Have you ever settled for less than you wanted in order not to lose a deal? This is common irrespective of how profitable or large the party we represent; there is always the risk that the other side has a better offer elsewhere, so we offer improved terms to win the deal – never knowing if we could have still won the deal without making extra concessions. The acronym “FOLD”, or “Fear of Losing Deal” explains why this happens.
The psychology of negotiation is as important as the facts in any given negotiation. In poker, it’s not always the player with the better hand that wins, but the one that plays against the opponent rather than his cards. When a FOLD mindset takes over it impacts our behaviour. We tend to narrow our view of the negotiation map and focus only on our own position and what we can make work. We forget that our counterpart also has consequences of not closing a deal, and assume that they have better options away from us.
Referencing negotiation theory, we are focused on our own “BATNA” rather than our counterparts. BATNA stands for 'Best Alternative to a Negotiated Agreement’ and is what you will do if you fail to come to agreement. Often this means losing the deal so the alternative is zero revenue which is not an attractive BATNA; so we FOLD and make concessions in order to increase our chances of winning something.
There are two problems with this: The first is that we are not considering the other sides BATNA (ie what they will do if they don’t deal with you), and the second is that we are not spending enough time improving our own BATNA. The two are connected.
Let’s deal with the other sides BATNA first: It’s not always as strong as you think and the better your product or service, the more time you dedicate to developing a compelling offer that has unique attributes; the more difficult it is for your counterpart to replace what you are offering.
This leads into the second point which is developing our own BATNA. Developing BATNA’s take time and understanding of what your customer base requires. By developing a product or service that addresses these needs that your competitors are not addressing, FOLD psychology is less likely to set in because you know that your counterparts BATNA will be inferior if they need or desire what you have to offer.
One of my favourite quotes is Henry Ford’s “If I asked them what they wanted they’d have said a faster horse”. While it’s not always possible to be as innovative as Ford was and create a new market, it is possible to think outside of the box and position your offering in a way that separates you from the competition. When we do this, we improve our own BATNA while simultaneously impacting our counterparts BATNA if they need or desire what we have developed.
One final comment for anyone who considers their product or service highly commoditised or competitive (ie most of us!). This does not preclude the approach I am suggesting above. It simply makes the stakes higher. Going into examples of how this has worked is beyond the scope of this blog, however the excellent ‘Blue Ocean Shift’ by W. Chan Kim and Renee Mauborgne details enough case studies across multiple product sectors to make even the most cynical of us into believers.
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