With the collision repair industry increasingly becoming more competitive and margins getting thinner, it’s more important than ever to negotiate better deals with industry partners, according to Eric Newell.
Newell, the market area manager for asTech, recently shared tips on how to prepare for negotiations with industry partners during the Society of Collision Repair Specialists Repairer Driven Education Series held at the SEMA Show in Las Vegas, NV.
“Preparation is invaluable,” said Newell. “If you haven’t done the work before you get to the table, it’s going to prove very difficult to be successful and have an outcome that leads to more profitability for both parties involved.”
Newell offered advice based on his experience over the years working as the chief operating officer (COO) for a six-shop MSO in Northwest Indiana prior to joining asTech. He was also involved in the firefighters’ union in Indiana for nearly a decade as well as the union’s negotiating team.
“Through that experience, I was able to equate a lot of things that the unions did---because they are very good and strategic at negotiating---and convert it to our industry,” he said.
During his presentation, Newell asked collision repairers and insurers if they recalled the last significant purchase they had made. When it comes to personal expenses, such as buying a house or a car, he said it’s typical to conduct research and make price comparisons. However, many times shops are unprepared when negotiating large business purchases, such as a frame machine or spray booth.
Newell said that it is an acquired skill and sets the tone for the entire process.
“I can guarantee that your counterpart or negotiating party is also preparing,” he said.
Newell shared a 2014 quote from Yannick Feder, an experience purchasing executive: “More than 80 percent of the negotiations are done without an underlying method and often end in sub-optimal results or worse, a stalemate.”
“That means that 80 percent of the time, people show up at the table with no clue as to how they are going to reach their target,” explained Newell. “That’s when you start negotiating out of emotion. When you negotiate out of emotion, you’ve lost before you even walk in the door.”
Newell advised attendees to focus their time and energy on preparing so that both parties are more apt to come to an agreement. At the same time, he cautioned against finalizing a negotiation without careful consideration of the cost.
“Maybe the agreement isn’t going to work, and that’s ok,” he said. “Be prepared to walk away. Many people feel that if you walk away from a negotiation, you’ve lost, and that’s typically not the case. You’re making an intelligent business decision. If you walk into a negotiation, you shouldn’t come out worse off than you were before.”
As business owners, some type of negotiation is taking place every day, whether it’s with vendors, customers, insurance companies, technicians/employees, the landlord or the bank. There needs to be value added on both sides of the table, according to Newell, otherwise it will never work.
“Negotiations can be difficult,” said Newell. “If we could improve the way that we can communicate what we’re looking for, I think we would yield better results.”
Taking Steps to Prepare
Newell said the first step is to establish a team composed of everyone in the organization who is involved in the negotiating process. The “lead” is the primary negotiator and main contact between both parties. Then there is the “support” team that can assist with information-gathering and be part of a committee and/or board to ensure everyone is aligned.
“Do not have too many cooks in the kitchen or it can convolute the process; you’ll run into problems and the message often gets diluted,” advised Newell.
Next, you’ll want to define your target and ensure it is precise, laser-focused and strategic.
“If your part discount is 1 percent and you want to go to 1.25, that’s your target,” explained Newell.
Targets need to be achievable and realistic to achieve the negotiation.
“Remove all emotion from your target,” advised Newell. “Targets need to be based within the business and based on numbers or an end result.”
After defining the target, Newell said it’s time to gather the necessary information.
“The reason we gather information is so that we can understand both sides of the process, maybe make it a little smoother and communicate that based on factual knowledge,” said Newell. “Information is the foundation of creating value and without it, it is almost impossible to establish any factual negotiating points.”
He recommended asking the following seven questions:
1) What kind of information do we want to know?
There are three types of information that Newell said are essential to find out: financial, services and operational. First, he said to find out how well the opposition is doing financially to determine if they can afford to give you a better deal. Next, learn who they currently service and what type of service(s) they provide. Last, determine how long they have been operating and their past record.
2) Where can we get this information?
A variety of sources can be helpful when gathering information, including business records, the Internet, social media platforms, employees and vendors.
3) Is there anything we can learn from previous negotiations?
Many times, a business will negotiate with the same person again and again. Newell recommended reflecting on what was negotiated, the result of the negotiation and if anything could have been done differently.
4) How much business, if any, are we doing with them?
Part of the information-gathering process is being realistic about how much business has been conducted and for how long with the other party and if it is feasible to negotiate any added-value services.
5) How well is the company doing?
Newell recommended looking at the business’s market share, growth and reputation to learn as much as possible and help formulate a negotiation strategy.
6) What don’t you want them to know about you?
IF there are issues within the business that create some exposure, Newell said to be aware of them and ensure you have the answers to address them.
7) Who is the decision-maker?
Determining and working with the decision-maker is a critical component of the process. “You need to determine if they are even capable of coming to a deal---very rarely do I negotiate with someone who can’t come to a deal,” said Newell. He also stressed the importance of negotiating at the table, face-to-face rather than by phone, email, text, social media or mail.
After gathering information and doing research, Newell said to decide on what he referred to as the “circuit breaker” and the BATNA (Best Alternative to Negotiated Agreement). The circuit breaker is the number that the decision-maker is comfortable walking away from, and the BATNA is the middle ground or ZOPA (zone of possible agreement) that the decision-maker is willing to accept.
“Don't agree just to agree,” advised Newell. “Look at the long-term picture; look past next month’s bills.”
What Type of Negotiation is Best
Newell talked about two types of negotiations: positional and principled.
Positional negotiations involve arguing based on an extreme position regarding wants, needs and limitations. The positions are almost always on the opposite side of the spectrum; therefore, it becomes necessary to make concessions to reach an agreement, according to Newell. These negotiations tend to last longer and can often end in a stalemate.
A principled negotiation, also known as an integrative negotiation, is where both parties work together to achieve a value-created agreement. In theory, this leaves them satisfied with the outcome and status of the relationship. Rather than having different positions, Newell explained that the parties think in terms of their similar interests. He stressed the importance of building a relationship during the negotiation process and how valuable that can be.
“This is where the magic happens,” he said.
He shared a statistic from the Carnegie Institute of Technology in regard to the benefits of having excellent negotiation skills.
"Eighty-five percent of your financial success is due to your personality and ability to communicate, negotiate and lead. Shockingly, only 15 percent is due to technical knowledge," he said.
Newell also discussed different negotiation styles, which include competition, accommodation, collaboration, avoidance and compromise.
A competition style of negotiation is more than likely to be adversarial. Negotiations are seen as a competition with a winner and a loser. Newell said it can be used in fast-paced circumstances.
“When two of these same styles come together, there is a greater risk for a stalemate,” observed Newell.
The accommodation approach is a more submissive style in which a party is ready and willing to offer information and make concessions. The individual most likely places the relationship as a top priority.
“This is a successful approach when mending or maintaining relationships,” said Newell. “If a company is in the midst of crisis, it’s a great strategy to avoid litigation and appease the other party.” Otherwise, he recommends using this strategy sparingly.
Where an accommodating style is submissive, avoidance is passive aggressive.
“It skirts the issue rather than attacking it head-on,” explained Newell.
Many view it as less transparent and honest because communication lines can be weak. Newell said it’s a great tactic to use in a highly emotional negotiation when focusing solely on the facts and to avoid emotional issues.
With collaboration, both parties brainstorm and create mutual value. While this is often time-consuming and requires the most skills, Newell said both parties’ needs are typically met, and strong relationships can be the end result.
Compromise, also called “positional negotiating,” involves splitting the difference, which usually results in a decision that is halfway between both parties’ opening positions. Newell recommended using this approach when pushed for time and dealing with someone you trust.
“Both parties win and lose,” he said. “Meeting halfway reduces strain on the relationship but usually leaves something on the table.”
The Seven Sins of Negotiating
1. Pride- Be prepared to compromise.
2. Glutton- Don’t bite off more than you can chew.
3. Anger- Handle objections calmly rather than getting into arguments.
4. Covetousness- Prioritize needs and wants.
5. Envy- Know your competitors’ strengths and weaknesses.
6. Sloth- Do your homework.
7. Lust- Don’t look desperate to settle.