Focusing on the value of a transaction over a relationship may win the battle but lose the war.
In advanced negotiation training and covered in The Career Toolkit: Essential Skills for Success That No One Taught You, we often talk about multi-round negotiating. If the counterparty is someone you’re going to see again, maximizing the value of a single deal may not be the optimal strategy in the long run. Consider the following real-world example.
At times in my career, I’ve consulted, both in full time roles and fractional roles. While I’m often a CTO / CPO (Chief Technology Officer / Chief Product Officer), at one company I was a fractional CISO (a part time, temporary Chief Information Security Officer until they found a full-time hire) when one of the cybersecurity vendors was up for renewal.
This client of mine had been a customer of the security vendor for a number of years. Prior to my arrival the company had talked about scaling back from 500 licenses to 70 licenses as the company underwent a restructuring. It was expected and communicated to the vendor that we would grow it back going forward. I got a quote from the vendor; this quote cut the annual price from roughly $20,000 to $11,000 as we reduced the licenses. We also used the vendor for a separate service for another $10,000 annually, which was unaffected by this change.
A few days later I was trying to make sure 70 licenses were enough for my client and needed to understand what counted as a use of the license. I emailed the vendor for clarification and in their reply, they said, “The quote we provided will have to be adjusted since [the service’s] pricing structure requires a minimum of 160 [licenses]. Good news though – we can still provide an updated quote that will be close to the original AND, it will allow for additional growth for your infrastructure.” That was very unexpected since I had a prior quote from them and had assumed it was valid.
On the one hand, this could be the classic underhanded salesman’s trope I discussed in The Career Toolkit’s chapter on negotiation. At the last hour they say, “oh, one last adjustment” that somehow always seems to be in their favor. The thinking is that you’re so invested you just capitulate. In this case I didn’t have time to go back and look for another vendor, so they had me. Since it was close to the end of the year and holidays, they probably knew they had me.
On the other hand, maybe it was just incompetence. I tend to default to Hanlon’s razor. This wasn’t an email ten minutes after we spoke on the phone when he realized that he miscalculated; rather after the salesperson gave us a formal quote, they retracted it some time later. Their controls should have caught any minimum pricing issue and probably didn’t.
The reality is I couldn’t tell whether it was underhanded or incompetent. Then again, if the question is, “Is this vendor underhanded or incompetent?” (particularly for a cybersecurity vendor who has privileged access to your systems) does it really matter? Neither answer is good. Neither company is one you want to work with.
The adjustment they made turned out to only be a few hundred dollars in difference. Budget wise, it didn’t have much impact. However, what it conveyed was a terrible experience, one that had nothing to do with the money.
Suppose the vendor said, “Listen, we made a mistake, it needs to be a minimum of 160 licenses. But it was our mistake, so we’ll give you the 160 licenses for the next year and keep the price we quoted.” I would have greatly respected that. It would signal to me that the vendor wanted a good relationship and wasn’t trying to maximize profits from this one transaction. I would have thought, “What a great vendor! I want to work with them again because I can trust that they want a good, long-term relationship.” Even if they said, “We have a minimum of 160 licenses, but forgot to tell you that so we’ll waive that requirement this year,” it’s showing me they value the experience and relationship over the pennies. Instead, for a few hundred dollars, they left a bad taste in my mouth.
When negotiating, consider the global optimization, not just the local optimization. The few hundred dollars didn’t matter to either side, but the experience very much did. By focusing on maximizing this one transaction, they hurt future value-creating opportunities.
[Since I often get asked how it ended, here’s the epilogue. I gave them a chance to backpedal and get out of it, but they didn’t budge. After that, since the relationship was shot, I pressed hard, not because I cared about the money, but because I really dislike having someone do this last minute, right as we’re about to sign a contract. I sent the following email.
Look, I’m a temporary consultant. If I spend a thousand dollars more or save a thousand dollars it won’t make a difference to me [I should try to save as much as possible for the client, although for a company of this size, $1,000 isn’t a big deal]. I’m going to sign it because $1,000 isn’t a big deal to the company and I don’t have time before the end of the year to find a new vendor. But I’m going to let my successor know about this. Also consider that as a consultant I regularly help companies select vendors. I’m also part of many executive groups and we often discuss and recommend vendors. Is it really worth this to get a little more money in this one contract?
Very quickly the senior salesperson on the deal recanted and offered to honor the existing price. Had he done that in the first place, he would have gained from it as I would have been loyal to the vendor. Instead, even yielding in the end, I was not happy with them.]
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