How to Handle Brinkmanship

Imagine that your company installls and maintains computer networks, and that you have a shipment of 150 PCs on its way to a client's office. The client calls to say that they've reviewed the specs, and the PCs have features that the company doesn't need. They say they'll pay you 10 percent less than the agreed price, or the deal is off.

The client is jeopardizing the deal by trying to renegotiate at the 11th hour. You were expecting to build a lasting and positive relationship with this company, so why are they putting it at risk?

You make your profit from services and labor, because the margin from selling hardware is minimal. Giving in to this demand would eradicate that margin, and then some. If you don't accept the offer, however, the deal will fall apart, which would be disastrous for your bottom line.

Your client is engaging in brinkmanship. In this article, we explain what that means, and what you can do if it happens to you.

Click here for a transcript of this video.

What Is Brinkmanship?

Brinkmanship (also brinksmanship) is a negotiation strategy in which one party pushes the other to agree to a set of conditions, to the point where he or she must accept or lose the deal entirely.

Why Do People Use Brinkmanship?

In business, as in politics, brinkmanship is used to win a better deal or to secure more favorable terms than would have been possible with a more reasonable approach. It can also be used to demonstrate boldness or strength, to show that the user is a force to be reckoned with, or when they know that they hold the balance of power in a negotiation.

But it is a high-risk strategy, particularly if the person using it is bluffing and would actually be willing to accept more mutually agreeable terms. It can be extremely harmful to goodwill, and it can lead to a breakdown in negotiations, so that no one ends up doing business at all.

For most business people, it's sensible to forge cooperative and long-lasting relationships. They expect this kind of win-win rationality when it comes to negotiations, so they may not be prepared for irrational or unreasonable demands.

A negotiator may be counting on the fact that a "logical" opponent will try to keep a deal alive as long as there is any net benefit in doing so (we look at this in more detail, below). Or, as we mentioned above, they may realize that they are in a position of power over the other party.

For example, you would be most susceptible to brinkmanship if you had a critical need for the other party's product or service, or when you've already made an irreversible commitment to the project. Perhaps you face high switching costs, or no one else can provide the exact specification that you need.

Those are your points of vulnerability, and they make you a target for brinkmanship. If your opponent discovers this "pain point," they can use it to get what they want, or to even shut down your entire business. (You can learn more about who holds the power in a relationship with our article, Porter's Five Forces, and you can think about who has control over resources by applying VRIO Analysis to yourself and the person you're negotiating with.)

How to Protect Yourself From Brinkmanship

Your best defense against brinkmanship is to avoid putting yourself in a vulnerable position in the first place.

For example, if your organization makes cell phones, you would be at risk of brinkmanship if you relied on one supplier for a vital component. If you diversify your suppliers, then you have options available if one of them tries to "play hardball" with you on a deal.

Here are seven more strategies that you can use to give yourself a stronger negotiating position. Remember, the fewer "pain points" that your opponent can exploit, the less likely they will be to apply brinkmanship:

1. Don't overcommit. Avoid making irretrievable commitments until a deal is completely signed off. For example, don't order a substantial number of components from a third party if the deal you need them for is still unsigned. (If the potential client puts you under pressure to do this, use this as leverage to close the deal quickly. For example, say, "My boss won't let me do this unless I have a signed contract, so... ")
2. Don't share internal deadlines. Present yourself as someone with endless patience when entering into any kind of deal or negotiation. Sell this as a benefit to your client, assuring him that you'll give him as much time as he needs to make a good decision. You want him to believe that you have nothing to lose if a deal isn't made within a given timeframe.
3. Review and reiterate the price regularly. The costs of a project may change if a client requests new features or additional functionality for a product. Be transparent and open with them about this, and update them regularly. This will make it harder for them to use brinkmanship or to trigger a late renegotiation than if you had presented new costs in the final stages of the deal.
4. Act like business is booming. Don't make it known that your organization is relying on this one deal for its success. Even if other opportunities are limited, try to keep that information from the other party!
5. Use your "Unique Selling Proposition." Your USP is the thing that you can offer that your competitors can't. This is also known as your "competitive edge." If you have a product that your client can't find anywhere else, or that you can supply with some unique advantage such as price, quality or delivery time, then you have a strong negotiating position. You can find out how to identify your competitive edge with our article, USP Analysis.
6. Invent a false deal breaker. Early in negotiations with a difficult client, consider creating an issue that you claim is crucially important to you. For example, you could claim that it's vital that they accept your product as part of a package, or without any customization. Later, if they use brinkmanship against you, you can relent on this stipulation, as a sign of your willingness to make sacrifices and find a solution.
   This is a common negotiation technique, but be aware that there is an element of risk involved in using any method that could be interpreted as deceptive, and you particularly risk losing out if you're competing for the contract.
7. Be emotionally dedicated to your position. A "logical" negotiator can look at a deal from a purely financial standpoint, and they may keep compromising as long as there is any net gain in the deal. That makes her vulnerable to brinkmanship.
   On the other hand, an “emotional” negotiator is convinced that their position is reasonable, and will defend it vigorously. As a result, the other party will struggle to get them to act logically and to accept any terms as long as there is something to be gained from the deal.
   But, although it can be advantageous to present yourself as an emotional negotiator, the position can be interpreted as misleading if it doesn’t reflect your true feelings about the negotiation. Be sure that your stakeholders and colleagues are comfortable with you using such a technique before proceeding.

How to Respond to Brinkmanship

What do if brinkmanship is already being used against you? To explore some of your options, let's return to the scenario that we described at the beginning of this article.

Your customer is demanding a discount, believing that they have you "over a barrel." They think that because you've committed so much time and money to the project, you'll take whatever price they offer, as long as there's some economic sense in doing so.

Let's look at three potential responses:

1. Call Their Bluff

You have a healthy order book, so you call their bluff. They may back down, and the project can proceed on the original terms. If they follow through with their threat to pull the plug on the deal, you can turn your trucks around and resell the computers. You'll suffer losses but you have other clients, so your business isn't in danger, and you may be able to take legal action to recover any amounts outstanding.

If you decide to call their bluff, look for signs that their company is divided on the need to employ brinkmanship. If possible, speak to someone more reasonable. Suggest to them that there is no need for a confrontation, and that the aggressor has created a false crisis when better outcomes were available.

2. Accept Their Demands

You don't have any other clients and you're relying on this deal. You give in to the new terms and sell the hardware at a loss, knowing that installling and maintaining the network will return a small profit.

Although this is a defeat, consider it a strategic one to ensure your organization's survival. But you should take steps immediately to avoid being in this position in future. For example, look to reduce your reliance on this client by expanding your customer base.

3. Respond in Kind

You know that, ultimately, you will have to accept the deal, but you decide to test the person's resolve with some brinkmanship of your own.

You tell them that you'll take back the PCs, remove the unwanted components, and agree to the new, reduced price. They say that they can't wait and that they'll take the units as they are at the reduced price. You insist that the deal is now the original units at the original price, or the amended units at the reduced price. You need a swift response as the trucks are already on their way.

You decide to wait for a few hours. If they don't call back, you intend to call them to accept their proposal. Their brinkmanship will have worked, but it would've cost you more to recall the units or to lose the deal entirely. However, they call back within the hour and accept the original price.

Be aware that this is a high-risk tactic. It can damage the chances of rebuilding your relationship with the client, and your organization needs to have enough financial security to allow it to weather the potential loss of the deal.