Say "No" to bad pie!

Many negotiators talk about pie. They want you to picture the deal as a pie. “Why,” they ask, “…are we fighting over how we split the pie? Let’s work together and we can make a bigger pie!”

I often hear this from people who believe that good negotiation outcomes are outcomes that are achieved without conflict. That good outcomes can be achieved if we avoid conflict. Indeed many of them believe that the avoidance of conflict is, in itself, a good negotiation outcome. This is like saying a football match in which the players avoid leaving the dressing room is a good football match. Negotiation is a tool for resolving conflict. You can’t resolve conflict effectively if your first instinct is to run away from it.

Nevertheless, some people insist that growing the pie is a way to improve the negotiation without conflict. Because more pie is better for everyone? Right?

Wrong.

Here’s the issue with the pie metaphor; it’s bull. It only makes sense if you believe that size is the only determinant of the quality of a pie. Let’s look at this in the context of an actual deal.

Imagine you’re negotiating a deal to sell a quantity of a product to a professional buyer. The negotiation is getting tense, because you are asking for a higher price than the buyer wants to pay.

You’re asking for £100,000 for 100,000 items ($1 each). The buyer wants to pay you less, so they say; “Hey, there’s no need to get so competitive about this, how about we see if we can grow the pie?”. They go on to make a new proposal; they will buy 120,000 units if you give them a 5% discount. “Look!” they say, “I’m offering you a bigger deal. You give me a 5% discount and I’ll buy 20% more units! We’ll grow the pie so there’s more for everyone!”.

The pie is bigger, but is it really better?

They’re cutting your unit cost by 5%! How is that better? What if your margin at the original price was 20%? Unless the extra volume delivers actual economies of scale for you, which is unlikely, that proposal cut the margin on each unit you sell by 25%! The first proposal was worth £20,000 in profit for you (20% x $1 x 100,000 units). This one is worth £18,000 to you (15% x $1 x 120,000 units). Yes, the pie is bigger, but it is far less nutritious. It is bad pie.

You don’t make deals better by just making them bigger. You make them better by making them better. Don’t get duped into thinking you’ll always get more out of deal just by increasing the size.

I’m no chef. If you want an actual pie, I can recommend a bakery to you. But if you want expert advice to help you cook up better, more profitable deals for your business then I can help.

Get in touch or drop a comment below so we can talk about crafting value adding deals for you and, just possibly, for your pie obsessed counter-parties.