I am often asked to tell about a negotiation I lost. My clearly unsatisfactory answer is that although there have been a number of disappointments (routes that didn't work out, relationships that couldn't be mended, counterparts who proved untrustworthy), I can't recall any time I or my clients have felt we lost a negotiation. That isn't because I'm particularly brilliant or lucky but because (1) I always base my agreements on verifiable arguments and (2) I never go into a negotiation without knowing my Substitutes. Substitutes are the backup plan: what you'll do if the negotiation doesn't yield positive results—and when you're better off moving to Plan B. I have come away from a negotiation with "no deal" and have accepted terms that fell short of my client's uppermost aims, but having a substitute has always saved me from a disastrous agreement.
As I have stressed throughout this book, the basis of negotiation is the belief that by working with the other party to the negotiation you stand a better chance of accomplishing your goals than by acting alone or working with someone else. However, that doesn't mean that reaching an agreement with a particular party is the only means through which you can satisfy your goals, or even that your initial belief that it is the best way will be borne out. The negotiation may not yield the results you had hoped for: you may want a higher price than the other side can afford; the other party may not be able to commit to your time frame. If you cannot reach an agreement that satisfies your basic needs or offers you more of what you want than the next best option, you are better off ending the negotiation and moving on to other parties or other means of achieving your aims; in other words, taking your substitute.
Suppose that you are negotiating terms with a prospective new hire in your division. The candidate you are talking to is Jill, who you believe would do a better job of achieving your various hiring goals than any of the other applicants you interviewed. Compared to the others, she has the highest qualifications and brings the most direct experience to the position. However, you have a strict salary ceiling of X. If despite all the creative routes you offer her, Jill will settle for nothing less than a salary of X+, then she is no longer the best choice. Affordability, in this case, is a need-to-have, while great experience is merely a want-to-have. If Jill exceeds your maximum price, you would be better off hiring Jack, whom you identified before the negotiation as the next best candidate. Jack may not be quite as qualified or experienced, but he is smart, eager to learn, and will accept a job within your salary range. Jack is therefore your substitute. And because you have that substitute in the back of your mind when you negotiate with Jill, you won't panic and get trapped in an unaffordable bidding war. Naturally, you will still do your best to negotiate an acceptable arrangement with Jill, who within your salary limit offers more advantages than Jack, but once it becomes clear that won't be possible, you are ready to move on to your substitute.
Negotiating with a substitute in mind is not cynical or disloyal. It's simply the mature understanding that not all relationships were meant to be and that you can't always get your first choice. The smart negotiator goes into every negotiation prepared to let go and move on when it becomes clear that it won't yield advantageous results. Without a substitute, the temptation is strong to lose sight of your goals and blindly offer anything to get the deal. The result is an unprofitable and often unsustainable bargain. Be forewarned: if you go into a negotiation thinking you will die if you don't get this deal, you are already dead.
Let's see how substitutes keep you from falling into a losing spiral by looking at the most common "negotiation" you conduct: a contract with yourself. We'll start with your having no substitute. Imagine that you are a devotee of "Gourmet Coffee." Every day on the way to work you stop by Gourmet for a grande latte, which costs $3.50. However, with the economy down you're beginning to question this expense. You decide that you're willing to continue paying $3.50 a cup, but if it goes up any higher you'll have to give up drinking Gourmet Coffee. A few weeks later you walk into your usual Gourmet outlet and see that the price of a grande latte has risen to $3.60. What do you do? You had promised yourself that you would pay no more than $3.50, but now that you face the pain of losing your daily coffee shot with nothing to take its place, that promise feels less and less binding. Maybe you're able to hold out for the morning, perhaps for a whole day. But in the end, you decide in caffeine-deprived despair, "Well, it's only a dime," and walk up to the counter to place your order. Although you had determined in advance that you couldn't afford the grande latte's higher price, with no other substitutes to turn to, you find yourself accepting it.
Now we'll replay the scene, but this time with a substitute. Instead of the negative, "I'll give up drinking coffee," which is trading something for nothing, this time you trade one option for another. "If Gourmet grande lattes go above $3.50," you say, "I am better off...
...bringing my own coffee in a thermos."
...reducing to a tall latte."
...buying a less expensive brand."
...switching to regular coffee and adding milk."
...drinking tea."
These—and any other alternatives you may have thought of—are possible substitutes, as long as they involve switching to something else rather than simply giving something up. You then pick the substitute you like best and psychologically prepare yourself to redirect your preference if the cost of the first option exceeds your limit (price, specifications, time, and so on). Once that limit is reached, you will find that you move to the substitute quite naturally. Having a substitute allows you confidently to walk away from a fruitless negotiation or an unprofitable or lopsided deal. The substitute may not have been your first choice, but once cost is factored in, it has become the better one.
Having substitutes can also put a stuck negotiation on a more productive track. For example, a city transportation agency may really want the approval of the affected neighborhood committees before it finalizes its plan for a new subway line that will run through those areas. If the agency lacks any substitute for consensus, however, the negotiations could last an eternity. One disgruntled committee could effectively put a stop to the project by blocking approval, perhaps for reasons unrelated to the subway issue. An announced substitute would reduce this potential for obstructionism. The neighborhood committees would be more motivated to focus on the issues and reach an agreement in good time if the transportation agency explained at the start of the process that while it very much hoped to reach a consensus, if there was no agreement by a set date, the city would have to make the decision based on its own best analysis. (Disclosing substitutes, however, must be done carefully, so as not to come across as either a threat or a lack of sincerity in the negotiation. See section below, "How to Reveal a Substitute.")
As you can see from the above examples, substitutes are inextricably tied to a set limit: the point at which you are better off ending the current negotiation and taking your backup option. This point is what I call your Walk-Away Line or WAL (pronounced "wall"). A WAL is similar to the overused expression "bottom line," except that in my experience so-called bottom lines are more frequently bluffs or, at best, very strong desires, as opposed to genuine stopping points. Countless negotiators have told me that X is their bottom line, only to plunge well past it before reaching agreement. There is simply nothing holding it up beyond hope and a few increasingly desperate adjectives. ("This is my absolute bottom line!")
A WAL, on the other hand, is solid, because it is based on a realistic assessment of your substitutes rather than on hot air. A WAL is built on the concrete understanding that beyond a determined limit, the negotiation you are pursuing would either fail to achieve your minimum requirements or would come at a higher cost or offer fewer benefits than your best substitute. Of course, a WAL is not absolutely rigid. It can grow or shrink as you gather more information or if circumstances change: in good economic times you can build it higher by finding ever more attractive substitutes; in bad times it can be lowered by weak demand or increasing competition (the other party's substitutes). But high or low, the WAL always stands as your barrier against folly, because you have determined in advance that once you pass that line, the current negotiation offers fewer rewards than pursuing your substitute.
There are various ways to establish a WAL. Most commonly, it is based on absolute values: the parts must be delivered by a certain date; you need a minimum price to cover material and labor costs; precise product specifications are required; the budget for the conference is X; the report is due Friday. If any of your needs cannot be fulfilled by your counterpart—and no alternative routes can be negotiated to resolve the problem—you have to move to your substitute.
Sometimes, however, there are no clear-cut values. In that case the WAL will be the minimum that you need to feel good about the outcome. In acquisition negotiations, in which valuation is highly subjective, I always ask my clients, "At what price, if you got anything less for your business, would you wake up the next day wishing you hadn't sold?"
"Sixty million," one company owner replied.
That sounded definite, but it wasn't enough. There is a big gap between what one feels when thinking calmly and rationally and what happens to those convictions during a high-pressure price negotiation. In order to have a solid WAL, he needed to have a substitute: "If you could not get that amount, what would you be better off doing?"
He thought for a while. "I would be better off putting off the sale for a couple of years until we had a more firmly established client base," he finally said.
"So, if you can't get at least $60 million for the company, you would rather walk away from the deal to give yourself time to build your business and raise its value?" I reaffirmed.
"Yes," he said without hesitation.
He now had a WAL—and a substitute—which would prevent him from agreeing to something he would regret later. If we could negotiate with the buyer to acquire the company for $60 million or above, the seller would feel he had achieved his goals. If we could not reach that level, he would be happier walking away. In either case, he would be satisfied that he got the best outcome under the circumstances.
The third and most robust category of WAL is the benchmark established by the best competing offer. This is a primary reason why you need to consider and develop substitutes before establishing your WAL. Without considering all possible alternatives, you are likely to settle for a low WAL that only just covers your needs. Finding substitute suppliers, buyers, employers, and so on raises the WAL beyond meeting basic requirements to maximizing value. (In some cases, the search for substitutes turns up an alternative that is better than your original choice.)
The company sale, above, is a good example of this. The owner initially had been approached by a possible buyer with an offer of $45 million for his company. Interested in selling, but unhappy with the offered price, he set his "minimum fairness" WAL at $60 million. This would protect him from selling for a price that would leave him with bitter regrets. But it would not maximize his returns. Without a competing buyer, his choices would have been limited to either convincing the initial suitor to bring his offer up to at least $60 million or waiting to put the company on the market in two years' time. Instead, by searching for substitutes before he began negotiating, he was able to expand the market to three potential buyers. As soon as one of them offered $62 million, his WAL went up by $2 million. The next offer brought the WAL to $65 million. Ultimately, he sold the company for $75 million—two-thirds higher than the initial offer.
The first step in building a WAL is to consider your substitutes: the various ways of achieving your goals if you cannot come to a satisfactory agreement with your first choice.
Let's say you want to work more flexible hours. Your first choice (based on other goals, such as job stability and fondness for your colleagues) might be to try to negotiate flextime with your current boss. That would be great if it worked out, but what if it didn't? What if, despite all your creative routes and compelling arguments, your boss remained adamantly opposed to flextime? You need to have a substitute. Anticipating the possibility that the boss might say no, you compile in advance a list of every acceptable alternative available to you if you and your boss cannot reach an agreement. The items on that list are your potential backup plans. To choose the one that will become your substitute, you list the advantages and disadvantages or risks of each. Here is the list you come up with:
Table 10.1. Advantages and Disadvantages
I could... | Advantages | Disadvantages, Risks |
|---|---|---|
Switch to another division that offers flextime | ,
|
|
Cut down to part-time work |
|
|
Find another job with flexible hours |
|
|
Accept the status quo and use up my leave if I need time |
|
|
You can see that all of these potential substitutes, with the exception of "accept the status quo," have a number of unknowns. The second step in building a WAL, therefore, is to get the answers to as many of those unknowns as possible. For example, you might quietly ask around to see if other divisions that offer flextime are hiring and, if so, in what types of positions. You might seek advice from a more experienced colleague on how to map your ideal career track. Concerning the external job, you could start by checking the want ads or consulting an employee search firm. At minimum this will give you a reality check: If jobs are scarce, leaving your current company may not be a good substitute. However, searching for other employment opportunities may also open your eyes to some excellent positions.
Suppose that through this search you find that an interesting job is available in another division of your company? Given that you would prefer to remain with your current employer if possible, that other job will then become your substitute.
Having established a substitute, the third step is to build up your WAL by making your substitute more concrete. You might schedule a confidential meeting with HR to find out more about the job, how it compares to your current position, the qualifications required for the position, and whether you would be seriously considered for it. You might talk casually with employees of the other division to get a feel for whether it would be a good fit for you. Each piece of information that makes the substitute a more viable possibility increases the strength of your WAL.
Through this process, you will have strengthened your negotiating position with your boss from the anemic, "If this division isn't able to offer more flexible hours, I will have to reconsider my options," to
"I am considering taking a position in another division," to
"I heard from HR that there is a position open in X division," or even to
"I will have to accept the offer I received from X division."
Having a convincing substitute and WAL will not guarantee that you get what you want, but it makes your case much stronger. Had you come into the negotiation with no tangible substitute, the boss would likely have felt there would be no serious downside to refusing your request. Now you have brought the downside into the open and raised it as a plausible risk. If your boss truly prefers the status quo, having to find and train a new employee would be a very strong incentive to reach an agreement on flextime, now the lesser of two evils.
The more specific your substitute, the less likely the other side will mistake your WAL for a bluff. More important, the more specific your substitute, the stronger you will feel throughout the negotiation. Knowing that you have a bona fide backup plan if things don't work out, you won't feel desperate to get this deal at all costs.
When my friend Sue was setting up her professional services firm, she used a substitute and a WAL to negotiate a good price on her office. She started by doing an informal survey of office rents, employee salaries, and business start-up costs, then budgeted out what she was safely able to pay for office space. Given all of her other expenses, Sue decided that the most she could spend on rent was $2,000 a month, so that would be her Walk-Away Line. Then she set out to reinforce her WAL by finding a substitute.
With the help of her real estate agent, she found a number of office spaces that fell safely under the $2,000 limit, and finally settled on one unit that was listed at $1,700. It was smaller than she was hoping for and the building was rather run-down, but it was located in the heart of the neighborhood where she wanted to set up her office. So she decided that if she couldn't find anything more desirable at $2,000 or less, she would be better off taking this place—and using her savings for other expenses—rather than busting her budget on rent.
Then she raised her standards, telling her agent to show her places listed between $2,000 and $2,500. She told me she knew, as soon as she walked into the third place on the list, that it was exactly what she had been looking for. A heritage building with big, airy rooms and old-world charm, it was listed at $2,300. Sue's agent told her that he could try to get the rent decreased, but that $2,250 was probably as low as the owner would go. Sue later admitted that had she not had a substitute, she would have agreed to pay the extra $250–$300 a month and made a deal on the spot. But because she had a substitute firmly in mind, she was able to remain cool. The substitute unit may not be in as attractive a building, she reminded herself, but by taking it she would save over $6,000 a year in rent that she could put to more directly beneficial business costs, such as advertising or furnishings.
She kept one other important fact firmly in mind: her agent, despite his promises to get her the lowest price, had no real incentive to do so. As his commission was the first month's rent, he personally would be better off if Sue accepted the lease at the higher price. Therefore, the substitute would also be needed in order to motivate him to negotiate the price to the level she wanted. She told her agent that she would take the nicer unit if he could get the owner to reduce the price to $2,000; otherwise, she would take the first unit at $1,700. Now the agent took her seriously. First, her substitute showed that she wasn't simply pleading to get a better price; she was presenting a determined choice. More important, the choice she presented changed the agent's options. No longer did he face the alternative of earning a commission of $2,250 versus $2,000, which would hardly encourage him to negotiate a lower price. His choice now was making $2,000 or $1,700. He was now materially motivated to make a genuine effort to help her get the price down to $2,000.
An hour later, Sue got a call from her agent telling her that the office was hers at $2,000. Of course, there were a number of factors that helped her succeed: the rental market was softening; it was the end of the month; the landlord had no ready substitute. All of these reasons went into the landlord's decision to accept Sue's offer. However, it was having a solid WAL that kept Sue from getting sucked into paying more than she could afford and that kept her agent, and ultimately the landlord, from trying to dicker for a smaller reduction.
The power to walk away is the basic component of free will: a vital element of any respectful relationship. At root, free will keeps us treating each other fairly. Having a substitute and WAL are essential safeguards for ensuring that the relationship you are negotiating is based on reciprocity and mutual gain, rather than on one-sidedness and force. Yet, while you absolutely need to keep those safeguards in mind, you most often won't need to reveal them to the other party. When it does become necessary to do so, it must be done prudently. Handled poorly, revealing substitutes can come off as condescending ("You are just one of the possible business partners we're considering") or even bullying ("We have other suppliers who would be happy to take over this commission if you don't give us the terms we want"). Neither of these approaches will contribute to the development of positive working relationships. Worse, revealing a WAL too early will drive the other parties to reduce their offer to that minimally acceptable point, preventing you from achieving greater value.
The basic rule is that a substitute may be raised at any time within the negotiation. As just mentioned, however, it should be done carefully so as not to belittle the other side. Don't forget that you're talking to someone with whom you are trying to reach agreement and, in the process, develop a working relationship. Imagine how you would react if the person across the table were to say, "We're comparing a number of vendors and want to see what you can offer us." Would you feel particularly forthcoming? How differently might you feel if the person had put it like this: "In looking at different vendors, we have been especially impressed by the quality of your products. While we have to bear in mind our cost restrictions, we're really hoping to find a way to work together." In both cases you have indicated to the other party that you have other options. However, in the second example you have also shown honest admiration for the other party. Some people fear that showing admiration gives away a negotiating edge. In my experience, it just makes the announcement of substitutes less damaging to the relationship and encourages the other party to search for ways to work things out.
While a substitute can be alluded to at any time, a WAL should be laid down only as a final warning, after all other routes have been exhausted and you are on the very brink of walking away. (The exceptions are when the Walk-Away Line is a set time limit or required specifications.) As disclosing a WAL is a direct warning that unless there is a change in the other side's position, the negotiation will end and the parties will go their separate ways, a WAL should be stated more firmly than a substitute. Even then, however, it should be explained calmly, factually, and regretfully, not as a threat or angry accusation. Walking away is a disappointment—an admission that the relationship you had hoped to create could not work out, given the separate goals of the parties on this occasion. But it does not mean that you might not be able to work together at some future point. You rarely gain anything from burning bridges.
In fact, a useful side benefit of having a substitute is that it allows you to walk away from a negotiation without rancor. Instead of saying accusingly, "There's no way I am going to agree to that ridiculous price!" you can say, calmly and regretfully, "I'm sorry, but your price is significantly higher than the other quote I received. While I do appreciate the quality you put into your products, given our cost restrictions on this project, I'll think I'll have to go with them." In many cases, that will lead the other party to reconsider its terms. Even if not, you still end things amicably.
The company sale I described at the beginning of this chapter provides a good example of an effective use of a substitute and WAL. One potential buyer, a private equity firm, became irate when we rejected their offer of $60 million for the company. In a very loud conference call, the firm's acquisition team took turns berating me: "You've got your head in the clouds if you think you can get more than that, lady! We've run our numbers and your company's not worth a penny over $60 million! Forget it. We're wasting our time talking to someone who doesn't have the slightest idea how to value a company!" It went on like this for a while. They were obviously trying to intimidate or embarrass me into accepting their offer.
Because I had a substitute, however, I was immune to emotional pressure. Nor did I have to out-shout them to make my point. When their rant finally died down, I was able to say easily, "Look, if you think the company is only worth $60 million, that's what you should offer. I'm not going to tell you to do something that doesn't make any sense to you. I will tell you that we've received an offer of $62 million from another buyer. But you should make your decision based on your own calculations." There was a pleasing silence, after which they asked for a postponement to reconsider. The next day they raised their offer to $65 million.
A question I always can count on when training negotiators is, "What if I have no substitute?" There are three possible answers:
You are dealing with a monopoly—fortunately, a rare occurrence.
You are under such time pressure that you have reduced your options to one—a more frequent but avoidable situation.
You haven't looked hard enough—by far the greatest likelihood.
Let's start with the third and easiest scenario. Most often a negotiator doesn't have a substitute because he or she hasn't taken the time to find one. Impatient bargainers who like to plunge straight into the thick of things may find the advance effort of coming up with a backup plan to be too cumbersome. However, by not having a substitute, they are going in with no leverage, leaving themselves with no positive way out if the negotiation isn't bearing fruit and, if they do reach an agreement, with no benchmark to establish whether it was the best possible resolution.
Sometimes people fail to have a substitute because they psychologically limit their range of choices to the most familiar or obvious, closing their minds to other possibilities. One participant in a seminar told me with complete conviction that in her case there was simply no substitute. She explained that she was studying with the best piano teacher in the city, and although she could no longer afford to pay the teacher's increased rates, she had no alternative. "There is no substitute for the best," she said. "Well," I recall replying with bemusement, "there is always the second best."
Remember, a substitute will not initially be as desirable as your first choice. That's why you start by negotiating with choice number one. You move to your substitute only when choice number one crosses your Walk-Away Line.
Although a substitute doesn't offer the same level of satisfaction as the original choice in certain key areas, it may offer uniquely attractive qualities of its own. Had the woman who rejected all other piano teachers as less than the best actually looked around a bit for a substitute, she may have found another teacher who excelled in specific techniques that she would like to develop, or who could help her expand her repertoire. Similarly, your first choice of car-leasing companies may beat out the competition in terms of brand name and the range of models to choose from, but the substitute might provide direct-to-door delivery. In any case, the substitute offers you a fundamental point of comparison so that you can negotiate the best outcome overall.
The most common reason for genuinely having no available substitute is time pressure. You may have waited so late to negotiate for an item of limited supply that you require almost immediately that there are no alternatives remaining or, if there are, you have no time left to locate them. You're in pretty much the same position that you would be in if you showed up at the sold-out game shortly before it started and found only one scalper holding one pair of tickets. It's a self-created predicament. The obvious solution is to plan ahead and not wait until the last minute to negotiate for something you know you will need by a specific date.
If you're already in the trap, however, your best hope comes through having a relationship. If the negotiation is a onetime transaction, like the scalper example, you're pretty much up a creek. If you have dealt with the other party aggressively or selfishly in the past, you'll be in even worse shape, as they will now be in a position to balance the score. On the other hand, if you have a positive relationship, you will at least have a cushion of goodwill that can help you over the bump in the road. Moreover, even in a first-time negotiation, if you can realistically offer the other party a continuing business relationship, you will be able to get a more favorable outcome than were the negotiation to be seen as a single transaction, even though you have no immediate substitutes.
In the very rare instance that no substitute exists, as when there is a monopoly, the only solution is a radical one: creating your own substitute. That's what we saw Maersk do in Chapter Three, when it developed the Port of Tanjung Pelepas to challenge the domination of the Port of Singapore. Closer to home, when small, local growers couldn't get supermarkets (used to buying in bulk from agribusinesses) to pay what they felt was a reasonable price for their produce, they started their own farmer's markets, began selling directly to restaurants, and even developed subscription programs called Community Supported Agriculture, in which consumers pay in advance for weekly deliveries. The point is that even in the most difficult scenario there is usually a substitute out there somewhere, if you just exercise your imagination and a little initiative.
A necessary word of caution, however: you are not the only party with a substitute. If you are house-hunting in a tight real estate market, the seller will have more potential buyers and thus more negotiating power than if there is a housing glut. If you are applying for a highly desirable job straight out of college, you will be competing against comparable job-hunters, giving the employer a much higher WAL than if you were a seasoned expert in a specialized field. Most fundamentally, if what you are offering is less appealing than what the other party's substitute offers, the other party will take that substitute. Even the most relationship-based approach to negotiation won't lure the other side into choosing dross over gold.
I will never forget the salesman of a newly privatized power company, who asked me, "How do we negotiate the price we want if we're more expensive than our competitors?"
"Price isn't the only consideration," I replied. "Do you have a more consistent supply record than others?"
"Umm, I don't think so," he reflected. "We had two blackouts last year."
"Okay. Do you provide better service?"
"Not really. Our phones are manned from 9:00 to 5:00. After that, customers can leave a recorded message."
This was getting difficult. "Do you have a better environmental record?"
"Actually, we recently got fined for excessive emissions."
Out of frustration I finally asked, "Is there anything at all that makes you stand out?"
After a long pause, he popped up enthusiastically, "We give $10,000 a year to the local soccer team!"
That wasn't going to cut it, I had to tell him. This wasn't a negotiation problem. It was a bad case of unrealistic price expectations tied to a second-rate product. Negotiation isn't about using magic words that make the other party behave irrationally. If you want to negotiate more profitable contracts, you have to give the other side more of what they value than they can get from their substitute.
It's imperative that you consider in advance what the other side's substitutes are likely to be so that you can negotiate from a realistic understanding of your competitive position and your competitor's advantages over you. In the best case, where you find no comparable substitutes for your product or service, that knowledge will give you greater confidence going into the negotiation. In the worst case, you will get an important reality check so that you can reassess your expectations. In every case, being aware of likely substitutes will help you to match or even overcome their advantages.
Back at the Empire Hotel rate negotiation, the sales director and her negotiating team were facing a bear. Despite all of their strong, fact-based arguments and evidence supporting the 32 percent rate increase, Company B's negotiator remained obdurate: "I don't care what your rates are compared to anyone else's or to some number from years ago. I only care about now! And I'm telling you now that I won't accept anything more than a 10 percent increase. Your choice: Do you want our business or not?"
The hotel negotiators were rattled. The sales director slipped out for a quick phone conference with me. "What should we do?" she asked nervously. "He's threatening to pull the whole account. Do you think he's bluffing?"
Yes, I said, he was probably bluffing. It was certainly unlikely that he would drop his company's highest-rated hotel to replace it with one that was more expensive and less popular. That said, people sometimes react vindictively when they are thwarted—or will refuse to give in because they fear losing face if they back down. I couldn't guarantee that he wouldn't drop the hotel simply to prove his power. However, I said, the important question wasn't what he would do, which was his own decision, but rather what was best for the hotel. The answer to the latter consideration lay in two simple questions. "First, does this company's business matter so much to you that you are willing to be the perpetual victim of a bear? Second, is the 10 percent increase that he says is his final offer better than your substitute?"
The answer to both questions was no. In preparing for the negotiation, the sales team had done a study of corporate customers who in the past had offered to raise their allotments if they could be put in the premier rate category. While none of them could generate the room-nights that Company B did, if two or three of them were to increase their room-nights by 25 percent each—in exchange for getting the premier corporate rate—the combined total would cover the shortfall. It was a bit of a risk, the sales director admitted, but not as risky as continuing to feed this bear.
With renewed confidence, the Empire's sales director returned to the negotiating table and said that they were holding to their rate. In the nonthreatening language she had planned in advance, she said, "You are one of our most valued partners and we very much want to continue that partnership. But we have to get our rates back to market level if we want to maintain the quality your employees expect when they stay with us. As our other key accounts have agreed to the new rate and we have had requests for more allotment, we cannot change the rate structure, but there may be other ways we could satisfy your concerns. Would it help if we offered you a lower daily rate that did not include breakfast?"
Very gently she had laid out her WAL and her substitute. She had called his bluff and shown she was willing to walk away under the terms he proposed. Yet she also proved herself accommodating to his concerns about keeping the price increase to an acceptable increment over the previous year by suggesting that the hotel could provide a lower rate by eliminating the inclusive breakfast. Although he rebuffed it, her offer demonstrated the hotel's goodwill and created less of a showdown than a take-it-or-leave-it position would have sparked.
Being a bear, he didn't meekly give in, of course. But he also didn't pull the account as he had threatened to do. Instead, he growled that he was not going to waste any more time dickering with them and that the local procurement head would take over the negotiation. In other words, he passed the buck.
That was good news for the hotel, as they had developed a much more positive relationship with the local procurement head. Now the only challenge was to persuade her—and avoid creating another bear. We will see how that was done and conclude the case in the next chapter.
A substitute doesn't have to be a precise who: "If I can't get a deal with Pat, I will sell to Sam." It is rather whatever you feel you would be better off doing than continuing the current negotiation. A substitute might be as vague as, "If I can't get a commitment from Pat after three meetings, I am better off spending my time looking for new investors." However, instead of you saying, "I will give up," it sends you in a positive direction.
In the same way, a WAL doesn't have to be a precise how much. It can be any condition that is necessary to an acceptable outcome from your perspective. You may determine that you will invest in a company only if it adopts certain green technologies; if they refuse, you walk away. You decide that you would rather go to court than accept the blame for something you did not do. In short, the WAL is the point beyond which you no longer believe that you would stand the best chance of accomplishing your goals by working with the other party.
Strong, positive relationships must be based on mutual benefit and free choice. Substitutes provide you with an informed choice (and sometimes a reality check) so that you can derive the most value from your negotiation. You may not always win everything you want, but by having a strong substitute and Walk-Away Line, you will never come away a loser. In the next chapter, on Persuasion, we will see how to communicate your message in a positive way that will most appeal to the other party.