Area of Negotiation

Negotiation is a two way communication where in the dealing parties always have some issues on which the settlement is sought. All such issues provide the subject matter for the negotiation. It should also be noted that negotiation is possible only for those issues which are subject to settlement under various alternative sources. There cannot be any negotiation for an issue which has the one and the only solution.

The popular areas of negotiation are:
1) Price
2) Quality
3) Quantity, and
4) Service

Price: Price is the key as well as complex consideration in the negotiation. The buyer strives to prove that there exists keen competition in the market and so supplier should offer the most competitive price while the supplier would try to prove his indispensability and hold in the market and thus will try to strengthen his bargaining position. While negotiating on the price, each break up of the price should be negotiated separately. In case of conditional price (e.g. f. o. b price) the incidence of each condition on price should be measured accurately. Sometimes instead of price negotiations, cost negotiations are carried on. Under such negotiations, deliberations are made on each element of cost. The usual break up of the price along with the elements of the cost is as under:

Material cost>
+ Labor Cost
+ Overheads:
Fixed Values>
+Cost of production
+ Profit Margin

The ascertainment of each element of cost is a technical matter and is subject to substantial deliberations. Especially the overhead part of the cost is most debatable. However agreement is possible on all these issues.

Quality: The quality considerations are also subject to debate ad deliberations. The quality will be largely affected by the factors such as the dimensions of raw materials, material mix, quality control, processing method and even primary and secondary packing. All these issues should be deliberated and agreed upon expressly.

Quantity: The quantity considerations involve the negotiation on the issues such as quantity discount, commitment of the supplier to meet the future requirements, the guarantee from the buyer to place orders in future etc.

Service: The service aspect of the negotiation involves the considerations such as timely delivery, after-sales services, treatment of defectives and rejections etc.

As settlement of agreement is a composite deal, the impact of all thee factors should be weighted individually before finalizing the final deal.

Principles of Successful Negotiation: Negotiation requires a specialized skill. The essential element in the negotiation is the bargaining between the individuals or groups of individuals, so the negotiation process involves the personalities, their motives, their strengths and weaknesses and above all a great deal of psychology. The following rules should be observed in carrying a successful negotiation:

1) The issues of the negotiations should be organized properly
2) The buyer should carry on the negotiation on his home ground and as per his own arrangements.
3) The buyer should try to put himself in supplier’s shoes
4) The buyer should allow the supplier to do most of the talking
5) Only one point must be taken up at a time.
6) The talk should be directed towards proper person.
7) The discussion issues resulting in sustained conflicts be postponed for next session, it possible.
8) One should not get fumbled with excessive facts and figures
9) One should try to avoid the emotional reactions to the presentations of the other, at the same time emotional touch to the presentation should also be eliminated.
10) If any party has to retreat on a point, allow it to do it gracefully
11) The objective of any negotiation is to come to conclusion so try to avoid premature and hasty conclusions.
12) One should try to satisfy the emotional needs of the persons who are negotiating during the session.