Monday, March 19, 2012

A Nice Example of Value Creation

A lot of value creation in negotiation boils down to identifying things that are more valuable to one party than the other and finding ways to put them in that party's hands.  All too often negotiators fight over what should be "theirs" instead of looking for opportunities to trade for value.

Niko organizes tournaments called Pro Tour Qualifiers, which involve large numbers of Magic: the Gathering players competing for the right to go to yet another tournament called the Pro Tour.  It's something I used to do myself (playing, not organizing!) and it's great fun if you like that sort of thing.  For our purposes it's enough to know that he needed to rent a large space in which to hold a tournament for a couple hundred players and that his revenue comes mainly from entry fees but is supplemented by selling snacks.

His original search left him with two main choices.  One hall, at a hotel, was clearly superior but the price he'd been offered was significantly higher than he'd hoped.  He assumed there was some room to haggle but he needed a significant reduction in cost to make the hall attractive.  In discussions with the hotel, Niko raised the fact that it was traditional for the organizers to sell snacks and asked whether that would be a problem.  The hotel said they could set up a stand themselves but didn't want competition in food sales.

It would have been easy for Niko to see this as a negative point in the negotiation.  On top of a high price he was losing the income from selling snacks.  Many negotiators would have fought to retain a traditional source of income.

Instead Niko recognized that while selling snacks was valuable for him it was clearly more valuable for the hotel.  They could offer a wider variety of food, including meals, buy it more cheaply and have less risk of under- or over-estimating demand.  He didn't fight over the issue but instead pointed out that two hundred hungry gamers were likely to buy a lot more food than the average event for that hall and that this extra value needed to be factored into the price.

The hotel later accepted a substantially lower offer, one that likely wouldn't have been possible without the value creation of moving the "food sales" asset to the hotel.


  1. +1 to you sir for mentioning MTG! I thought I had your post in the wrong folder in my RSS reader!

  2. I've written a lot more articles about Magic than about negotiation (so far)!