Negotiation Pitfalls—A Powerful Example of Negotiation Gone Wrong

From a lecture series presented by Professor Seth Freeman, J.D.

No matter what career or social status, we all find ourselves in situations that require negotiation. So what are some common negotiation pitfalls to avoid? How can we assure that we get the best results? Simple—it all comes down to planning. But there’s a catch—you must know how to plan successfully.image of a failed negotiation for Negotiation Pitfalls article

The Most Common of All Negotiation Pitfalls

To show you the difference planning can make, I want to share with you a troubling story that illustrates one of the most common of all negotiation pitfalls. My students never fail to be amazed and appalled by it. But it’s a true story.

Learn more: The Hopeful Power of Negotiation

It’s December 1984, and Jean Fountaine is getting worried. Fountaine is an executive at an Oklahoma plastics company called Pacific Oil, and for the last few years, everything has been just ducky. Sales have been strong, competition weak, and a couple of years ago, Pacific Oil easily re-signed its biggest customer, a German firm called Reliant, to a second nice, juicy four-year deal.

But suddenly, Fountaine realizes, things are about to change. As he reviews all his contracts and reads up on market trends, he notices a glut is coming; within 18 months, competitors will flood the market with new supplies of cheap plastic. Fountaine is worried they’ll tempt Reliant away when the new contract ends in two years. And then Fountaine and his firm will be in big trouble, because there aren’t many big buyers out there like Reliant. What to do?

image of 2 men negotiation for the article on successful negotiation tacticsHe decides on a daring strategy; he’ll ask Reliant now, a couple of years early, to renew and extend its current contract, locking them in till the end of the decade and beyond. To get ready, he writes down several arguments he’ll make. He’ll emphasize their excellent relationship and Pacific Oil’s excellent service and quality. He’ll remind them the company built a pipeline for Reliant, no small thing. And he’ll even be ready to cut the price a tiny bit, maybe a quarter of a cent a pound.

But if the last renewal is any indication, that probably won’t be necessary. In fact, he tells his aide, things should go pretty quickly, and they’ll likely renew on similar terms. So he calls his old counterpart at Reliant. Surprise! The guy’s gone. A new guy, Hauptmann, is the lead negotiator now. Hauptmann’s interested. Come see us, he says. So Fountaine and his aide fly to Reliant’s headquarters in Berlin to talk about renewing them early.

Learn more: The Other Negotiator

Negotiations Last Longer Than Expected

And so begins an odyssey that lasts over a year. To Fountaine’s surprise, every time the two meet, Hauptmann says, “we are making very good progress; we are very close to an agreement; there is just one more thing we need.” And then Hauptmann makes a spectacular, one-sided demand that Fontaine hasn’t been expecting.

Also to Fountaine’s surprise, each time Hauptmann is adamant about the demand; “this is what we want and we cannot make any further progress on any other issue unless we get it.” Sometimes, Fountaine is so surprised that all he can say is, “Wow, that’s a big request. I have to think long and hard about that one.” But eventually he concedes on every point. Sometimes, Fountaine briefly tries to counteroffer, only to find that Hauptmann is implacable. Hauptmann is only willing to concede a little bit, and then, only grudgingly.

Learn more: The Art of Skilled Listening

Demands Escalate

Over the months, Hauptmann’s demands escalate. We want lower prices; we want a lower minimum volume; we want price guarantees; we want just a two-year contract extension; even, we want big concessions to the current contract. Fountaine basically agrees to all these demands. Now the talks have gone on for thirteen months with no end in sight. And now, Hauptmann is demanding the right to resell the raw plastic, and so become Pacific Oil’s competitor if it wants to.

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At this point, even Fountaine’s bosses are getting worried. But after careful thought, Fountaine agrees to this last concession. “Do we have a deal?” He asks. “This is very good news,” says Hauptmann. “There’s just one more thing we need.

Now although we are not aware of the final terms, it doesn’t matter. If Pacific Oil signs this terrible deal, they may come close to bankrupting themselves. And if they don’t, Reliant will say, “no problem. We’ll just file it away, and when it’s time to renew, we’ll take it out and start there, knowing we’ll have lots of other suppliers to buy from, unless we get everything we want.”

A Cautionary Tale

The Pacific Oil case is a cautionary tale. And as my students dissect what went wrong, they quickly realize the problem; Fountaine was unprepared. There were lots of things he should have learned and thought about beforehand, but he never did any of those things. After he decided to negotiate, he just jotted down some not-so-convincing arguments and expected smooth sailing.

Learn more: Negotiating Creatively

The scary thing is that Fountaine looked ready; he was foresighted, proactive, diligent, and clearly did some homework to discover the coming glut. But he didn’t come close to being ready for the talks themselves. And as a result, he invited his counterpart to be completely positional, to use a variety of sharp bargaining tactics, and so produce an extraordinarily one-sided deal. It’s a slow-motion train wreck, a true story, and a tragedy.

But be of good cheer; we can learn from Fountaine’s mistakes and transcend them, discovering efficient ways to prepare well that often can make you far more effective than you first imagined.

So, learning from Fountaines mistakes, how can we enter into a situation knowing that we are well prepared to negotiate with success? It’s as simple as remembering the mnemonic “I FORESAW IT”. That’s exactly what we’ll discuss in the next article in this series—Advanced Negotiation Tactics—One Powerful Mnemonic to Know

From the course The Art of Negotiating the Best Deal taught by Professor Seth Freeman, Ph.D.
This excerpt is a description of a case by Professor Roy J. Lewicki © Richard D. Irwin, Inc. 1985 and 1995.