned about the theory of “Relative Power”. (If you recall, “Relative Power” is what you really want to have going for you in a negotiation. Negotiating mutual expectations, as the key drivers of value in a contractual service relationship, is important work to a successful start up and longer-term retention.)
In 1974, fresh out of college, I was working for Procter & Gamble as a Sales Representative based in Roanoke, VA. Flush with my first bonus, I had very specific designs on a new Datsun 260-Z (it’s Nissan now, of course, but you get the idea – a hot and fast sports car).
Having never bought a new car before, my first step was to call back home and consult with my Dad. “Son, he told me, the first thing is you never pay the full sticker price for a new car. The dealer has plenty of room to make a fair profit considering dealer incentives, holdbacks, etc.”
Armed with this wisdom, I was off to see the first dealer. Surprisingly, he only had one 260-Z on the lot and actually appeared less than enthusiastic to greet me and discuss it. By the way, I should tell you (and this is definitely a sign of the times) my absolute maximum spending capacity was $5,000. I didn’t see this as a big problem, however, since the sticker price was $5,817 and I figured skillful negotiation would bridge the gap.
No so fast. When I awkwardly asked the salesman, “So, what’ll you take for this car?” I was greeted with a loud and condescending belly laugh. When he finally finished, he went on, “Let me tell you something son. This is the most popular car in America today. They are red hot. We haven’t had one of these on our lot in about a month. This one came in this morning. It’ll be gone by sundown. You want to know what I’ll take for this car? It’s right there on the sticker – $5,817. Let me know if you want it.” With that, he walked back inside.
Feeling more than a bit embarrassed and thoroughly chastened, I drove over to Roanoke’s only other Datsun dealer. Sure enough, they didn’t even have one on their lot. Starting to feel that this car I had been dreaming about was not going to find its way to my garage (actually – I didn’t really have one of those either) I decided to take one last shot and drive to the dealer in Christiansburg, about 35 miles away.
Sure enough, he had one “Z” on his lot – same sticker price. Feeling I had little to lose, I changed my approach. “Here’s my situation, I said. I really would like this car and I’d be willing to commit to it right now. The thing is, is that $5,000 is all that I have scraped together, not a cent more. If you’re interested in selling it for that – great – if not, I won’t waste any more of your time.” This was greeted with another laugh – perhaps just a touch more sympathetic this time. Back to Roanoke I went, disappointed to say the least.
When I arrived back home, a message was waiting for me from the Christiansburg dealer. If I could get back down to Christiansburg with the cash, they’d do the deal that day. Elated, back down I-81 I went and drove back the proud owner of a $5,000 Datsun 260-Z.
Here’s what I learned:
- First – you have to educate the other party as to your boundary and they have to believe it.
- Second – you’ll never get the optimum deal if the other side believes you are emotionally invested and questions your ability and willingness to walk away.
- Third – the other party has to believe that you are indeed the dealmaker and that you are willing to act immediately without further consultation.
When these three levers are present, you’ve maximized “Relative Power” and you can negotiate from a position of strength and achieve a fair consideration.
In the process of negotiating client (and provider) expectations, these levers are important and readily controllable with solid planning and preparation.
Have you ever successfully negotiated when walking away seemed not only necessary, but indeed, imminent?