Negotiation

Chapter 03

Negotiation

Students to Start-UpsEntrepreneurial Skills Series

Students to Start-UpsEntrepreneurial Skills Series

NegotiationNegotiation

My father said: "You must never try to make all the money that's in a deal. Let the other fellow make some

money too, because if you have a reputation for always making all the money, you won't have many

deals.”

J. Paul Getty


• Much business-to-business selling involves negotiating skills

• The two parties need to reach agreement

– Price

– Others term of sale

• Salesperson need to win without making deep concessions that will

hurt profitability

• There are 2 exchange in marketing

– Routinized exchange : administered program of pricing and

distribution

– Negotiated exchange : price and others term area set via

bargaining behavior

Negotiation – What is it?

‘The process by which we search for the terms to obtain what we

want from somebody who

wants something from us’

Gavin Kennedy

Confer with others to reach a compromise

or agreement.

Concise Oxford Dictionary

To negotiate is to trade something we have for something we want.

Anon

‘Negotiation is an explicit voluntary traded exchange between people

who want something from

each other’

Gavin Kennedy

Debunking Negotiation Myths

Myth 1: There must be a winner & a loserMyth 1: There must be a winner & a loser Myth 2: Appears to involve conflictMyth 2: Appears to involve conflict Myth 3: Negotiation is not an optionMyth 3: Negotiation is not an option Myth 4: Only cheap, petty people haggleMyth 4: Only cheap, petty people haggle Myth 5: A good negotiator is manipulative Myth 5: A good negotiator is manipulative

Human NeedsHuman Needs

Manfred A. Max-Neef 1991. Manfred A. Max-Neef 1991. Human scale development: conception, application and further reflections. Human scale development: conception, application and further reflections. New York: Apex.New York: Apex.


• The most frequently negotiated :– Price

– Contract completion time

– Quality of goods and service offered

– Purchase volume

– Responsibility for financing

– Risk taking

– Promotion and title

– Product safety

Three Views of ConflictThree Views of Conflict

• Traditional view - conflict must be avoided• Human relations view - conflict is a natural and inevitable outcome

in any group• Interactionist view - some conflict is absolutely necessary

– functional conflict - supports the goals of the work group and improves its performance

– dysfunctional conflict - prevents group from achieving its goals

Conflict and Group PerformanceConflict and Group Performance

Robbins et al., Fundamentals of Management, 4th Canadian Edition ©2005 Pearson Education Canada, Inc.

Conflict-Handling StylesConflict-Handling Styles

Uncooperative CooperativeCooperativeness

Ass

erti

ven

ess

Un

asse

rtiv

eA

sser

tive

Forcing

Resolving conflicts bysatisfying one’s own needsat the expense of another’s

Avoiding

Resolving conflicts bywithdrawing from orsuppressing them

Collaborating

Rewarding conflict by seekingan advantageous solution forall parties

Compromising

Resolving conflict by eachparty giving up somethingof value

Accommodating

Resolving conflicts byplacing another’s needsand concerns above yourown

Robbins et al., Fundamentals of Management, 4th Canadian Edition ©2005 Pearson Education Canada, Inc.

5 Levels of Communication5 Levels of Communication

Chris Spies, 2002

The Four Ears of ListeningThe Four Ears of Listening

Undine Kayser, 2003Undine Kayser, 2003

Active Listening Techniques (1)Active Listening Techniques (1)

Centre for Conflict Resolution, Cape Town, South Africa, 1999


Centre for Conflict Resolution, Cape Town, South Africa, 1999Centre for Conflict Resolution, Cape Town, South Africa, 1999





When to Negotiate ?When to Negotiate ?

• Based on Lee and Dobler :– When many factors bear not only on price, but also on quality

and service

– When business risks cannot be accurately predetermined

– When a long period of time is required to produce the items purchased

– When production is interrupted frequently because of numerous change orders

1. Preparation and planning skill

2. Knowledge of the subject

3. Ability to think clearly and rapidly under pressure and uncertainty

4. Ability to express thoughts verbally

5. Listening skill

6. Judgement and general intelligence

7. Integrity

8. Ability to persuade others

Art & Science of Negotiation - RAIFFA

34 Characteristics of an Effective Negotiator

9. Patience

10. Decisiveness

11. Ability to win respect and confidence of opponent

12. General problem-solving and analytical skills

13. Self-control, especially of emotions and their visibility

14. Insight into others’ feelings

15. Persistence and determination

16. Ability to perceive and exploit available power to achieve objective


34 Characteristics of an Effective Negotiator34 Characteristics of an Effective Negotiator

17. Insight into hidden needs and reactions of own and

opponent’s organization

18. Ability to lead and control members of own team or group

19. Previous negotiating experience

20. Personal sense of security

21. Open-mindedness (tolerance of other viewpoints)

22. Competitiveness (desire to compete and win)

23. Skill in communicating and co-ordinating various objectives

within own organisation



24. Debating ability (skill in parrying questions and answers across the table)

25. Willingness to risk being disliked

26. Ability to act out skilfully a variety of negotiating roles or postures

27. Status or rank in organisation

28. Tolerance to ambiguity and uncertainty

29. Skill in communicating by signs, gestures and silence (non-verbal language)



30. Compromising temperament31. Attractive personality and sense of humour (degree to which

people enjoy being with the person)32. Trusting temperament33. Willingness to take somewhat above-average business or

career risks34. Willingness to employ force, threat or bluff



Negotiation Key ConceptsNegotiation Key Concepts

• BATNA• Reservation Price• ZOPA• Value Creation through Trades

Know your BATNA!Know your BATNA!

• Best Alternative to a Negotiated Agreement (BATNA)• Typical example: negotiate or go to court• Improving your situation

– Improve your BATNA– Identify the other side’s BATNA– Weaken the other party’s BATNA

Reservation PriceReservation Price

• The least favorable point at which one will accept a deal• The “walk-away”• Example: you are looking for larger office space. You set your

BATNA at $20/SF and your Reservation Price at $30/SF• If owner won’t budge from $35, you walk away and take advantage

of your BATNA

ZOPAZOPA

• Zone of Possible Agreement (ZOPA)• The difference between the Seller’s Reservation

Price and the Buyer’s Reservation Price• What happens if positions below are reversed?

ZOPA$275k

$250k

Seller’s Reservation Price

Buyer’s Reservation Price

Value Creation through TradesValue Creation through Trades

• Trade things you value less to the other party• Examples:

– For a supplier the greater value may be not price but an extended delivery time

– For a customer, extended warranty versus price– For an employee, working at home versus salary

Summary of Negotiation conceptSummary of Negotiation concept

• Zone of agreement exists– Simultaneously overlapping acceptable outcomes for the parties

• Reservation price– Seller’s

• The minimum will accept• Below s is worse than not reaching agreement• x > s , seller surplus

– Buyer’s• The maximum will pay• x above b is worse than no agreement• x < b , buyer surplus

– If s < b / than a zone of agreement exist = bargaining

The Zone of AgreementThe Zone of Agreement

Seller’s surplus Buyer’s surplus

Zone of agreement

s x bSeller’s reservation price

(seller wants s or more)

Seller wants to move x to the right

Final Contract Buyer’s reservation price

(buyer wants b or less)

buyer wants to move x to the left

Money ($)

Negotiating is about WHY, not WHATNegotiating is about WHY, not WHAT

The purpose of negotiating is seeing if you can get your interests met through and agreement, versus an alternative.

Positions are WHAT we want

Interests are WHY we want something

Negotiate the WHY….not the WHAT

Negotiating BehaviourNegotiating Behaviour

Gavin Kennedy (The New Negotiating Edge) describes 3 types of behaviour that we can display and encounter when in a negotiating situation

RED BLUE PURPLE

7

RED Behaviour

• Manipulation

• Aggressive

• Intimidation

• Exploitation

• Always seeking the best for you

• No concern for person you are negotiating with

• Taking

People behave in this manner when they fear exploitation by the other party, but by behaving this way to protect themselves, they provoke the behaviour they are trying to avoid.

8

BLUE BehaviourBLUE Behaviour

• Win win approach• Cooperation• Trusting• Pacifying• Relational• Giving

Kennedy talks of a ‘behavioural dilemma’, do you cooperate (blue) or defect (red)?

Can you trust the other person? And to what extent? Trusting someone involves risk, on the one hand being too trusting is naïve and on the other, not trusting at all can create deceitful behaviour.

The answer is to merge blue and red behaviour into purple.

9

PURPLE BehaviourPURPLE Behaviour

• Give me some of what I want (red)• I’ll give you some of what you want (blue)• Deal with people as they are not how you think they are• Good intentions• Two way exchange• Purple behaviour incites purple behaviour• Tit for tat strategies• Open• People know where they stand• Determination to solve problems by both sets of criteria of the merits

of the case and/or the terms of a negotiated exchange

To the red behaviourist the message is loud and clear, ‘You will get nothing from me unless and until I get something from you’.

10

Formulating a Negotiation StrategyFormulating a Negotiation Strategy

• Strategic plan– Commitment to an overall approach that has a good chance of

achieving the negotiator’s objectives• Soft : avoid conflict, make concessions; often end up exploited and

feeling bitter

• Hard : sees any situation as a contest of wills. Exhausts people and resources and harms relationships

• Other strategies are between hard and soft, but each involves a trade off

• Making good tactical decisions

Starting PointStarting Point

• A successful negotiation must have a basic framework– The alternative to negotiation– The minimum threshold for a negotiated deal– How flexible a party is willing to be, and what tradeoffs it is

willing to make

Principled Negotiation :The Method

• Separate the people From the problem

• Focus on interests, Not positions

• Invent options For mutual gain

• Use objective criteria

Modified from material obtained from the Harvard Negotiation Project

Separate the people from the problem

Relationship Issues:

Emotion/reason Understanding Communication Reliability Coercion/persuasion Acceptance/respect

Substantive Issues:

Money Terms Conditions Concessions Promises Dates/numbers


ProblemProblem

• Participants are friends• The goal is agreement• Make concessions to cultivate the

relationship• Be soft on the people and the problem• Trust others• Change your position easily• Make offers• Disclose your bottom line• Accept one-sided losses to reach

agreement• Search for the single answer: the one they

will accept• Insist on agreement• Try to avoid a contest of wills• Yield to pressure

• Participants are adversaries• The goal is victory• Demand concessions as a condition of the

relationship• Be hard on the problem and the people• Distrust others• Dig in to your position• Make threats• Mislead as to your bottom line• Demand one-sided gains as the price of

agreement• Search for the single answer: the one you

will accept• Insist on your position• Try to win a contest of wills• Apply pressure

SOFT HARD

Positional Which game should you play

“Getting to Yes” - Professor R. Fisher & W. Ury

Focus on Interests not Positions

Interests = desires and concerns that underlie positions

• Prepare for negotiation: – Clarify interests – Understand the interests of the other side

• Focus the negotiation discussion on:– Interests – not positions


Invent Options for Mutual Gain

To invent creative options:• Separate inventing from judging.• Broaden the options on the table, rather than look for a

single answer.• Search for mutual gains.• Invent ways to make their decision easy.


Insist on using Objective Criteria

• Frame each issue as a joint search for objective criteria

• Reason and be open to reason as to which standards are most appropriate and how they should be applied

• Never yield to pressure, only to principle.


Negotiation StylesNegotiation Styles

ACCOMODATE

Build friendly relationship

Characteristics:

Promote harmony

Avoid substantive differences

Give into pressure to save relationship

Place relationship above fairness of

the outcomes

CO

NC

ER

N F

OR

RE

LA

TIO

NS

HIP

CONCERN FOR SUBSTANCE

LOW

HIGHCOLLABORATE

Problem solved creatively, aiming for win-win

Characteristics:

Search for common interests

Problem-solving behaviours

Recognising both parties’ needs

Synergistic solutions

Win-win becomes the main purpose of the negotiator

HIGH

AVOIDTake whatever you can get/Inaction

Characteristics:

Feeling of powerlessness

Indifference to the result

Resignation, surrender

Take what the other party is willing to concede

Withdraw & remove = behaviour of negotiator

DEFEAT

Be a winner at any cost/Competitive

Characteristics:

Win-Lose competition

Pressure/Intimidation

Adversarial relationships

Defeating the other becomes a goal for the negotiator

COMPROMISE

Split the difference

Characteristics:

Meeting half way

Look for trade offs

Accept half-way measures

Aims to reduce conflict rather than problem solve synergistically

Source: Rollin & Christine Glaser

The Four Phases of NegotiationThe Four Phases of Negotiation

PLANPLAN

DEBATEDEBATE

PROPOSEPROPOSE

BARGAINBARGAIN

11

Step One - Prepare

• Research

• LIST your objectives and their objectives

• Those you INTEND to get

• Those you MUST get

Step Two - Debate

• Listen carefully• Ask questions• Clarify• Summarise• Don’t argue, interrupt or assume

...BUT

Step Three - Propose

• Make proposals• State conditions• Express concerns• Search for common interests

• Use positive body language

AND

Step Four - Bargain

• Key words are IF and THEN• Start making concession:

– Every concession should have a condition (IF you … THEN I will … )

– Conserve your concessions - don’t give everything away too soon

– You don’t have to share every piece of information with the opposing side!

– Don’t be afraid to say no

Classic Bargaining TacticsClassic Bargaining Tactics

• Acting Crazy• Big Pot• Get a Prestigious Ally• The Well is Dry• Limited Authority• Whipsaw / Auction• Divide and Conquer• Get Lost / Stall for Time• We Noodle• Be Patient• Let’s Split the Difference• Trial Balloon• Surprises


• Acting Crazy– Put on good show

– Visibly demonstrating your emotional commitment to your position

– Increase credibility

– Give opponent a justification to settle on your terms

• Big Pot– Leave your self a lot of room to negotiate

– Make high demand at the beginning

– After making concessions, you’ll still end up with a larger payoff

• Get a Prestigious Ally– Try to get opponent to accept less


• The Well is Dry– Take a stand and tell the opponent you have no more concessions to

make

• Limited Authority– Negotiate in good faith

– If you ready to sign the deal, say I have to check with my boss

• Whipsaw / Auction– Several competitors know you are negotiating in the same time

– Schedule competitors with you for the same time and keep them all waiting to see you


• Divide and Conquer– Negotiation with opponent team

– Sell one member to help you sell the other members of the team

• Get Lost / Stall for Time– Leave the negotiation completely for a while

– Come back when things are getting better and try to renegotiate

– Time period can be long or short

• We Noodle– Give no emotional or verbal response

– Don’t response to his or her force or pressure

• Be Patient– If you can afford to outwait

– You will probably win big


• Let’s Split the Difference– The person who first suggest this has the least to lose

• Trial Balloon– Release your possible / contemplated decision through a so-called

reliable source before the decision is actually made

– To test reactions to your decisions

• Surprises

– Keep the opponent off balance by • Drastic

• Dramatic

• Sudden shift

– Never be predictable

• Keep the opponent from anticipating your move

Step Five - Agree

• Usually final concession :“IF you do that, THEN we have a deal!”

• Gain commitment• Record and agree results• Leave satisfied

Think about your influencing styleThink about your influencing style

Inspirational

Logical

Personal

Forceful

7 Deadly Sins of Negotiating7 Deadly Sins of Negotiating

• Pride - Be prepared to compromise• Gluttony - Don’t bite off more than you can chew• Anger - Handle objections calmly• Covetousness - Prioritise needs/wants• Envy - Know competitors strengths & weaknesses…

AND your own• Sloth - Do your homework• Lust - Don’t look desperate to settle

An Unconditionally Constructive StrategyAn Unconditionally Constructive Strategy

Do only those things that are both good for the relationship and good for us - whether or not they reciprocate

RATIONALITY Even if they are acting emotionally, balance emotions with reason

UNDERSTANDING Even if they misunderstand us, try to understand them

COMMUNICATION Even if they are not listening, consult them before deciding on matters that affect them

RELIABILITY Even if they are trying to deceive us, neither trust them nor deceive them: be reliable

NON-COERCIVE MODES OF INFLUENCES

Even if they are trying to coerce us, neither yield to that coercion nor try to coerce them, be open to persuasion and try to persuade them

ACCEPTANCE Even if they reject us and our concerns as unworthy of their consideration, accept them as worthy of consideration, care about them and be open to learning from them

"Getting Together" Fisher

Three Approaches To Resolving DisputesThree Approaches To Resolving Disputes

MOVING FROM A DISTRESSED TO AN EFFECTIVE RESOLUTION SYSTEM

Distressed System

Power

Rights

Interests

"Dispute Resolution" Goldberg Green Sander

Effective SystemEffective System

Power

Rights

Interests

Goldberg

MOVING FROM A DISTRESSED TO AN EFFECTIVE RESOLUTION SYSTEM

Three Approaches To Resolving DisputesThree Approaches To Resolving Disputes

Salary Negotiation: Best Practices• Know what want-prioritize and logroll• Conduct research to understand your worth

• how it compares• what you will do if don’t get what you want

• Know with whom to negotiate and what can

be negotiated• Find the minimum, midpoint and maximum salary

grades for the position• Think total compensation• Consider enlarging the shadow of the future

Salary Best Results

• What until you have an offer to negotiate– allow employer to initiate discussion– be prepared to discuss salary at any time

• Preserve the relationship – no ultimatums; appear accommodating; be concerned with their

interests– ask questions when encountering resistance

• Consider long term effects of your plan• Practice• Watch for signals• Get offer in writing

Salary: Things to Avoid

• Personal needs or self-serving perks• Gamesmanship: one more thing or hard squeeze• Multi-company leveraging• Appearance of desperation• Lying, exaggeration or misleading• Quick decisions or countering too soon

$$$

Tip #1 Negotiating is not CompromisingTip #1 Negotiating is not Compromising

It is joint problem solving

Our goal is to efficiently reach a satisfying agreement for both parties, and to conclude on a positive note.

Fisher and Ury define negotiations as “Back and forth communication to reach agreement where some interests are shared and some interests are opposed.“Getting to Yes”

Tip #2 People Skills Make the DifferenceTip #2 People Skills Make the Difference

•What is your “preferred style” of communicating?

•What is the “style” of the other person with whom you will be negotiating?

•Are these styles compatible, or are they opposites?

Tip #2A: Listening is the most powerful negotiating skillTip #2A: Listening is the most powerful negotiating skill

• It begins with effective communication…understanding your preferred method and learning the method of the other party.

• Communicate with them in a way that will be most effective with their style

• This helps to eliminate the possibility of misunderstanding, as we communicate in many ways

Listening is your most powerful negotiating toolListening is your most powerful negotiating tool

But before you can listen, you have to be skilled at asking questions:

Three critical questioning skills1. Know where your questions

are going2. Ask for permission to ask

questions3. State why you want to ask

questions

Purpose-Process-Payoff

Listening is your most powerful negotiating toolListening is your most powerful negotiating tool

If that is the case, why are we such bad listeners?

We listen to reply, argue, rebut, make our point, or win.

We do not typically listen to understand.

As Covey said, “Seek first to understand, then be understood

Tip #3: Have a game plan before beginning to negotiateTip #3: Have a game plan before beginning to negotiate

Few people plan before beginning to negotiate

If you cannot walk away from the negotiation at any time, you will lose.

Knowing your options outside of the negotiation is a direct function of preparation.

Without a plan you risk agreeing to something worse than what you may have done on your own.

Negotiation Check ListNegotiation Check List

Good Practice Avoid

Actively listen Question for clarification Summarising Test commitment Seeking & giving information Encourage two way conversation State and plan your proposal – then summarise Use the ‘if you ….then we’ll’ principle

×Interrupting×Attacking×Blaming×Talking too much×Sarcasm×Threats×Taking it personally×Closed body language

42

QuestionsQuestions

To be continued in the next chapter………To be continued in the next chapter………

[email protected]

Communication Stumbling Blocks (1)Communication Stumbling Blocks (1)








Negotiation

Business

1999communication

1999active

material obtained

cape town

inevitable

south africa

raiffa34 characteristics

single answer