Next time you’re dabbing sweat from your brow as you enter the hottest point of negotiations in a multi-million Dollar deal, perhaps you can ease the pressure just a little by glancing at a similar negotiations table, where hundreds of billions and the imminent economic collapse of a nation were at stake. That, we think you’ll agree, is real pressure.
And Greece’s negotiations with the European Central bank (ECB) can give us more than just a little perspective. It also highlights some of the most important principles of successful sales negotiations. Universal principles that apply whether you’re selling a used Chevrolet, a high tech software solution, or a hundred billion Euro haircut on your nation’s debt.
Greece vs ECB, a quick overview
Out of cash within weeks, facing potential bank runs and chaos, Greece came out to negotiations with the ECB not begging, but all guns blazing. With a repayment looming which it simply could not pay, Greece wanted a 30% relief on its €300 billion debt. The ECB on the other hand, demanded Greece adhere to austerity measures, and wants all its money back, not just most of it. But the ECB also wants Greece to not default and leave the EU – the dreaded Grexit, which would mean never seeing that €300 billion again, plus likely wider damage to the Euro and Eurozone.
The end agreement was a larger loan, and Greece stepping back from the brink. For now. See more detail in the BBC analysis. But more than results and implications, we’re interested in negotiation lessons. So here they are.
- Use Anchoring, it works
Despite desperate need of cash in any shape or form, Greece came out swinging. Not only demanding to be let off 30% of its debt, but also that Germany do this as part of an apology for Nazi war crimes. A very bold (and some might say cheeky) opening bid for a negotiating party in such dire straits.
Like taking a pendulum and lifting it as high as possible before setting it swinging, this technique of putting forward an audacious opening bid to widen the range of final compromise is called Anchoring. The extreme initial position or number may quickly get abandoned, but its work has been done. It can set a wide psychological anchor for the range of possible end agreements, beside which all other bids will be compared to some small or large degree.
Anchoring works best when the exact value of what you’re bidding for is unknown. In this case, both sides knew well all the details of the payments and austerity measures. Only each side’s walk away points were unclear.
- Know exactly what you want, where you might be prepared to compromise and what your walk away point is
The extreme opening demand of Greece may well have shaken up the ECB’s understanding of what Greece was prepared to walk away with. It’s quite likely that Greece is happy with the €40 to €50 billion bridging loan that was agreed upon, despite the extra austerity measures that went with it. Because it gets to stay part of the Euro gang for at least another month or two.
Greece may have wanted this all along, but still began by demanding much more. On the surface appearing confident that the ECB’s willingness to compromise and unwillingness to walk away without a deal were both higher.
Knowing exactly what you want, what you will compromise on, and when you will be willing to walk away, are all critical. An essential piece of which is knowing your BATNA.
- Know your BATNA, and theirs too
Your Best Alternative to a Negotiated Agreement (BATNA) tells you what both sides will get if they walk away without shaking on a deal. When you know someone’s BATNA, you have a good idea how far they’ll be willing to bend. If you have a very poor BATNA, keep it a secret.
In this case, it was all about avoiding BATNA. For Greece, leaving with no deal would mean defaulting on payments, running out of cash, leaving the Euro, inflation, bank runs, and all sorts of unpleasantness. The ECB’s BATNA would have been their first Euro drop out, a blow to confidence and the Eurozone economy, and possible knock on effects to other countries in trouble like Spain.
As a tip, striking at the other party’s BATNA can weaken their foothold. Greek ministers talked of a fragile Euro, and the ECB hardly needed (or dared) emphasise Greece’s precarious position.
- Understand the political structure of your buyer’s organization
When facing your buyer, always understand who you are talking to. You always need to be speaking to the influencers, who may not always be those of high rank.
The situation with Greece is a hotpot of conflicting interests and high emotions, national pride on all sides and even ancient politics and long-held grudges rearing their ugly heads. All this makes it more than just about money. See this Economist article for more detail on the convoluted politics of the Greece negotiations.
You could have a similar political melting pot (hopefully to a lesser degree) inside your buyer company. Make sure you understand the situation, and where all the key players stand. Understand what’s happening inside the pressure cooker, and who are the ones stirring the pot.
- Know whose side time is on
“Time is on my side. Yes it is.” – Rolling Stones
In negotiations, you want to know that time is on your side. If it isn’t, you certainly don’t want the other party to know that. Time is all about who’s going to get out that handkerchief first, and start dabbing their brow.
In this case, time appeared to be on the side of the ECB. By some accounts it was mere weeks before Greece’s bank balances hit zero. That’s a solid time crunch right there. Doesn’t get more real and urgent than that.
Interestingly, the ECB has attempted many times to create false time constraints, stating that Greece must decide upon a deal before certain high level meetings. As we’ve said many times before, you can’t create a time limit in negotiations, it has to be real. You can uncover one, but you can’t make one up. In fact, creating a false deadline or ‘brink of disaster’ is transparent, and can be detrimental to longer-term relations and negotiations, as this excellent Financial Post article on Brinkmanship illustrates.
So in the end, who won the negotiations? The real results are yet to be seen. The bridging loan was a step-gap, and there are likely to be even more intense negotiations in the near future. Undoubtedly offering plenty more lessons on negotiating under pressure. So get out your notebook, and watch this space.
If you can think of any other sales lessons we can learn from the way the Greek debt crisis has been handled, please leave your comments below.