Texoil Negotiation Case

This sample essay on Texoil Negotiation Case offers an extensive list of facts and arguments related to it. The essay’s introduction, body paragraphs, and the conclusion are provided below.

Value based pricing was going to be the key, I thought, from the moment I looked at the Texoil case as the service station owner. From my perspective, the owners not only owned the station, but had acquired a loyal customer base. They had knowledge of the regional environment. They themselves were part of the reason the station was successful.

My contention was that if Texoil built a station without them, it would be both risky and potentially unsuccessful.

Based on the above value analysis, my partner and I decided that the total value of the station was: the cost of a new building for Texoil plus lost revenues during construction plus the lifetime value of previously acquired customers plus the risk reduction of a failed venture – a total of two million dollars.

We knew that the above figure was quite high, and we planned to come out quickly and anchor the discussion there with our supporting evidence. [1] Since the preliminary analysis showed it would cost Texoil 650k to build and 553k was our minimum desired selling price, our goal was to walk away with any deal above 650k.

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I was open to thinking creatively about a deal that was not all-cash. [2] We recognized quickly that our BATNA so-so. If we sold for 400k it might be enough to pay for the sailboat, but it would not be enough to live on later.

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However, we realized that even in this worst case scenario, the boat could be sold upon returning in order to finance subsequent expenses. It wasn’t perfect but it was palatable. Ultimately, a deal that beat 400k would also work, but it would be leaving value on the table.

Looking forward to the negotiation, we knew the Texoil rep would remark on the fact that we had been running ads in the newspaper. We felt that this was a disadvantage as it made us look desperate to sell. We wanted Texoil to think our BATNA was not only another offer but also continuing to enjoy running the station. The concocted story was: we started running the ads after we got an ‘out of the blue’ offer by a large competitor. We were SO surprised by this generous offer that we decided to go fishing to see what other interest was out there, though we had by no means decided that we wanted to sell.

Process My partner and I as well as the Texoil rep spent some time getting acquainted and exchanging pleasantries. Relationship building before a negotiation is a key to successful outcomes. [3] He asked us why we were selling, and we trotted out our planned back story. A silence came over the discussion, and my partner proceeded to share our estimated two-million-dollar valuation. The Texoil rep’s brow furrowed, he scribbled on his paper, and said that based on his analysis he could offer us 200k! I was taken aback. My first instinct was that he was re-anchoring low.

For most of the subsequent negotiation I felt he was playing hard ball. I countered by returning to the value discussion. I elaborated once again about how starting a gas station in a tough region with plenty of competitors was not a slam dunk; that there was a risk of failing, and that was the reason to pay a premium. The Texoil rep nodded his head and said, I still don’t understand how you’re getting to two million. At this point, I realized we had been doing too much talking, and potentially giving up too much information.

We hadn’t asked why Texoil was interested, what their assumptions were, what they were looking at? Not letting the opposition speak was a blunder. Unfortunately, however, the rep didn’t give much information away. I redirected the conversation. I said, “our data shows it would cost you at least 650k to build, plus the customer base. ” So how in the world are you getting somewhere between 200k and 300k. This was a smart move, because it got him to acknowledge that indeed the price to build was 650k, but that was for a new facility, potentially with the convenience store.

I said sure, but then you’re going to be competing against me, and you’ll lose. Clearly existing relationships matter. He said price matters more. We went back and forth a little. At this point, I introduced the idea of us having a partial stake in the gas station. The Texoil rep seemed to be more ok with that idea, but the percent was still low. We appealed to his honest side. “Look,” we said, “We started at two million, we’ve gone way down. Do you want a deal or not? ” He admitted that he had a cap on his spend. He offered $450k.

I said at that level we’ll need a 20% stake. We went back and forth and landed on $450k, 15% stake, and 40 hours of work between the two of us upon returning from the vacation. Learning About Self I believe I showed a couple key strengths in this negotiation. First, by continuing to re-center the discussion about value, we earned a higher ending agreement. [I believe we had one of the most favorable agreements in the class for the gas station proprietors. ] We were able to sell the Texoil rep on the concept that he needed us and the skillset we brought.

When we got down to a number that worked for him, he was open to non-cash solutions. One of the challenges in this case was information asymmetry. Not knowing the opponents’ information, limitations, and whether they were just pulling our leg. After the rep brought up that $650k was the price including an entirely new station with a convenience store, plus new pumps, I realized we had to be willing to pivot down. We acknowledged that taking into account the store and new pumps, the number was at least 500k to build, and they still needed us or it wouldn’t be a successful business.

Knowing when your value proposition is different than originally stated is another key to getting the deal made. At one point my partner said, “Do you want a deal or not? You approached us to buy the station, but it seems like you’re not actually interested. Are you? ” That did elicit the reaction of, “well yeah. ” I think this shows that sometimes, when you’re stuck, zooming out to the 10,000 ft level can be beneficial. The mistake I made during this negotiation was that I let my mouth run wild for too long at certain points.

I need to be more conscious, and actively listen. One thing I’m proud of is that we were open to a lot of creative solutions that were non-cash based. This gets at my own decision making criteria, where I land somewhere between a “charismatic” and a “thinker. ”[4] I like seeing both the big picture and seeing the data. The thinker side that relishes the data feed, in some ways is very challenged by the ambiguity of negotiation. In some ways you don’t always know if you got the best deal you could get. That’s hard as a thinker who wants to win.

Having that “charismatic” side, however, helps in terms of creating the grand strategy; coming up with the value proposition. Maybe I don’t get the most perfect deal, but at least the conceptual thinking and game-plan is on solid footing. What would you do differently? I have two regrets. First, my partner and I should have listened more to the rep at the start of the conversation. He was great at letting us talk. It turned out he didn’t actually know much about the situation, so we played right into his hands. The second mistake was not creating some sort of hierarchy of who was chief negotiator or roles.

We discussed our overall plan, and that we were setting our initial value at two million, but after he re-anchored at 200k, we were off our game. There were a few times when my partner said something that I wasn’t completely in agreement with, and probably vice versa. We ended up taking a break a little more than half way through to resettle and to discuss where we were at. This was partially due to frustration. In retrospect, this was a shrewd decision and could have been taken early. I think the lesson is, if the opponent is doing something unexpected, stop and think deeply or take a break. It doesn’t seem to hurt.

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Texoil Negotiation Case. (2019, Dec 06). Retrieved from https://paperap.com/paper-on-texoil-negotiation/

Texoil Negotiation Case
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