How to Negotiate When There is No Industry Standard

By Joshua N. Weiss, Ph.D.

I was recently on a call with a friend who is in sales. He works in a business where there is no industry standard for certain elements of what he does, which, of course, makes his negotiations quite a bit harder than others where there is such a benchmark.? The problem is that when there is no industry standard, we don’t have common ways to gauge an offer by their ‘comparables’.? For example, when we go to buy a house, we can look at similar homes in the area and get a pretty good sense of what people have paid. That information helps us to formulate our thinking when it comes to making our own offers.??

Some of us will find ourselves in this dilemma, so what can you do as a negotiator if that is the case?? Here are a few approaches and some pitfalls to watch for:

Approaches:

1.??????? Look to precedents. One of the best things we can do when an industry standard does not exist is to look to precedents in similar types of scenarios. These may not be perfect comparisons, but they will give you a sense of what might be possible. In the case of my friend, a precedent might be what they had agreed to with a previous client. That is not an industry standard, but it is a benchmark that he would know is acceptable to his company since they did it before. It is also justifiable to the company he would be trying to sell to because it is based on an actual deal that was consummated previously.? ?

2.??????? Work hard to find the ZOPA and understand your and their BATNAs. ?When we don’t have a standard to follow one of our challenges is to try to determine the Zone of Possible Agreement (ZOPA).? The ZOPA is a concept to help us understand if there is overlap between what a buyer will pay and what a seller will sell something for.? Consider a simple example. If I am a buyer and I can spend $10,000 on a car, and you are the seller and your bottom line is that you will take nothing less than $7,500, there is an overlap in our ZOPA. That means a deal with likely get done somewhere between $10,000 and $7,500. Conversely, imagine that as the buyer I can still spend $10,000 but you, as the seller, won’t sell for anything less than $12,500.? We are not likely to make a deal because there is no overlap in the ZOPA.?

In situations where we don’t have an industry standard, we have to do whatever we can to determine the ZOPA.? One key in figuring this out is clearly understanding your and their (as best as possible) Best Alternative to a Negotiated Agreement (BATNA).? As a reminder, a BATNA is the course of action you would take if you are unable to reach agreement in a specific negotiation. Back to our car analogy, when there is no overlap in our ZOPA, my BATNA as the buyer would likely be to find another car in that price range. The seller’s BATNA is to wait for another buyer that can meet their minimum price.?

So, without an industry standard we have to search for what the limits of the ZOPA might be and use BATNA as a way to gauge the edges of the Zone. ??

3.??????? Probe for other dimensions of the negotiation.? When we are lacking an industry standard for a price or the cost of something, another strategy is to try to begin the conversation with a broader discussion of all the parameters of the negotiation. In other words, beyond price what is important to the other side and why?? As you try to expand the negotiation you will glean insights about what the other negotiator wants or needs and you can come back around to price when some other momentum is built. ??

Pitfalls:

1.??????? Be careful of setting precedents. As much as precedents can be a help in this context they can also, potentially, be a hindrance. If someone in my company makes a deal without an industry standard for $1,000,000 that becomes the benchmark. Perhaps that deal was not really profitable for your company and $1,500,000 was really much more reasonable for you to turn a profit. Unfortunately, you are still stuck with this precedent, especially if people in your line of business find out that a previous deal was done (and yes, people talk, so this is not an uncommon occurrence).

2.??????? Beware of traps. ?Let me return to the story of my friend who works in an industry without industry standards. In his scenario, his customer was pushing him hard for a price. My friend tried to talk to him about what else he needed but, in the end, gave him a range. Shortly thereafter, his prospective client, shifted, saying they were going in a different direction and not responding to the price that was put forth. It became quite clear to my friend that the prospective client was using his offer to leverage others. This is something to be very careful about as you wade into these conversations.

To conclude, it is distinctly possible to negotiate when there is no established industry standard. It certainly makes a negotiators life more difficult, but with these probing approaches and things to look out for you have a good chance of understanding the parameters and finding a way forward.?

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