Negotiation Phase – 4 Phases For Effective Negotiations

In a procurement process, the negotiation phase is just as important. This is where you discuss options and agreements with the other party. Therefore, the negotiation phase should not be underestimated.

To excel during the negotiation phase, you need to prepare. That is why we will talk about the 4 phases or stages of the negotiation phase for this article. We will define the terms and come up with the right stages so you can negotiate without issues.

After reading this article, you should already understand the negotiation phase and become a master of it!

Why Study the Negotiation Phase?

For a procurement process to work, you should always include negotiations. It is an integral part of procuring materials or skills for your company. Without it, you are doomed to procure goods and/or services at a rate that is disadvantageous for your organization. 

Also, the negotiation phase is the trickiest part of the procurement process. It is where the results for both the RFQ and RFI will be used in order to take advantage during the negotiation stage. It takes skills and determination to become a skilled negotiator, but those can be learned. Our Negotiation Gamechanger course is designed to help negotiators hone their talents during this critical procurement phase.

During the negotiation stage, this is where you try to convince the supplier to give you high-quality materials or supplies for the best price that you can offer. If you fail during the negotiations phase, your organization will have to go back to square one in your procurement process. It is for this reason alone that many procurement managers believe that one should really study and prepare for the negotiation phase carefully in order to proceed in the procurement process without too many issues.

Editor's note:

Hi there! My name is Marijn Overvest, I'm the founder of Procurement Tactics.
Want to take your negotiation results to the next level?

The 4 Phases of Negotiation

Since we’re done discussing the importance of negotiations in the procurement process, it’s time to take a look at the 4 phases of negotiation.

Each phase or stage, as some would like to call it, coincides with each other. It’s basically just a cycle of how negotiations would run through. Your team at Procurement Tactics understands that it might be overwhelming and too much of a bore to write a long wall of text for each phase, so we’ve decided to create this simple table so that it’ll be easier to understand each phase.

So without further ado, here are the 4 stages or phases of negotiation:

Phases of Negotiation
Stage 1 - Preparation
Stage 2 - Information Exchange, Validation, and Bargain
Step 3 - Conclude
Stage 4 - Execute
What it Involves
Identify potential value, begin to understand interests, develop fact-base
Discovering and creating value, build rapport and trust, assess interests, create and distribute value, make and manage concessions
Capture value, confirm interests have been met, thank the other party
Expand value, addressing any changing interests, strengthen relationships

Stage 1 – Preparation

Heading into a negotiation without preparation is like heading to war without a weapon. You really need time to prepare for negotiations. 

The most important thing in this step when preparing for a negotiation is to gather as much information as possible. Every negotiation process starts with preparation, followed by conducting a sharp strategy, and last but least: the negotiation itself.

Thus, there are several key points that you need to assess while preparing for the negotiation. These key points will help you big time in determining the outcome of the negotiation:

Points to Consider

  • Should I be the one to negotiate?
  • What do I need to know?
  • Who are the players and stakeholders?
  • Are there any standards and benchmarks?
  • Re-organize any data that you may have on the other party
  • Anticipate what may happen during negotiations
  • Assess the strength and risk of the other party and your party
  • Have a look at your desired outcome and your least acceptable agreements.
  • Be ready to make concessions

Stage 2 – Information Exchange and Bargaining

The second step is to open your negotiation in the right way and to make sure you have the right content-related skills ready.  We will point out the most important content-related skills you should have when entering any negotiation. The first is financial: having financial expertise in your negotiation will help you to create a deal that fits your strategic goals. For example, knowing the unit economics of your business case helps you understand whether you should focus on a low unit price or fast delivery time. Having financial skills will also enable you to use your BATNA better. The second is legal skills. When your negotiations are reaching the final phase, it’s smart to include a legal analyst to cover all legal aspects of the deal. That being said, in many negotiations the legal terms have a significant impact on the deal. In that situation, it’s best to be aware of the legal terms right from the start. If you’ve got legal expertise yourself, that’s even better!

Once the information has been exchanged and there is validation over the information presented, bargaining will start immediately. 

Always remember that during the exchange stage, it is important to build rapport and trust. Forget about playing the hardball negotiator; for a procurement process to work, there should be trust between your organization and the supplier. Take note of these key critical assessments during the information exchange period:

  • Competency – Are they credible and able?
  • Trustworthiness – Are they dependable and honest?
  • Likeability – Can you work well together?
  • Alignment of Interests – Are your interests aligned with theirs?

During the bargaining stage, always remember your BATNA. Again, BATNA means Best Alternative to a Negotiated Agreement. Use your BATNA should negotiations start to fail, as this will give you and the other party options to come up with an acceptable concession, rather than just walk away from the negotiation table.

Very important in this step is analysis & Influencing. After you or the other party has started the negotiation with the opening bid, it’s time to start the actual negotiation. Skills that are needed in this phase, are questioning and listening, stating your needs and expectations, listening to the other party, taking in extra information and finally confirming any key issues to be agreed upon.

You can influence your negotiations in many ways, and we will point out some of the most important ones. Let’s start by pointing out two observational negotiation skills. The first is Active Listening. Active listening isn’t just listening to what the other says. It’s actively involving and paying full attention to what someone has to say. Active listening is a great skill to have, as it will give the speaker the feeling his words matter. This will make the other person more honest, open, and willing to cooperate. You can train active listening by maintaining eye contact, saying ‘yes’, or nodding when the other one is talking. The second is Body language. Listening to what your negotiation opponent has to say isn’t the only way to absorb information. Having the skill to detect body language has been proven to be just as powerful. For example, your negotiation opponent might say he’s got offers lined up from your competitors. However, when paying close attention, you notice that he’s scratching his neck and his nose when talking about the other offers. This could indicate he’s uncertain about the other offers, or perhaps even lying.

Interpersonal negotiation skills are also very important. Building a connection is the process of connecting or creating a relationship with someone. It’s typically referred to as ‘getting along’. Building a connection is something you can develop. It’s a great skill for any negotiation, as your opponent will be more likely to meet your needs.

The third way to influence negotiations effective is through verbal communication. Being able to communicate verbally will go a long way when it comes to effective negotiating. By communicating effectively you’ll notice the negotiation process will be smoother and involve less friction.

Problem-solving is the last. It starts with identifying and deconstructing the problem: we will dive into this further later in this module. Last but not least is assertiveness. Being assertive is usually referred to as being able to stand up for your rights, in a calm and gentle way. Negotiators who are assertive are able to communicate their wishes without making others upset, or becoming upset themselves. The skill of being assertive will help a lot during negotiations. It’s an essential skill during the heat of a negotiation. We will teach you all about how to influence the other party in our certificate program

Stage 3 – Conclude

The Conclude stage is the point where both parties finally reach an agreement. It is important to follow up on whether the other party can follow through with what was agreed on. Therefore, it is always during the Conclude stage where documents and agreements are handed down and signed on by both parties.

This step is about making the deal. After the phase of analysis & influencing, it’s time to work towards a deal!

The final step in any negotiation might be the most boring one, but it’s also the most dangerous one. It is in the final phase – when you and your negotiation counterpart are most likely more exhausted than at the start-  when the biggest mistakes happen.  In the final step of the negotiation process, you will work on closing the deal, wrapping up what has been agreed upon, confirming the next steps and any follow-ups, and finally,  signing the paperwork!

Skills that are needed in this phase are: dealing with high-pressure situations, debating the most important issues, bargaining, implementing your negotiation strategy and tactics, trading variables, and decision making. We will dive into tactics here, let’s focus on the other variables we just mentioned.

Dealing with high-pressure situations is the first. As a procurement manager, you’ll find yourself negotiating big deals frequently. A price difference of 2% on a total deal could easily implicate millions of dollars. In my time as a procurement manager for a supermarket, I could experience pressure from my negotiation opponent, my boss, my colleagues, and my competitors. A lot of heat in some moments, from a lot of possible angles. I managed to keep the pressure as low as possible, to make sure I updated all my stakeholders before and after any negotiation, to make them part of the process and possible challenges. Being able to stay calm and keep making the right decisions is critical for a successful career in dealmaking.

Decision-making is also very important. As a negotiator, you’ll find yourself making decisions on a regular basis. Being able to make good decisions will go a long way when it comes to making great deals. Here’s what the average decision-making process looks like: first define the problem or the opportunity, then come up with a list of possible solutions, evaluate each option by listing the numbers, pros, and cons, make a decision, and deal towards your desired result. As said before, I recommend you to make internal stakeholders part of the problem and consult them to find the best possible solution!

Stage 4 – Execute

The last part of the negotiation phase is where the deals agreed on are executed and carried out. At this stage, take note of any changes or failures on both sides so that if there is another negotiation, those listed will be discussed in greater detail in the future.

FAQs

What is the first phase in a negotiation?
The first phase in a negotiation is the Preparation Phase.

 What is the final phase in a negotiation?
The final phase in a negotiation is the Execute phase

What is a negotiation phase?
The negotiation phase is the step-by-step process of how negotiations are carried out.

Become the master of the negotiation phase?

To become a master negotiator, you need to learn the negotiation phase by heart. Enroll now in our Negotiation Gamechanger course and hone your skills to become an expert negotiator in no time at all. But hurry because our course is in a limited time slot only!

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