So what are tradeables?
Let’s take an airline as an example. In years gone by you bought a ticket and that was that. Today, we have to consider how much hold luggage, hand baggage, meals, how flexible the ticket is, penalties for changes, speedy boarding, allocated seats, airmiles payment and redemption, loyalty points and the list goes on. Airlines were forced to change their pricing strategy because of market pressures introduced by the low-cost flyers. Yet many businesses I talk to today stick to inflexible pricing strategies and then moan that their customers think they are too expensive.
In the case of a one-off purchase, for example buying a car, the relationship element is less important than when we are dealing with a customer, supplier or third party over time. In this case the relationship is just as important as the negotiation outcome itself. What’s at stake is future business, reputation and of course the ease of working together after the negotiation. The key error that most of us make is not spending enough time identifying our tradeables. As a result the relationship can suffer.
What neuroscience says…
Imagine you’re selling website design services, your tradeables might be licence fee, training, maintenance, guarantees, hosting, periodic upgrades, support etc.
Being clear about exactly what you’re selling puts you in a much stronger position if the customer demands a discount. Without tradeables you will either have to agree to a discount which will directly impact your bottom line, or you will have to say no, which risks spoiling the relationship and could even blow the deal.
Tradeables allow you to provide options for the other party. And neuroscience demonstrates that options create a sense of control which triggers the brain’s reward system. Whereas being told sorry, that’s our bottom line triggers our threat system and impacts the relationship negatively. In essence what you’re trying to achieve in any negotiation is to find something that will cost you little but is of significant value to them, and vice versa. Thus win-win!
All too often people believe they have no option other than to yield to price concessions - with a certain amount of resentment or resignation. However, careful consideration of your tradeables and pricing options provides a route to better outcomes and better relationships.
Give them options
We were recently negotiating with a large corporate to roll-out a global training programme. Their procurement department was trying to squeeze us on price. We knew if we started yielding, that would be the thin end of the wedge! So instead, we offered them a series of pre-prepared tradeables – online follow-up, certification, refresher webinars. So rather than saying no to a discount (which would have triggered a threat response), tradeables enabled us to demonstrate flexibility and a willingness to work with them to arrive at a mutually beneficial agreement.
All too often people believe they have no option other than to yield to price concessions – with a certain amount of resentment or resignation. However, careful consideration of your tradeables and pricing options provides a route to better outcomes and better relationships.
Could you be losing out by creating false expectations in your negotiations?
The brain is not capable of judging a deal as good or bad in absolute terms. The brain can only evaluate good or bad in relative terms.
The lesson here for negotiators is of supreme importance. By mentioning specific figures too early in negotiations, you are in danger of creating reference points that can work against you.
Imagine that you tell a customer they can have a 20% volume discount if they purchase 300 items.
You’ve now created a reference point (or expectation) by which they will judge the deal. Any discount they manage to negotiate above 20%, they’ll see as a gain and anything less they’ll see as a loss.
Imagine they come back and say “thanks for the 20%, we’ll have 150 items”. This leaves you with a problem – you’ll need to explain that for 150 items the discount is less – only 10%.
Avoid getting too specific about what you are prepared to offer until you have a firm commitment and understanding of the other side’s needs.
Had you not previously created the 20% reference point, this would not have been an issue and they may have accepted 10% as the discount without complaint. However, with that initial expectation of a 20% discount, the risk is that they’ll fight to improve your offer of 10%. Even though they have changed the goalposts and only want 150 items, in their mind they’re losing out against your original reference point of 20%.
An experienced negotiator would certainly push for the 20% that is clearly available. So your job is to avoid getting too specific about what you are prepared to offer until you have a firm commitment and understanding of the other side’s needs.