All prices are fictitious is a helpful way of looking at the role of price in negotiation. Prices are fictitious because they represent positions and not interests. When a price is first named it should be simply viewed for what it is – a position – a way of starting a discussion about the issue of price. Behind this position may lie all sorts of considerations about volumes, payment terms, date of purchase etc.
If the negotiation simply focuses on price, these further considerations and the real interests of the parties may well get lost.
Prices are therefore fictitious, in the sense that they do not necessarily represent the price at which you will buy or sell, or the conditions that may be attached to this price. They become more concrete once they have been agreed, and finally become real once they have been paid.
- A position is what is actually expressed during the negotiation as a need or want. For example, if a supplier quotes £100,000 for some computers, then this is the supplier’s opening position. If, in response to the supplier’s bid, you say, “I will offer you £60,000 for the computers,” you are taking a different position on the issue of price.
- An issue is what we are talking about. In this case, the price of the computers themselves. Other issues, which may be linked to that of price, are volumes, payment terms, order date etc.
- Behind issues and positions lie interests. An interest gives us the answer to why a party is really talking about this or that issue and taking this or that position on it. In this case, the supplier’s interest could be to maximise the profit from the sale, or could be to make a sale at a reasonable profit in order to meet the half-yearly sales target, or could be to sell at any price because they are very short of orders etc.
If you can discover the real interests that lie behind the position a supplier is taking on price, then you will be able to craft a better deal. If you know the supplier is short of orders, then you are likely to get a better price if you place an order now. On the other hand, if you know the supplier does not need to sell to you, then you are unlikely to get a good price and you should think of buying elsewhere.
You are likely to get a better deal too, if you can widen the discussion to include issues other than price. The interests of the other party may spread over several issues, and so might yours. For example, a supplier may have in mind a price, but wants to sell a certain volume and get paid within 30 days without taking any payment risks. Sometimes a supplier has not even thought through all his interests and needs some help; sometimes you need to think about taking a wider view; and often some creativity is needed to bring it all together.
In the case of the computers the final deal might look like:
- Price: £75,000 if ordered within 3 days of date of agreement
- Payment schedule: 10% on order, 80% on delivery, 10% on satisfactory installation/testing
- Payment terms: 15 days from receipt of invoice
- Delivery date: 4 weeks from receipt of order
- Warranty: 2 years parts and labour
- Help desk: 24/7 excluding Christmas Day & New Year’s Day
- Access to other business: supplier to be on bidder’s list for defined other contracts etc.