Myopic Strategies of Billion-Dollar Negotiations: Can You Negotiate Like Amazon?
Jeff Bezos, the founder of e-commerce giant Amazon, continually fluctuates between being one of the three richest people on the planet. In the realm of negotiations, Bezos is known for his uncompromising tactics.
Allow me to share a controversial story with you.
On a chilly September morning in 2005, Marc Lore and Vinit Bharara decided to establish Diapers.com. Their main strategy was to attract young parents, primarily selling baby diapers at a loss, which acted as a lure for new customers.
Initially, this strategy was successful, complemented by the introduction of other products like baby food, car seats, and toys, which allowed them to recover the lost profits from selling diapers. This aggressive growth strategy brought rapid success.
Initially financing their business through credit cards and retaining their original jobs until Diapers achieved a turnover of 2 million dollars, this plan proved successful. By the second half of 2009, the company had achieved a turnover of 300 million dollars.
This was the moment when Bezos noticed their growing success...
The Diaper War
Bezos flexibly assessed the situation and offered to buy Diapers.com, presenting an offer that the founders rejected.
Bezos then decided on a different strategy: he reduced the price of diapers on Amazon.com by 30% in an attempt to capture market share and eliminate the smaller rival. The "Diaper War" lasted several months, with Amazon's vast budget comfortably accommodating temporary losses.
On the other hand, Diapers.com faced increasing financial pressure and mounting losses. Bezos subsequently contacted the founders of Diapers.com again, inquiring if they were now willing to sell. Once again, he was met with rejection.
Bezos then initiated a new price war, this time offering free shipping without a minimum order threshold, which lasted nearly 9 months. This tactic proved to be effective.
Conqueror vs. Vanquished
Under the pressure of the board of directors and investors, who could no longer fund the losses from this price war, Diapers.com surrendered and was sold to Amazon for 545 million dollars.
Although on paper it looked like a triumph, Marc and Vinit had built a successful project from scratch in a few years and sold it for a significant amount, the reality brought no celebration. Marc Lore publicly stated, "We didn't celebrate. It was rather sad. That's how we felt. It was very strange. We asked ourselves: why do we feel so terrible right now? We just sold the company and made a lot of money, but we didn't feel good."
As part of the agreement, Lore was confined in the "Amazon prison," remaining in a managerial position for another two years. In 2017, Amazon definitively closed Diapers.com, eliminating 263 jobs.
Why am I sharing this story?
It serves as a lesson on multiple levels, focusing primarily on the lesson you can take away for your negotiations.
Jeff Bezos has a reputation as a tough negotiator, keen on emerging victorious, but often leaves his counterpart with a sense of defeat. The "loser" perceives the negotiation as a battle lost, retaining a bitter taste.
Yes, Jeff Bezos can afford it, Amazon is simply "in a different league". However, if you are not at Amazon's level, you should adjust your negotiation strategy to the situation and focus on building a positive relationship with the other party.
The goal of negotiations is to close a deal that is beneficial for you, while also leaving the other party with a sense of success.
In practice, it is very challenging to close a beneficial deal while maintaining a positive relationship.
You can contact me at [email protected], and I will be happy to assist you in preparing for crucial negotiations or tailor negotiation training for you.
