As the story goes, researchers found that when they put a frog in a pan of boiling water, the frog just quickly jumped out. On the other hand, when they put a frog in cold water and put the water to boil over time, the frog just boiled to death. The hypothesis is that the change in temperature is so gradual, the frog does not realize it’s boiling to death. While the results of the experiment are in question it is a good metaphor for organization cultures.
Saturday, July 23, 2016
Sunday, July 17, 2016
Negotiating 101 - Know Your ZOPA
In life and Sales, there exists the Zone of Possible Agreement. The Zone of Possible Agreement is considered an area where negotiating parties may find common ground - where parties will often compromise and strike a deal. In a traditional sales negotiation, it is defined by the highest possible price that the buyer is willing to offer, and the lowest possible price that the seller is willing to accept. (Remember that ZOPA is not necessarily just about price in terms of money. It can include other terms and conditions.)
Suppose that you want to sell a product that costs you $18,000. You calculate that you can reluctantly let it go at the break-even sell price of $20,000 but would like to sell it for $30,000 to meet target margins. A buyer wants to buy it for $15,000 but is willing to pay up to a maximum of $25,000. The ZOPA where both buyer and seller can negotiate within would be between $20,000 to $25,000. You (the Seller) would not entertain a bid at $15,000 because you would lose money and the Buyer would not consider your asking price of $30,000.
Beware the dangers of not understanding the ZOPA. If you, the seller, start your offer at $40,000, so far outside the buyer’s ZOPA, the buyer will walk away since he or she may think that any discounting will never reach their buying range. The Seller had demanded too much and shut down negotiations. Likewise, the Buyer may make such a starting bid so low that the Seller might not think that he/she is serious and decides to walk away.
Suppose that you want to sell a product that costs you $18,000. You calculate that you can reluctantly let it go at the break-even sell price of $20,000 but would like to sell it for $30,000 to meet target margins. A buyer wants to buy it for $15,000 but is willing to pay up to a maximum of $25,000. The ZOPA where both buyer and seller can negotiate within would be between $20,000 to $25,000. You (the Seller) would not entertain a bid at $15,000 because you would lose money and the Buyer would not consider your asking price of $30,000.
Beware the dangers of not understanding the ZOPA. If you, the seller, start your offer at $40,000, so far outside the buyer’s ZOPA, the buyer will walk away since he or she may think that any discounting will never reach their buying range. The Seller had demanded too much and shut down negotiations. Likewise, the Buyer may make such a starting bid so low that the Seller might not think that he/she is serious and decides to walk away.
Negative ZOPAIn Sales, a negative ZOPA exists when the walkway points of both parties are too far apart with no common area of overlap – a negative ZOPA. With a negative bargaining zone both parties may (and should) walk away.
If we study the current North Korea standoff, we see this negative bargaining zone. North Korea’s current walkaway point is that the US and world must drop sanctions before talks. The US walkaway point is that N. Korea must abandon pursuit of nuclear weapons.
Moving a ZOPACan you move the ZOPA? Yes, but it requires combining common interests to create a “win/win” for all. I, as the Seller, might be able to offer a demo or refurbished version of my product at a slightly reduced price which reduces my break-even sell price. The Buyer may be willing to offer me a testimonial for my promotional material or offer to buy in volume to reduce the Seller’s transportation and installation costs.
Likewise, a Seller or Buyer can shrink a ZOPA by adding terms and conditions during negotiations. True Story: A couple was getting very serious about marriage. The woman kept mentioning “little” things which got the man’s spiderman senses tingling (their ZOPA was shrinking). Finally, she mentioned that she would be in charge of their future finances and ration him $50 per week – their ZOPA went completely negative and he ran for the hills...and is still running.
If we study the current North Korea standoff, we see this negative bargaining zone. North Korea’s current walkaway point is that the US and world must drop sanctions before talks. The US walkaway point is that N. Korea must abandon pursuit of nuclear weapons.
Moving a ZOPACan you move the ZOPA? Yes, but it requires combining common interests to create a “win/win” for all. I, as the Seller, might be able to offer a demo or refurbished version of my product at a slightly reduced price which reduces my break-even sell price. The Buyer may be willing to offer me a testimonial for my promotional material or offer to buy in volume to reduce the Seller’s transportation and installation costs.
Likewise, a Seller or Buyer can shrink a ZOPA by adding terms and conditions during negotiations. True Story: A couple was getting very serious about marriage. The woman kept mentioning “little” things which got the man’s spiderman senses tingling (their ZOPA was shrinking). Finally, she mentioned that she would be in charge of their future finances and ration him $50 per week – their ZOPA went completely negative and he ran for the hills...and is still running.
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