My Negotiation Club

In his recent book The Crux, Richard Rumelt introduced the notion of the “Gnarly Problem.”

For non-English speakers, gnarly is an American slang word, defined by the Merriam-Webster dictionary as “very difficult or challenging to deal with, nasty, unpleasant, gross”.

Gnarly Problems are complex (involving multiple moving parts), have high uncertainty, and lack a clear and linear path to resolution (goodbye Game Theory!).

Solving such “gnarly problems” isn’t just about analysis or analytical skills, it requires strategic insight and bold decision-making.

Many industries, including retail, encounter gnarly problems today. French consumers, for example, have created a paradox that has no straightforward solution.

On the one hand, French consumers want to spend less (the FMCG market is in slight decline). On the other hand, they reject EDLP (Every Day Low Price models), putting pressure on Lidl and Aldi and boycotting Amazon.

Surprisingly, the only sales channels that are growing are the ones where products are sold at a premium – proximity stores and click & collect.

Proximity is a very challenging channel (high rental costs, restrictive supply, limited space for stock), while click & collect suffers from lack of choice and scale, high software and hardware costs, and full dependency on the physical store’s stock.

Both channels are normally subsidized by larger store formats that benefit from scale (price and assortment, supply chain efficiency), unplanned/impulse purchases, bundling, and other irrational spending behaviors.

The crux of the challenge for French retail is how to attract shoppers to profitable sales channels while nudging them to accept “fair” prices in the fast-growing yet unprofitable ones…

For example, the pressure on France’s iconic hypermarket format (50% market share before COVID, 38% by the end of 2024) has led to massive layoffs, wiping out tens of thousands of jobs. The textile, non-food, and beauty industries are in dramatic decline due to their reliance on hypermarkets and the shopping galleries. Small businesses, unable to offset consumer behavior changes, are going bust.

A recent IRI study showed that the widely popularized “buy local” trend accounts for no more than 3% of total FMCG sales. The market is still dominated by international conglomerates.

To me, the clear winners in the next decade will be those who can:

* Build an ecosystem around shopping centers – creating communities by combining retail, activities, and leisure. Retail is about experience.

* Redefine stores – dramatically reducing assortment, focusing on local produce and own brands, and selectively working with international brands that truly need the partnership (instead of chasing those who don’t).

* Partner with shoppers – creating transparent value chains and incentivizing the right choices (e.g., buying from small local stores in galleries, supporting sustainability efforts).

How do you see a solution to retail’s gnarly problem?

So, naturally, you select the Labrador!

You wait in the lobby, but Mr. Labrador is late. You wait a bit more, but no one comes. You ask the receptionist to remind Mr. Labrador of your presence. Finally, after 40 minutes of waiting, you are moving into the meeting room with a friendly chap.

You present yourself, fresh from the top business school, just being promoted from the category position. Mr. Labrador is at least 20 dog years older than you and completely overwhelms you with anecdotes of the great times he had with your pre-pre-predecessor.

He knows the job, he knows your company, and he knows how to help you influence your superiors in order to get what he wants. You chuckle politely, thinking of the German Shepherd ready to shred you to pieces if you yield.

You come with bad news for Mr. Labrador. You must raise your prices and cut the marketing budget at the same time.

Select your strategy:

Strategy 1: Don’t shoot the messenger.

Mr. Labrador knows Hoof & Bone rather well (in fact, better than you). It makes no sense to hide things from him; let’s be as straight to the point as possible. So, you explain the VUCA, the Red Sea, the viruses, and wars. In fact, you have a slide for each of the four horsedogs of the apocalypse. Finally, you announce that the firm gave you no choice but to protect its very 150 years of existence by simultaneously raising prices and cutting promotions. Take it or leave it; the decision is from the top dog, and even the market-leading retailer Nile.com has already accepted the new tariffs and thus reaps the increased profits.

Strategy 2: Veni, vidi, vici.

Remember, you are a pure-blood descendant from the now-extinct wolves. You have never been tamed. You are wild and ambitious. You want to use the old chap as a trampoline in your career. So, you tone up your presentation: the VUCA, the Red Sea, the plagues, and the wars.

But you show another slide at the end, where the prices must rise even higher and the austerity is almost complete. Surely, the old Labrador will not be able to sniff the foul game and will collaborate fully. But the German Shepherd might shred some other account to pieces and maybe give you a raise and promote you to a better account next year…

What is the best strategy according to you and why?

Imagine a planet where the dominant species are dogs. The world is just as similar to ours, yet instead of humans, there are dogs. Building skyscrapers, driving Maseratis, and negotiating deals, ok?

You are a professional key account manager of Hoof & Bone, a 150-year-old market-leading conglomerate, and you come down to visit an ordinary customer—nothing special, just a “meh,” let’s call them “MeowMart”.

But that’s all you’ve got as a job. Your career depends on this one. You are a straight-to-the-point, no-nonsense Husky. Your boss is a German Shepherd, she demands higher than the market revenue growth, sits tight on your trade marketing spendings and can calculate ROI faster than MS Excel.

Imagine at the MeowMart reception you learn that there are two buyers who negotiate with suppliers in your category of goods, and in fact, you are free to choose any one of them as your key negotiation contact.

Whom would you choose?

Buyer 1: a Labrador – loyal, friendly, and cooperative.
Buyer 2: a Pit Bull – mean, ferocious, and unpredictable.

Write below in the comments who and why would you choose!

While reading “The Art of Strategy” by Professors Dixit and Nalebuff, I’m once again reminded of the Game Theory classes we’ve so much enjoyed during our MBA program at Solvay.

Game Theory has revolutionized understanding of negotiation and decision-making, proving that rational human beings tend to make irrational decisions that lead to suboptimal settlements (Nash equilibria). The most famous and widely publicized example of Game Theory is called the “Prisoner’s Dilemma”. I’m sure that most of you know the story perfectly well. While it is a good and illustrative demonstration of the non-cooperative game, it is oversimplified, inaccurate, and somewhat naive. Reality is non-binary, as we all perfectly know.

Negotiators often inherit the weakness of such a binary approach, while the spectrum of options is virtually unlimited. Just as logs are thrown into the fire, negotiators must throw new perks into their ZOPA (Zone of Possible Agreement).

The classic negotiation theory instructs us to make the smallest concessions for the biggest gains while adding low-valued perks to the high-value deal. Each iteration should never be linear but ever diminishing (1%, 0.9%, 0.895%, 0.8945%, etc.). Thus, the real prisoner could have demanded: all charges to be waived, witness protection for him and his family, lifelong government support, and immunity for all past crimes in exchange for cooperation. Each of these demands could be secured against every diminishing bit of information.

Asymmetry of information: In real life, people’s choices are influenced by a multitude of factors, both rational and irrational. During some very difficult negotiations, I’ve asked my opponent what his BATNA (Best Alternative to a Negotiated Agreement) was, “I will be fired” was the answer. Understanding and respecting the person is the only way. No successful agreements are reached by intimidation, lie or extortion.

Both prisoners could have hired the same lawyer to avoid asymmetry and outplay the police…

Static game: In the Prisoner’s Dilemma, both prisoners are given one single choice (confess or remain silent) and must decide quickly. In real life, negotiations take weeks, months, and even years. The pieces on the chessboard move all the time, and the window of opportunity can open or close at any moment, and not necessarily at the end of negotiations. I witness over and over the same mistake in the negotiations between the supplier and a buyer, where both tend to ignore the law of demand and supply, visualizing the game and its outcome as static. The optimum outcome must include milestones that automatically trigger a revision of the deal during the contracted period, thus protecting both parties and allowing corrections.

While the prisoner’s dilemma provides valuable insights into decision-making and cooperation, it is essential to recognize its simplifications and limitations when applying its lessons to real-world scenarios.