One of the hazards of contract negotiations is having to walk away from a bad deal. By the time negotiators come to the table, they have already put so much time and energy into researching and preparing for the negotiations that they can easily become too invested in a positive outcome. If winning is only about sealing a deal, negotiators may feel pressure to make too many concessions which can decrease or eliminate the value of the agreement.
Accepting a deal on any terms can lead to inadvertent consequences and negative outcomes. Therefore, identifying when it is time to walk away is a critical part of any strategic negotiation plan.
EarthKind is an all-natural pest-repellant firm founded by a female farmer from North Dakota, Kari Warberg Block. She walked away from a purchase order from retail giant Wal-Mart that was 12 to 15% less than they had discussed, even though the firm knew it was losing access to the 260 million customers who shop at Wal-Marts around the world. EarthKind decided that being presented as a loss leader was bad for its brand, and the price point cut too deeply into profit margins. The firm regards the failed negotiations as a positive outcome because one consequence of a successful deal with Wal-Mart would have been that all of their time and resources would have gone towards fulfilling that contract, and they would have missed opportunities to work with other national retailers such as John Deere, Lowes, Ace Hardware, and Target, which ended up carrying the brand in their stores.
Maximizing the short-term value of a deal by scrimping on the terms can lead to negative outcomes for both sides. The side that is willing to accept the deal on any terms may find it difficult to fulfill the agreement under the constraints of the deal. The side that "won" on price point may end up losing in real value because the quality isn't what they expect.
As EarthKind realized, winning a contract with Wal-Mart would have cost them time, money, and the reputation of their brand in the long term. It's important for negotiators to know what their deal-breakers are before entering negotiations. If the money isn't right, the deal isn't a good fit, or the terms are too demanding, the deal will likely have a negative long-term outcome.
The sales contract plays an important role in the negotiations process. Presenting a sales contract that exhaustively details the terms of the deal including goods or services, price point, delivery, and other provisions is critical to how well the contract is received and to the successful fulfillment of the agreement. For the most professional-looking sales contracts and presentation materials, be sure to combine PDFs into one file.
Negotiators should never be so desperate to seal the deal that they accept terms that will have negative impacts on their business. Avoiding the negative consequences of a bad deal is often its own reward.
For more information about sales contracts and negotiations, your local chamber of commerce has many resources available including networking, business directories, knowledge of the local community, and other support.
Join your chamber of commerce today.
This Member To Member Deal is promoted by Westminster Chamber of Commerce.
