The following is a great summary of some classic negotiation skills from former lawyer and author Matthew Swyers. During the career f any designer in any market there will be a need to negotiate. Throughout the production, distribution, and sales process, making sure your needs are meet, along with the needs of your various stakeholders will be crucial to success.
Please note this post was first written on inc.com, published 26 July 2012.
To negotiate, you must learn how to listen and apply what you hear to formulate your next move. Every word has a purpose. Every statement a hidden tell. If you listen carefully, I mean really carefully, you will be able to hear and understand what your opponent in the negotiation truly wants. Listening is the bare minimum skill you must have to start building your abilities as a good negotiator.
When two sides are negotiating, one of the other most basic skills you must retain is the ability to walk away if the deal does not satisfy your requirements. Some may think this is axiomatic, but it is not.
Once I was assisting a friend in negotiating the purchase of a new car. At the end we were close, but the dealer refused to remove some extra charge that was just more fat on the bone for his sales price. After much back-and-forth over this item, we reached an impasse: The salesman would not take it out of the price, and I would not move on him taking it out. I stood up, politely thanked him for his time, and said to my friend, “Let’s go.”
To my surprise, my friend remained seated, turned his eyes toward me, his expression quickly changing to that of a child’s wanting a toy in a toy store, and said, “But I really want the car.” At that point, any chance of continuing to negotiate a better deal evaporated like a puddle on a hot Southern summer afternoon. If he would have stood and walked, we would have never made it to the door before that item was taken off the cost. But by not being willing to walk away, we gave the other side a critical advantage: He knew we would not walk. Always be willing to walk away from a deal, and let it be known in either a subtle or not so subtle manner, as the situation dictates.
Obviously we care about the thing we are negotiating for, otherwise there would not be a negotiation. But just as we must be willing to walk away from the deal, equally as important is that you must never let the other party know how much you want or need to make the deal.
For example, for anyone who is familiar with my other writings you may recall that I am a trial attorney who has tried hundreds of cases in my career and litigated thousands more. At some juncture during the course of litigation, the parties will discuss settlement. Irrespective of my client’s concerns and directives, I always feign indifference during settlement discussion. Why? Because if the other side ever gets a whiff that you are not willing to try the case, it will have a decided advantage over you in the negotiation process.
So no matter if my client is ready to take the case to the mat or can’t afford or does not want to move forward anymore, opposing counsel gets the same routine from me every time: “We can try to settle the case or just go to trial. I’m good with whatever.” The goal in feigning indifference is to be as difficult to read as a blank page. In the end, however, it is a valuable skill to have in any negotiation. So you may not be indifferent, but never let them know.
In litigation, this is about having your case ready to go to trial if it does not settle and making sure the other party knows you are ready. In other negotiations, such as in real estate, it’s about letting a prospective purchaser know you have another buyer on the line and that if he does not meet your terms, you’ll just sell it to the other guy. In any negotiation that involves an alternative action if the terms are not met, you must let the other party know you can, and will, do a specific act it does not want you to do in the event terms are not met. In short, let the other party know that you have your ammo and are willing to use it.
Many years ago, my then firm represented a man who had been horrifically injured by a product. Our firm was brought in to represent his interests against the manufacturer. Because of certain confidentiality provisions, I cannot mention the product or even the type of product it was. Suffice to say, however, it was the first case of its kind and had significant national exposure on not only a media level but political as well. Well, as in any litigation case, the parties are required to exchange documents whether they are detrimental or not to your case.
We knew that the defendants were holding out on us and saying that these specific very damaging reports did not exist despite the fact we had witnesses that testified to the contrary. We knew if we got our hands on these reports, they would be shaking in their boots. Well, to make a long story short while referencing a great episode from Seinfeld,we employed a special team of people to “retrieve” the reports for us, and “yadda yadda yadda,” we appeared at pretrial with these ultra-damaging reports in hand. The case, one of the most contentious and longest I had ever been involved in, settled minutes later. Why? Because we had the ammo.
So it does not matter if it is litigation, real estate sales with an alternative buyer, or otherwise, always have the ammo—or appearance thereof—to support your side in the negotiation.
As a prerequisite, you must always listen. Listening, as stated above, is critical to hearing what the other side wants. But on a higher level, you must strive to understandwhy. What is motivating the why? If you can listen between the lines to understand that which truly motivates the other party, you will gain a decided advantage in the negotiation of the deal.
Care more than you need to, more often than expected, more completely than the other guy.
No one reports liking Steve Jobs very much, yet he was as embraced as any businessperson since Walt Disney. Because he cared. He cared deeply about what he was making and how it would be used. Of course, he didn’t just care in a general, amorphous, whiny way, he cared and then actually delivered.
Politicians are held in astonishingly low esteem. Congress in particular is setting record lows, but it’s an endemic problem. The reason? They consistently act as if they don’t care. They don’t care about their peers, certainly, and by their actions, apparently, they don’t care about us. Money first.
Many salespeople face a similar problem–perhaps because for years they’ve used a shallow version of caring as a marketing technique to boost their commissions. One report by the National Association of Realtors found that more than 90% of all homeowners are never again contacted by their real estate agent after the contracts for the home are signed. Why bother… there’s no money in it, just the possibility of complaints. Well, the reason is obvious–you’d come by with cookies and intros to the neighbors if you cared.
Economists tell us that the reason to care is that it increases customer retention, profitability and brand value. For me, though, that’s beside the point (and even counter to the real goal). Caring gives you a compass, a direction to head and most of all, a reason to do the work you do in the first place.
It’s only two words, but it’s hard to think of a better mantra for the organization that is smart enough to understand the core underpinning of their business, as well as one in search of a reason for being. No need to get all tied up in subcycles of this leads to this which leads to that so therefore I care… Instead, there’s the opportunity to follow the direct and difficult road of someone who truly cares about what’s being made and who it is for.
The following article was described as the best article ever written on the Australian marketing landscape by the Creative Director of the agency I work for. Written by Mark Ritson and posted on bandt.com.au on April 19.
Australian brands need to take a reality check: the days of being an oligopoly are finished, writes Mark Ritson.
Oligopoly. It’s a word that originated from the Greek word monopoly in the 19th century to describe a situation in which a small number of companies dominate a large proportion of a particular category or market.
The marketing implications of an oligopoly are as ancient and well established as the concept itself. With a distinct lack of competition, incumbent brands can achieve relatively high prices and profitability while reducing or eliminating product innovation. Lesser competition also creates a false sense of brand superiority in the organisations and a dismissive and overconfident rejection of the threat of possible competitive entrants. With limited options the oligopoly tends to largely ignore the actual consumer because they have such little market power – so consumer orientation is low in an oligopoly and the investment in market research tends to be low to non-existent. As a result of all this, oligopolistic brands are usually high in brand awareness but very low in brand associations and exhibit low differentiation from each other. Ask a consumer trapped in an oligopoly to name some brands and they can rattle off four or five immediately. Ask them to then tell you what each of those brands stands for and, more often than not, the question is met with a blank response and a shrug of shoulders.
Sound familiar? It should. For the past 40 years, while the rest of the world increasingly embraced international trade and fierce global competition, Australian has ticked along very nicely with a very limited set of international entrants and a very healthy – some would say too healthy – domestic competitive environment. And the result has created one of the biggest and most oligopolistic markets in history. Across Australia, until very recently, you could find classic oligopolistic conditions in most categories. Two brands with 70% share of the usually fragmented and ultra-competitive grocery sector. Four brands with 80% share of national retail banking. Three companies controlling 80% of the news media. Three airlines with almost all of the domestic flights under their control. Two companies with a stranglehold over the vast majority of beer drunk in Australia. I could go on.
It’s more than just the presence of a small number of Aussie brands dominating the domestic categories that makes us a classic oligopoly, however. Australian brands also consistently exhibit all the hallmarks of oligopolistic behaviour. For example, there is no better evidence of the presence of the oligopoly than an arrogant, dismissive response to external entrants. And we have seen that response time and again in Australia. Aussie winemakers dismissed the threat from South American vines because their wine was “shit” and not up to the standards of Aussie production. When Aldi announced it was entering Australia there was an outpouring of scorn poured on the ability of a German player to be able to handle the extremely difficult and very different Australian market. Eight years later Aldi continues to grow at a very healthy pace and rates Australia as one of its most successful markets. Costco can tell a similar story. Each foreign brand was warned that Australia was a tough market to crack, and yet each one has cut through incumbent local brands like a hot knife through butter.
It was the same scenario among the fashion retail circle in 2010 when the potential threat posed by the fast fashion brands of Zara and H&M was initially debated in Sydney and Melbourne. Once again incumbent executives were sceptical of Zara’s potential down under and its ability to negotiate the Southern hemisphere seasonality into its offerings. And once again the brand found Australia both fruitful and easy to enter. Meanwhile, such is the oligopolistic attitude of the domestic brands that many of their leaders continue to dismiss Zara as “nothing special” when they mystery shop their Spanish rival.
Australia has also been clearly guilty of another oligopolistic trait – low consumer orientation. It’s best exemplified by the almost total lack of regular and recurrent market research taking place in many of Australia’s biggest brands. In contrast with Europe or America my decade in Australia has taught me that it is entirely possible to be a marketing director or brand manager here and have absolutely no consumer research of any kind. While about six in 10 brands track their brand equity on an annual basis in America, less than 10% manage to do the same here. Our oligopolistic tendencies are also reflected in our leaders. Whenever I give a talk in Australia about being better at branding the inevitable question from the audience is how Aussie marketers can convince a senior management team bereft of marketers and devoid of any consumer orientation of the branding imperative – and the honest answer is that you can’t. Many Aussie businesses were built around the ridiculous belief that their success comes from their sales figures and their stock price. The idea that both these two metrics are in turn driven by the consumers that pay for everything is entirely lost on the sad, old white men that disrespect marketing and run most big Australian brands.
Combine an unhealthy internal arrogance and a distinct lack of consumer focus, and the third classic feature of an oligopoly – lack of Australian product innovation – becomes easily understandable. And once again Australia has proven to be a perfect exposition of low product innovation from incumbent firms. There is no better example than the general approach to wine production in this country. More than 70% of the wine grapes under production in Australia are derived from just Chardonnay, Shiraz and Cabernet Sauvignon. When Dan Jago, the wine buyer from British supermarket Tesco, came to Australia in 2007 and warned producers their lack of innovation in lighter styles of wine and in less homogenous varietals was going to end in disaster his comments were met with characteristic oligopolistic arrogance. Jago was told he should go back to “selling dog food” and leave the wine business to the Aussie experts. Five years on, his comments have proved prescient in the extreme. A lack of product innovation has been endemic across Australian business for decades. From Gerry Harvey making an entirely ridiculous argument why Harvey Norman had decided not to sell their products online – ““Online people do not make any money. The whole world was conned with online retailing… it’s a con, a complete con.” – to our big two supermarkets only finally committing to proper private label strategies more than a decade after every other major grocery industry had developed one. We moved slowly in Australia – not because we like moving slowly – but because the oligopoly allowed us the luxury of laziness. Competition was dull and therefore so was the response to it in innovation terms.
All of this has played out in the enormous disparity between domestic prices and those paid overseas for exactly the same products overseas in more competitive markets. There is no better example than in foreign cars. Take Mercedes, for example. In the US you will pay about $200,000 for the new Mercedes SLS roadster. That same car, inexplicably, will set you back more than double that price here in Australia. In an oligopoly the lack of competition allows competitors to charge more for products and decades of its existence has encouraged consumers to accept blatant overpricing as something endemic and acceptable in their market. That’s why, despite the American and US dollars enjoying parity in recent years, we pay double the price for our Grande Latte than an American pays for exactly the same beverage. The impact of the internet on domestic Australian retailers such as Harvey Norman and Dymocks is not simply a story of technological change. It is also one of pure competition in which a newly globalised consumer can and will seek out better prices, for the same products, outside of the oligopoly they have been constrained within for so many years.
And the end result of all this is weaker brands with low differentiation and relatively low brand equity. The valuation firm Brand Finance has repeatedly shown that Australian firms derive less of their overall enterprise value from brand equity than their international peers. Or to put that in layman’s terms, our brands are less valuable than our foreign competitors. And is that really any surprise? Most Australian managers still over rely on sales promotions which destroy brand equity. Most still underspend on integrated marketing communications. Most still eschew consumer research and tracking in favour of “gut feel” and “instinct”. Have we really created that many distinctive brands in Australia? For all the talk, for example, of the battle between DJs and Myer – if I was to knock a passageway between their two flagship stores on Bourke Street Mall in Melbourne, how many consumers would really notice they had switched stores? The cosy nature of our Australian oligopoly has meant that our competitive brands have coexisted rather than competed with each other.
Make no mistake, there is nothing illegal about an oligopoly. In fact you can make a very coherent argument that if you are one of the brands operating inside an oligopoly you should de-focus on consumers and differentiation and ramp up prices and margins. While it would be easy to criticise Coles back in 2005 for an incredibly poor operation, low consumer focus and sub-standard retail standards, one could only be impressed with the sustained and consistent profits that the company was able to extract from the market at this time. But the killer point about oligopolies is that eventually they implode. Just as nature hates a vacuum, capitalism hates oligopolies. A dangerous transition is now taking place across Australia. As our dollar grows in value and our population gradually inches towards 25 million the eyes of foreign brands turn southward towards us. In America the parity with the dollar makes us roughly as valuable as New York or Texas. In Europe a jittery economy and long-term market decline make Australia’s relatively stable and cashed-up economy a very attractive target despite the long distances involved. Australia is suddenly a focus for global brands and the recognition that the local brands here are poorly run and devoid of brand equity makes the attraction all the greater. One global marketing director I spoke with at Christmas described Australia as “a gold mine currently being exploited by locals with pick axes”.
Personally, I prefer the metaphor of the small town disco. Imagine a small country town where the women outnumber the men four to one. The Saturday night disco has been an easy place for the local men to get lucky. Now imagine a mine opens just outside town and there is a sudden influx of young, fit, rich, single men. The local men are out of shape, under-dressed, and over-confident about their charms because of years of success. They are unprepared for the deluge of new suitors now heading to the disco every Saturday night. In contrast, the local single women cannot believe their luck and are quick to see all the advantages. They now openly reject the local men who they once aspired to date. Indeed, it becomes the fashion in the town to only date the new men because the locals are seen as being old fashioned and out of touch. Bereft of company, the local men debate whether to head to the nearby city on Saturdays to meet new single women – but they have become so reliant on the local dating scene none of them know where to hang out or what to say in other locations. It’s a crude metaphor – but a good one for the years ahead in a newly competitive Australia.
The problems of an oligopoly only become apparent when it starts to break down. With the arrival of foreign competition the local incumbents are simply not ready to compete at the same level. And here we glimpse two of the other implications of oligopolistic behaviour. First, a lack of real competition has left most firms unable to react and respond to new threats in a strategically successful way. The response of local brands to the threat of internet imports in lobbying the government for a change in the tax policy was a classic example of how old world oligopolistic brands try to respond to new threats. To take another example, the management team at Coles have been forged from the crucible of foreign supermarket competition and are subsequently running rings around Woolworths with smartly marketed, consumer-based strategies. The old world response of Woolworths thus far has been to play the classic oligopolistic response: we will copy you. You get a chef, we get a chef. You get a meat policy, we get a meat policy. But this is no way to respond in the long term.
The second implication of the oligopoly is the most troubling of all, however. The internal market has been so easy and profitable most domestic brands have refused to countenance major foreign expansion. For all its country brand attractiveness, Australia does not have a single strong international brand. And I am not counting brands such as Ugg and Fosters beer, which are successfully run by foreign owners who understand international expansion and brand management unlike most of our domestic executives. Yes Collette Dinnigan sells a few outfits in Europe but the brand would have less than 0.1% unaided awareness among fashion buyers there. Okay, Harvey Norman does a decent trade in Singapore and Slovenia – but that’s hardly a global brand is it?
We talk a good game in Australia when it comes to brand equity and brand management but the harsh reality is that our brands are weak and they are struggling. Groups that owe their success to brands and branding such as Billabong, Goodman Fielder and National Foods have all stumbled in recent years. The recent acquisition of the former-Fosters group by SAM Miller highlighted both how poorly our domestic brand management has fared and how much easier foreign acquirers could improve things quickly by doing the basics well. The cosy, profitable nature of the Australian oligopoly has had a double impact on our foreign competitiveness: making us both a soft target for the foreign brands now entering our domestic market and having limited our interest and ability to successfully enter and export our brands to foreign markets.
The popular press has been too keen to paint a picture of a major high street recession for Australian consumers. Clearly this has not been an easy 12 months for Australian consumers. But mixed into this minor recessionary story is a deeper and more troubling malaise caused by weak domestic brands being attacked by stronger international entrants. How else do we explain the success of international players such as Costco, Apple, Zara, Burberry and Gucci in Australia if there is such an enormous recession going on? The bitter legacy of living and managing in an oligopoly for so long is that we simply do not build strong, differentiated brands well in this country. The sooner we accept this fact, the sooner we can do something about it.
Unfortunately, however, one of the classic characteristics of oligopolistic firms is that they cannot see the competitive threat in these terms. They would rather blame the government, the economy or even the consumers for their downturn in sales and profits. The first step of an Australian renaissance on the high street is the acceptance that the threat from foreign brands is real and the current ability to meet that threat with our domestic marketing competence is low to non-existent.
It’s time to wake up and recognise the new reality of Australian marketing. We are an oligopoly no more.
Professor Mark Ritson is a consultant to some of the world’s biggest brands. He teaches brand management at Melbourne Business School and on the AMI’s Masterclass program.
This article first appeared in B&T’s sister magazine Professional Marketing.
I stumbled upon a great interview with Paul Smith, courtesy of Bloomberg TV’s Eye to Eye program. In the interview he describes growing his business slowly, how he has remained independent through the clever management of his cash flow, and setting the old fashioned expectation of going into business to “just have a nice day.”
It might sound silly but with a growing empire and employees who have been with the brand in excess of 15 years he must be doing something right…
Here at EF we’re not really about flogging others peoples products, but this one time we felt like this one needs to be out there. Over the weekend we came across a unique business book titled “Built to Sell.”
The book written by John Warrillow is ranked one of the top 10 business books ever written by Inc.com. It explores why a business should be built forever but also always ready for sale, and profiles the story of an advertising agency transforming itself into a sellable business.
This writer personally found it a paradigm shifting read and one that would resonate with almost any boutique or young designer toiling away at building their our cog in the fashion business machine.
To really understand the implications, reasoning, and steps of making your business sellable you need to read the full story (you can read the book cover to cover in a single day), but below are the core tips of the story.
Follow these to make sure your blood, sweat, tears, passion, and excitement for your design and entrepreneurial zeal are one-day duly rewarded.
TIP 1) Don’t generalise, speciliase. If you focus on doing one thing well and hire specialists in that area, the quality of your work will improve and you will stand out among your competitors.
TIP 2) Relying too heavily on one client is risky and will turn off potential buyers. Make sure that no one client makes up more than 15% of your revenue.
TIP 3) Owing a process makes it easier to pitch and puts you in control. Be clear about what you’re selling, and potential customers will be more likely to buy your product.
TIP 4) Don’t become synonymous with your company. IF buyers aren’t confident that your business can run without you in charge, they won’t make their best offer.
TIP 5) Avoid the cash suck. Once you’ve specialised your service, charge up front or use progress billing to create a positive cash flow cycle.
TIP 6) Don’t be afraid to say no to projects. Prove that you’re serious about specialisation by turning down work that falls outside your area of expertise. The more people you say no to, the more referrals you’ll get to people who need your product or service.
TIP 7) Take some time to figure out how many pipeline prospects will likely lead to sales. This number will become essential when you go to sell because it allows the buyer to estimate the size of the market opportunity.
TIP 8) Two sales reps are always better than one. Usually naturally competitive types, sales reps will try to outdo each other. And having two on staff will prove to a buyer that you have a scalable sales model, not just one good sales rep.
TIP 9) Hire people who are good at selling products, not services. These people will be better able to figure out how your product can meet a client’s needs rather than agreeing to customise your offering to fit what the client wants.
TIP 10) Ignore your P&L in the year you make the switch to a standardised offering even if it means you and your employees will have to forgo a bonus that year. As long as your cash-flow remains consistent and strong, you’ll be back in the black in no time.
TIP 11) You’ll need at least two years of financial statements reflecting your use of the standardised offering model before you sell your company.
TIP 12) Build a management team and offer then a long-term incentive plan that rewards their personal performance and loyalty
TIP 13) Find an adviser for whom you will be neither their largest nor their smallest client. Make sure they know your industry.
TIP 14) Avoid an adviser who offers to broker a discussion with a single client. you want to ensure there is competition for your business and avoid being used as a pawn for your adviser to curry favour with his or her best client.
TIP 15) think big. Write a 3-year business plan that paints a picture of what is possible for your business. Remember, the company that acquires you will have more resources for you to accelerate your growth.
TIP 16) If you want to be a sellable, product orientated business, you need to use the language of one. change words like ‘clients’ to ‘cusotmers’ and ‘firm’ to ‘business’. Rid your website and customer-facing communications of any references that reveal you used to be a generic service business.
TIP 17) Don’t issue stock options to retain key employees after an acquisition. Instead use a simple stay bonus that offers the members of your management team a cash reward if you sell your company. Pay the reward in tow or more instalments only to those who stay so that you ensure your key staff stays on through the transition.
How do great leaders inspire action? How do companies inspire marketplaces to investigate and purchase their products, fashion or otherwise? The answers to these questions I discovered within a 18 minutes TEDx talk I found this morning by Simon Sinek.
The points within the this talk are simple, yet immensely profound for the world of fashion. People don’t need fashion. People only need clothing, and that depends where they are located in the world. People purchase the ‘why?’…
Check out Simon’s talk below. It may inspire you to re-think your communication of your ‘why?’.
After you spend years investing to build an aspirational brand, a competitor launches a new clothing brand or perfume and your customers disappear to buy the new new thing. The luxury and fashion industries are full of such stories.
Luxury and fashion have been playing this aspirational model forever. It works like this: I am not part, but would like to be; because I want to be recognized as a rich and important person, I buy a Gucci’s bag, Prada’s shoes, and so forth. To aspire and be recognized is part of being human.
But the aspirational branding strategy is intrinsically risky, because it is so exposed to consumers’ fashion hypes and downs. How can a luxury business stand apart from the aspirational crowd?
Let me present a successful case in Europe and parse out the managerial lessons. Loro Piana sells both exclusive wool and cashmere fabrics and its own branded clothes. An six-generation-old Italian family business, the company’s sales have grown from €243 million in 2000 to €478 million last year, despite two deep recessions. Loro Piana is distributed globally in 22 countries and operates 135 retail stores, most of them directly owned.
The company’s mission is to sell excellent products made from the best sources of raw material (wool and cashmere). Over the years, the company has been able to scout in remote areas of the world the best raw materials, building local sustainable ecosystems and preferred access to breeders.
For example, Loro Piana has been working with the vicuna from the mountainous steppes of South America for many years, culminating with the animals saved from extinction thanks to a project developed with the support of Peru government and the local community. By acquiring 2,000 hectares in the Andes, the company is establishing a natural reserves to further protect these animals. The vicuna produces the finest fiber capable of being spun with an average diameter of only 12-13 microns against the 15 microns of cashmere. Thanks to its preferential access and local community bonds, Loro Piana buys 85% of Peru’s production.
Another example is baby cashmere, a fiber the company obtains from the undercoat of young Hircus goats in the remote Gobi desert in Mongolia. Loro Piana works smoothly and sustainably with local nomadic Mongolian goat herders and has set up a local Mongolian company to manage the process of baby cashmere sourcing to be closer to the local nomadic community.
For Loro Piana, success depends not only on its ability to build competitive advantage through access to the best raw materials, but also on its sophisticated marketing skills and ability to use its exclusive raw material access for its branding. Baby Cashmere and Vicuna are now prime Loro Piana labels, associated by clients and consumers with product excellence. The company uses a very limited advertising budget compared to other fashion houses, mainly focused on promoting local ecosystems and stories of raw material excellence. The company does nearly no advertising on clothing lines or what aspirational brands usually do. In contrast, Loro Piana wants to be hidden.
Over the years, thanks to its obsession for sourcing and product excellence and sophisticated marketing, Loro Piana has become a classic of elegance. Its branding consumer’s perception is the opposite of aspirational. This brand and strategic positioning preserves them from the hypes and downs of fashion brands. Business is more stable, less cyclical, with lower advertising investment requirements — and, as a consequence, very profitable.
Do you have a plan for you brand on how to become a classic and shy away from the aspirational crowd?