The paper "Negotiations - Selling and Sales" is a wonderful example of an assignment on business. GOALS: My Personal Goals (as Ms. Meredith S): To become a financially-independent person separate and distinct from my husband To build up my own future personal credit score To be able to buy the Mercedes convertible model at the price I want Adversary’ s Goals (James S): To be able to sell the Mercedes convertible at the listed price to Ms. Meredith S To close this sale successfully, reach the quota and become a salesman of the year To earn the $20,000 annual bonus for getting “ salesman of the year” award INTERESTS: My Interests: To buy the Mercedes convertible because it is my choice to be as a “ fun car” To give me a psychological boost and improve my self-confidence To be financially prepared in the event of a worst-case scenario (a divorce) Adversary’ s Interests: Help the car dealer make a sale as the economy is bad (or “ tight” ) Make the Mercedes sale at no less than $70,000 to be able to get the award Steer potential buyers to finance a major portion of the sales price as the dealer earns more money from the financing side, often more than profits from a straight sale POWER: As Meredith S, I would consider my power position (negotiating leverage) as excellent or very good.
This is because the economy is tight and car dealers are desperate to close sales as customers are very few (even other more wealthy customers have slowed down on getting new cars, for the meantime). Moreover, I am the wife of a powerful man and he (my husband) is a valued client of this car dealership which is very eager to remain in his good graces.
I also have my own source of income, therefore, I can very well choose another luxury car brand. I am a member of a bank's board of directors (earning $20,000 for it) which is not bad at all. On the other hand, the power position of James S is bad, because he does not know how desperate Meredith is to acquire a new car to boost her self-confidence and psychological ego because of brewing marital problems. Secondly, the bad economy has left fewer customers, so the car dealership business has now become more competitive (a buyer's market) and he may have to make more than a few concessions in order to close the sale with Meredith S.
He also is beholden to her husband, who is a valued client of their dealership and cannot afford to be antagonistic to Meredith S during the negotiations by not giving her what she wants. Lastly, a key negotiating factor is that Meredith S knows about the car dealer business (her own father was once a car dealer himself and had taught her about the fine details of this business) so she can make some demands because she knows the business of car dealerships. RELATIONSHIP: The relationship between my husband and the firm that James S works for is the main or primary relationship, while I as the wife is secondary to the firm.
In this regard, however, the firm does not want to antagonize my husband by not giving in to my demands whenever I had to visit the dealership as it does not want to lose his business as he is, after all, a valued client of the dealership.
The dealership wants to remain in his good graces by catering to his wife as well (not knowing about the marital problems) and thereby retain the main business with him. ITEMS TO BE NEGOTIATED: The final selling price of the Mercedes convertible How much will be the cash downpayment and how much will be financed What will be the terms and conditions of the financing scheme (interest rate/length) The perks, accessories, and freebies to be included in the final sale How low can the price go down (if the dealer and James S are desperate enough) Maybe include free car insurance (third-party liability or TPL) and also personal accident insurance (for the car passengers) and other free items (car mats, DVD player or some other valuable item like a GPS device) EXTERNAL INFORMATION SOURCES: What is the selling price of the same model of Mercedes convertible at the other car dealerships within the area?
(Dealers often offer different prices for the same model) What is the prevailing interest rate that banks charge for their own prime (best) clients when giving out loans or mortgages?
(this will help to determine the interest rate to be used on the financing for the car purchase or compare it to other dealers) ALTERNATIVES: My Alternatives (as Meredith S): Make inquiries and buy the Mercedes convertible from another dealer that offers a lower price (this is my BATNA, as I get the dream car I want at the price I want) Look for other luxury cars brands (such as a Jaguar or an Audi) with similar features Postpone the purchase altogether to a much later date if I cannot get a good price Adversary’ s Alternatives: Reduce the car's selling price somewhere between the MSRP and client's asking price Offer a substantial discount if the husband also buys a new car himself Increase the interest rate from 4.5% to 6% (example only) and reduce the term of the financing (from 3 years to only 1 year, perhaps); if earlier fully paid, the better. Notes: The determinant of any good negotiation is a final outcome that is acceptable to both sides.
In this case, there is enough common ground for a compromise and plenty of new opportunities for a favorable trade that creates value (Harvard Business School 26).
An example is shown below, as one possibility to reach a win-win deal for Meredith S and James S: 1) offer a final sale price of $70,000 (instead of the $67,000 Meredith S wants) but then lower the downpayment to only $13,700 (this represents 19.6% D/P vs. the original 25% D/P) and James S gets his sales quota, the salesman award and consequently, the $20,000 bonus! 2) the $13,700 is derived by deducting $56,300 (dealer invoice) from the agreed price of $70,000 (or $70,000 – 56,300 = 13,700) or equivalent to only 19.6% ($13,700 / $70,000). 3) Meredith S has a lower initial cashout of only $13,700 (versus the 25% of her own suggested or offered buying price of $67,000 x 25% downpayment = $16,750); finally, 4) James S and his employer (the car dealership) earns additional interest income on the portion of the purchase price that is now being financed at 6% ($56,300 x 6% x 1 year = $3,378).