Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy
Negotiation Phase — 4 Phases For Effective Negotiations
Key takeaways
- The negotiation phase is the step-by-step process of how negotiations are carried out.
- It allows for clarifying needs, exploring options, and reaching a win-win agreement that benefits all parties involved.
- Each stage has distinct goals and requires strategic execution. However, thorough preparation remains the cornerstone of successful negotiations.
In procurement, negotiation is more than just a skill in the procurement process. It is an art form.
Negotiation is the delicate balance of pushing what you want while understanding and respecting the other party’s needs. Because of the importance of negotiation in the process, procurement professionals need to be well-versed in the negotiation phase.
In this article, we will discuss the four phases of negotiation and some tips to help you in your negotiation process. After reading this article, you should already understand the negotiation phase and become a master of it!
I have created a free-to-download negotiation preparation toolkit template. It’s a PowerPoint file that can help you ace your next negotiation. I even created a video where I’ll explain how you can use this template.
Understanding 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 Course For Procurement Professionals is designed to help negotiators hone their talents during this critical procurement phase.
During the negotiation stage, you will 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 suffer from increased costs or lost time.
It is for this reason alone that many procurement managers believe that one should really study and prepare for the negotiation phase carefully to proceed in the procurement process without too many issues.
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.
We will delve deeper into these four phases, drawing on theory and my experience as a procurement manager at the largest retailer and dairy company in the Netherlands.
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.
When you are preparing for a negotiation, you must gather information and find common ground with the other party which is called the Zone of Possible Agreement (ZOPA).
This is the area where parties will usually compromise and strike a deal. The preparation phase is considered by many procurement managers, including myself, as the most important phase of the negotiation. If you do this well, a huge part of your result is already secured.
In negotiation, parties need to work toward a common goal and seek areas having some of their ideas to reach an agreement. Thus, why ZOPA is crucial in negotiation.
No matter how far you have come in your negotiation, an agreement can never be reached outside the ZOPA.
For a deal to happen, negotiating parties must understand their needs, interests, and values in negotiation.
Additionally, in this stage, you must also prepare your BATNA (Best Alternative To a Negotiated Agreement). Your BATNA is your backup plan if your negotiation doesn’t lead to a deal.
By determining a BATNA you’ll have more confidence because you have a backup plan if the negotiation doesn’t work out. Because of this, you won’t feel forced to make a bad deal.
One of the main reasons for entering into a negotiation is to achieve better results than without negotiating. The stronger the BATNA, the greater the range of alternative courses of action.
The stronger the BATNA, the greater the ability to walk away from an unsatisfactory negotiation which we call the “walk away” point.
A “walk-away point” is when there is no point in continuing the negotiation because the offers do not align with what you want.
Furthermore, at the end of your preparation, it is important to set some goals that go beyond what you initially expect. For example, if you aim for a certain price, you must stretch your goal to get an even lower price or other alternative that can give you an additional value from the negotiation.
Drawing from my experience as a procurement manager, here are a few tips I would like to share for the preparation phase.
Ground your negotiation in the company’s strategic goals. After you have done this, understand where the company aims to go. After you learn the goals of the company, know what it means for you as this influences your negotiation objectives.
Remember to consider what the other party will consider important and anticipate their strategy. Think about what you can offer to gain leverage in the negotiation or to push back against the supplier’s proposals. Also, think about who will be on your negotiation team and consider the timelines involved.
Stage 2 – Bargaining
The term “bargain” has a long history, and many of us can recall instances where our family members, friends, or acquaintances engaged in prolonged negotiations when purchasing something they desired. Bargaining is an incredibly valuable skill, particularly in the field of procurement, as it directly impacts the ultimate cost of goods and services.
In our language, bargaining power refers to the capacity of a company’s customers to sway the prices of the products or services it offers, as well as the ability of suppliers to establish the prices that the company must pay for the materials and services it procures.
So, how can you gain this power? Well, one trick is to exchange information with the other party. The information that you will exchange with them will help you understand what they want and what they are willing to offer. This understanding is crucial for finding common ground and reaching a deal that works for both sides. It’s a bit like discovering shared interests or goals, making the negotiation process smoother.
Exchanging information with the other party will help you understand how far they are willing to go, so you don’t ask for too much or settle for too little. Sharing information also builds trust in the negotiation. When both parties are open about their needs and concerns, it creates a better atmosphere for finding solutions.
Personally, this is one of the biggest differences between novice and experienced negotiators. Novice negotiators are afraid to reveal their cards, fearing they might disclose something forbidden by the company or that could turn out wrong.
In many such cases, the manager intervenes in the negotiation. Even without making financial decisions, the manager can provide information or ask the right questions to the supplier, breaking the deadlock. To achieve a good deal result, at some point, you must lay your cards on the table!
When people come together to negotiate, it’s not just about the numbers and the terms written in a contract. It’s also about establishing how they will work together. This aspect of negotiation is often less explicit but carries a significant influence on the outcome.
Understanding and managing the dynamics of engagement, framing, and norming is intimately connected to effective bargaining. Here’s how these elements influence the bargaining process:
- Engaging: You’re essentially setting the stage for the bargaining process when you engage with the other party in a negotiation. The impressions you form about each other, including roles and relationships, can significantly impact your interaction with them. If you perceive the other party as trustworthy and reliable during the engagement phase, it can foster a sense of trust needed for successful bargaining. On the contrary, if negative judgments are formed, it might hinder cooperation during the actual bargaining.
- Framing: Framing is about how you define the negotiation and its purpose. How you frame the situation—whether as a partnership, conflict resolution, or simple negotiation—establishes the tone for your bargaining. For instance, if you frame the negotiation as a win-win partnership, you’re more likely to adopt a cooperative approach, seeking mutually beneficial solutions. On the other hand, if it’s framed as a competitive haggle, you may adopt more assertive tactics.
- Norming: Norming shapes the “how” of the negotiation. It’s about setting the rules and expectations for how the bargaining process will proceed. This directly impacts the negotiation’s pace, tone, and style. If both parties agree on a cooperative norming approach, they are more likely to engage in constructive discussions and seek compromises. However, if the norming process leans toward a confrontational style, the negotiation may become tense and unproductive.
In this stage, both you and the other party will use a lot of negotiation tactics against each other.
These negotiation tactics will not wave at you and say, “Here I am, look at me.” If these tactics are obvious, then they will not be effective in the first place.
Often, these tactics are self-serving to fulfill the negotiator’s goals and objectives. Therefore, it is detrimental to others which makes these tactics “win-lose” in nature.
The first step in successfully negotiating with the other party that is using negotiation tactics is to identify what tactics it is and to be aware of what they are doing.
Typically, tactics depend on two things: the chances of you not knowing that you are being manipulated, and reacting predictably.
If you identify the tactic, you are less likely to respond to it the way the other party expects you to react. Thus, gaining a degree of control in the negotiation.
There are many different tactics you can apply during negotiations. I’d like to mention three that I often used as a procurement manager:
- Silence: A powerful tactic to calm emotions. Many people feel the need to fill silences, which usually weakens their position. This tactic was also often used against me. In response, I would acknowledge that we seemed to have received the same training and that I wouldn’t be influenced by it. This worked well to defend against the tactic.
- Offering options that are all beneficial to you: When stuck in a negotiation, it can be effective to present, for example, three options that are all acceptable to you. If the supplier chooses one option, you’re always in a good position.
- The hypothetical question: Perhaps my favorite tactic. I often used this when negotiations stalled and neither party wanted to make a formal proposal. Instead, I would start with: “Suppose hypothetically I were to do A, would you be willing to give B?” Since these proposals weren’t documented, suppliers were often willing to agree, breaking the negotiation deadlock.
Using these tactics helped me negotiate effectively and achieve good results during my time as a procurement manager.
Stage 3: Closing
This step in negotiation might be the most boring one, but it’s also the most dangerous one. When you are almost at a deal, it’s essential to introduce a key new variable in the final phase. Don’t relax! Keep your list of concessions and demands up to date throughout the negotiation process.
Why? Because in many negotiations, this phase is where unexpected results can be achieved. A psychological process often makes people more inclined to quickly give away things at this stage. It’s during this phase, when negotiators are often exhausted, that the likelihood of making mistakes is highest.
Utilizing the tactic of last-minute nibbling can be effective. By making small requests before the deal is finalized, you can take advantage of the other party’s eagerness to close the deal without them fully realizing the impact on their profit. Remember, there is no such thing as a perfectly fair deal, but there are various new variables to consider in the closing stage of the deal-making process.
Here’s one more tip I’d like to share. When the deal was finalized, I made sure to share my screen at the end of the meeting and together we put the deal in writing. Even if you do this an hour later at your desk, you’ll find that the supplier interpreted things slightly differently, potentially leading to renegotiations. So, write down the deal immediately and have it confirmed by the supplier!
Furthermore, once you close the deal, both you and the other party should sign the contract for it to be legally binding. Although the deal is already done, you must keep it in check, especially if the obligations are being fulfilled correctly by the other party which we are going to tackle in the last stage.
Stage 4: Implement and Evaluate
In this stage, you will implement all the agreed terms that you have negotiated with the other party in the earlier stage. Implementation doesn’t get the attention it deserves. But if you have the right people involved in the process from the start, you’re setting yourself up for success when it’s time to put things in motion.
In many organizations, different sourcing processes are happening at the same time. When you’re getting ready to make things happen, it’s important to make sure that different departments or teams are working together.
Remember, people can only handle so many tasks at once. So, it’s really important not to give your team too much to do during this phase. If something doesn’t go as planned, especially in the early stages, pushing your organization too hard can lead to problems. So, make sure you find the right balance and make the implementation process manageable without overwhelming your teams.
Also, it’s a good idea to keep a close eye on how things are going within your procurement organization. You should know what’s happening with your internal customers. Start by making a map of all the things that are happening as you put your plans into action. Sort these activities into groups based on the systems, processes, and people involved. This way, it’s easy to see what’s happening now or getting started.
And remember, it’s important to stay in touch with your suppliers and evaluate their performance. Check that they’re doing what they agreed to and meeting the quality standards. Keeping a close eye on your supplier’s performance ensures that your partnership stays beneficial for both sides and delivers the results you expect.
5 Negotiation Tips For Successful Deals
These are some of the tips that we want to share with you to increase the odds of successful deals in your negotiation:
1. Explore all possible scenarios
The first step in a successful negotiation is to think about and plan for all possible outcomes.
For instance, you might consider different ways the negotiation could go and what you’re willing to accept as the best and worst outcomes.
This preparation helps you adapt during the negotiation because everyone understands the goals and boundaries.
2. Seeking a “win-win” outcome
Many see negotiations as win-lose situations, but the best negotiators aim for both sides to win. This perspective, often termed “negotiating to interests,” seeks creative solutions.
For example, in salary negotiations, offering benefits like flexible hours or tuition reimbursement can bridge gaps without costing the employer much.
3. Treat the other party fairly
A breakdown in negotiations often occurs when one party feels unfairly treated. It’s crucial to keep emotions in check, show respect, and treat others as you’d like to be treated. Being respectful and level-headed contributes to a positive reputation as a fair negotiator.
4. Read body language
Pay attention to what’s not being said during negotiations. Sometimes, people’s body language can reveal more than their words. Assign someone to observe and interpret the other side’s physical cues.
When you step away from the table, this observer can share insights that might have been missed, helping negotiations progress.
5. Take some breaks
Negotiations can get emotional quickly. It’s a good idea to take a break between discussions. This pause can be especially helpful when things get tense.
It’s important not to react to emotions but to understand the actual differences between your positions. Building a partnership with the other party is often more valuable than trying to win at their expense.
Procurement Expert’s Advice on Negotiation Phase
For this article, we asked an experienced procurement expert to share his insights to help answer common questions about the phases of negotiation.
Elchin Musayev
Deputy Procurement Director, State Oil Company of the Republic of Azerbaijan (SOCAR)
LinkedIn Profile: linkedin.com/in/elchin-musayev
1. What do most people get wrong about the negotiation phase?
“Many people mistakenly believe that negotiation in procurement is solely about driving the lowest price, but in reality, it’s about creating value and building strong supplier relationships.”
2. What should people know about the phases of negotiation if they are planning to start working on these?
“Before delving into negotiation in procurement, individuals should understand the importance of preparation, active listening, and the need to balance short-term gains with long-term supplier relationships.”
3. From your experience, what is the most important thing you learned about the negotiation phase?
“From my experience, I’ve learned the paramount importance of staying well-informed and prepared during negotiations. Honesty and transparency are the cornerstones of successful negotiations; I never make promises I can’t keep.
Building a collaborative atmosphere where suppliers are willing to agree to terms offered by us is important. Finally, I always ensure that I use any bargaining power ethically and responsibly.”
4. What tips can you give them about the phases of negotiation?
“1. Thoroughly research and understand your goals, limits, and the other party.
2. Listen more than you speak to grasp their perspective.
3. Clearly define your objectives and expectations.
4. Be willing to adapt and find win-win solutions.
5. Stay calm and composed, avoiding emotional reactions.
6. Know your strengths and weaknesses as well as the other party’s.
7. Always negotiate ethically and in good faith.”
5. Can you give us an example of your successful negotiation?
“I once had a negotiation with the CEO and Sales Manager of a well-known technological company that specializes in distributing specific spare parts for our equipment.
During the negotiation, our primary objectives were to ensure the quality of the proposed products, achieve shorter delivery times, and, of course, reduce costs.
However, a critical moment arose when the CEO of the supplier company emphasized that many parts available in the market, including those from their competitors, were refurbished items.
He claimed that their parts were original, but when I asked how they could guarantee the authenticity of their products and how we could verify it, he didn’t provide a clear answer. Instead, he instructed his Sales Manager to provide us with offers for both original and refurbished items.
Recognizing this as an opportunity, we used this point to our advantage during negotiations. As a result, we secured competitive prices, acceptable delivery times, and a commitment to delivering quality products.
This experience taught me the importance of asking probing questions and leveraging any weaknesses in the negotiation process to achieve a more favorable outcome.”
Conclusion
In summary, effective negotiation is a multifaceted skill that involves preparation, clear objectives, fairness, creativity, and decisive action.
In the field of procurement, gathering accurate information and setting clear goals form the foundation for successful negotiations.
Furthermore, striving for win-win outcomes and treating all parties fairly promotes positive working relationships and long-term success.
By following the 4 stages of negotiation, you can improve your abilities and increase the likelihood of achieving favorable outcomes while strengthening your relationship with the other party.
Frequentlyasked questions
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 Implementation and Evaluation phase.
What is a negotiation phase?
The negotiation phase is the step-by-step process of how negotiations are carried out.
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.
