Negotiation

SELLING & NEGOTIATION SKILLS

NEGOTIATION

In business you don’t get the success you deserve …….You get the success you negotiate for.

What is Negotiation?

Negotiation is the means by which people deal with their differences.

It is often planned and a purposeful activity to arrive at an agreement.

Negotiation - Some Definitions

Negotiation is the process where interested parties resolve disputes, agree upon courses of action, bargain for individual or collective advantage, and /or attempt to craft outcomes which serve their mutual interests. Negotiation is usually regarded as a form of alternative dispute resolution.

The trading of concessions, including price reductions between supplier and customer, in an attempt to shape a supply contract (sale in other words)so that it is acceptable to both supplier and customer.

Features of Negotiation

• At least two parties are involved• The parties agree that there is a conflict of interest• The focus is on arriving at a mutual win-win agreement –

Negotiation is a conflict –solving process• Negotiators must have the behavioral and analytical skills

to succeed

When to Negotiate ?

When two or more parties are doing business and would like to arrive at a solution with respect to price , service or quality

When business risks involved cannot be accurately pre-determined

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

Types of Negotiations

Distributive Negotiation

Integrative Negotiation

Distributive Negotiation

Known as competitive Negotiation Win-Lose Negotiation Zero-Sum Negotiation Tug of war Negotiation

Features of Distributive Negotiation Chances are that the Negotiating parties are

meeting for the first time.

The negotiation could be a one time activity –

Purchase of a Car or house

Win at any cost – Mostly Price based- Win of one party is reflected on the loss of the other party

Long term relationship not a criteria

Success Principles in Distributive Negotiations

• Play your cards close to your chest – Share just enough and no more information

• Gather as much information from the opposite side as possible – information is power

• Express intent and not eagerness to purchase

• Be realistic – don’t go over board on negotiations and lose the deal

Integrative Negotiation

Known as collaborative negotiation

Important to understand each others requirement

Co-operative approach to mutual problem solving

Win-Win negotiation

Features of Integrative Negotiation

Focus is on creating value and claiming it.

Trade-offs are noticed to get what you value most and let go less important factors.

Negotiation extends much beyond price and delivery date.

Encourages long-term relationship.

Results in increasing the pie and try and get a good share of the pie.

Success Principles in Integrative Negotiations

• Focus on getting something of value to you while letting go of something which has a lesser value.

.

• Understand each others requirement and priority.

• The goal is not to hurt your counterpart but to help them with little cost to your self and vice-versa.

• Appreciate your counterpart’s problems and have a problem solving approach.

• Try and build bridges rather than burning bridges

Negotiation Characteristic

Distributive Characteristic

Integrative Characteristic

Available Resources

Primary Motivations

Primary Interests

Focus of relationships

Fixed

I win, You lose

Opposed to each other

Short-term

Variable

I win, You win

Congruent with each other

Long-term

DISTRIBUTIVE vs INTEGRATIVE

Concepts of Negotiation

• Any successful negotiation must have a fundamental framework based on knowing the following: - The alternative to negotiation

- The minimum threshold for a negotiated deal

- How flexible a party is willing to be , and

- What trade – offs it is willing to make

4 Key Concepts of Negotiations

BATNA (Best Alternative To a Negotiated Agreement) Reservation Price ZOPA (Zone Of Possible Agreement) Value Creation Through Trades

Know your BATNA

The concept has been developed by Roger Fisher and William Ury

It is one’s preferred course of action in the absence of a deal

Knowing your BATNA means knowing what you will do if you fail to reach an agreement in the negotiation

Know your BATNA before the Negotiation.

Know your BATNA

If you don’t know your BATNA – you will not know if the deal makes sense or when to walk away from the negotiation table.

Not Knowing BATNA can result in opportunity loss- you may reject a good offer that is better than the alternatives you have.

Improving your position in the negotiation table

Improve your BATNA to improve your negotiating position

Identify the other side’s BATNA Weaken the other party’s BATNA

BATNA - Example

A consultant is negotiating with a potential client about a month –long assignment . It’s not clear what fee arrangement she’ll be able to negotiate , or even if she’ll reach an agreement, So before she meets with this potential client , she considers her best alternative to an acceptable agreement . In this case , the best alternative to a negotiated agreement - the consultant’s BATNA – is spending that month developing marketing studies for other clients – work that she calculates can be billed out at Rs.1,50,000.

A King who knew his BATNA Long before the acronym BATNA was invented, savvy operators kept their best

alternatives in mind as they dealt with opponents. Consider France’s Louis XI, one of the most crafty monarchs in fifteenth century Europe. When England’s Edward IV brought his army across the Channel to grab territory from his weaker rival, the French King decided to negotiate. Knowing that his BATNA was to fight a long and costly war, Louis calculated that it is was safer and cheaper to strike a deal with Edward. So he signed a peace treaty with the English in 1475, paying 50,000 crowns upfront and an annuity of 50,000 crowns for the rest of Edward’s life (which proved to be short).To seal the deal, Louis treated his royal counterpart and the English army to forty-eight hours of eating, drinking, and merry making. As an added token, he signed the Cardinal of Bourbon to be Edward’s “jolly companion” and to forgive his sins as he committed them.

As Edward and his army staggered back to their boats ending the Hundred Years War, Louis remarked: ”I have chased the English out of France more easily than my father ever did; he drove them out by force of arms while I have driven them out by force of meat pies and good wine.” Such is the power of negotiating when you know your BATNA.

Reservation Prices

Also Known as the “walk away price” Reservation price should be derived from your BATNA Don’t enter a negotiation without a clear reservation price

Reservation Price - Example

You are currently paying Rs.2000 per square foot for the suburban

office space. The location is satisfactory and you believe that the

price is fair, but you wouldn’t mind paying more to be closer to your

downtown customers. While preparing to negotiate with a

commercial landlord for an office lease in a downtown high-rise, you

decided that you would not pay more than Rs.3000 per square foot.

That’s your reservation price. If the landlord insists on more, you

can stay where you are at Rs.2000 per square foot(your BATNA).

At the end of a lengthy negotiation session , the landlord declares that

he will not accept less than Rs.3500 per square foot – and he won’t

budge. You graciously terminate the negotiation and walk away from

the deal.

Zone of Possible Agreement (ZOPA)

ZOPA is the area or range in which a deal that satisfies both parties can take place

It is the set of agreement that potentially satisfy both parties

Each Party’s reservation price determines one end of the ZOPA.

ZOPA - Example

A buyer has set a reservation price of Rs.2,75,000 for the purchase of a

commercial warehouse . “That’s as high as I’m willing to go,” she tells

herself . Naturally , she would prefer paying less . Unknown to her , the seller

has set a reservation price of Rs.2,50,000.That is the least he’ll take for the

property . The ZOPA, therefore , is the range between Rs.2,50,000 and

Rs.2,75,000.The two parties might haggle a bit in reaching agreement, but an

agreement in this range would satisfy each.

Buyer : What would you say to an offer of Rs.2,55,000?I could agree to that.

Seller : Thanks , but I believe that the building is worth more and I can get

more if I wait for a month.

Buyer : You may or you may not .I would be willing to pay Rs.2,60,000

Seller : Pay Rs.2,65,000 and it is yours

Buyer : I agree to pay Rs.2,65,000

Value Creation Through Trades

The negotiating parties can improve their position by trading the values at their disposal Getting what one wants in return for something it values much

less Both parties often emerge as winners

Value Creation Through Trades- Examples• For a supplier, an extended delivery period can be useful

whilst the customer may need the delivery in a phased manner

• Warranty for the customer is valued very high whilst the supplier can give it for a small incremental cost

• Work from home office two days each week can mean a lot to a working mother whilst it comes at no cost to the employer

Summing up Key Concepts

BATNA is the best alternative to a negotiated agreement . It is one’s preferred option in the absence of a deal . Knowing your BATNA means knowing what to do if you fail to reach an agreement . Don’t enter a negotiation without knowing your BATNA.

If your BATNA is weak , do what you can to improve it . A strong BATNA improves your negotiating position.

Identify the other side’s BATNA . If it is strong , think of what you can do to weaken it.

Reservation price is the price at which the rational negotiator will walk away . Don’t enter a negotiation without a clear reservation price.

ZOPA is the zone of possible agreement . It is the area in which

a deal will satisfy all parties . This area exists when the parties have different reservation prices . Home buyer willing to pay Rs.2,75,000 and the seller is willing to part with the home at a minimum price of Rs.2,50,000.

Value Creation through trades is possible when a party has something he or she values less than does the other party and vice versa. By trading these values , the parties lose little but gain greatly.

Different types of negotiator :by Dudley Lynch and Paul L. Kordis

Sharks

Carp

Dolphins

Sharks

Sharks believe in scarcity. Their perception is that in all negotiations, there must be winners and losers. To ensure that they won’t be the losers, sharks “move in for the kill,” striving to get as much as they can in every case, regardless of the cost.

A second characteristic of sharks is to assume that they

always have the only possible solution to any negotiation. They have a desperate need to be right 100 percent of the time and will go to any extreme, including lying, to cover up their failures and shortcomings.

It is difficult to negotiate with sharks because they lack the ability to use creative strategies. They are unable to try anything different or learn from their mistakes. Their attitude of scarcity dictates their actions and reactions.

If you find yourself negotiating with a shark, you need to be constantly on guard. If you find yourself behaving like a shark, you are encouraged to take a look at some more creative strategies. 

Carps Carp believe that in a negotiation, they can never be

the winners. Because of this belief, they focus their efforts on not losing what they currently have.

Carp do not like any type of confrontation, so their normal response in negotiating is to give in or get out. People who always “get out” and avoid negotiations become

cut off and isolated. people who constantly give in eventually have nothing left,

and are eaten alive by sharks.

Dolphins: Ideal negotiator

Dolphins have the ability to successfully adapt to any situation they encounter. If one strategy is unsuccessful, dolphins respond with other possibilities.

Dolphins believe in both potential scarcity and potential abundance.

They play an infinite rather than a finite game.

They avoid unnecessary conflict.

dolphins are also quick to forgive.

Unlike sharks, dolphins spend the majority of their time building trust and rapport.

Stages of Negotiation Process

6.Closing6.Closing

5.Bargaining

4.Building understanding

3.Getting started

2.Developing a strategy

1.Preparing

Step 1: Preparing for Negotiation

1. Preparing

Setting Objectives

Assessing the other Side’s case

Assessing StrengthsAnd weaknesses

The First Step of Negotiation

Identify a range of objectives , rather than a single target point.

Try to establish what the other party’s claims are and what they

are seeking to achieve.

Look for underlying issues.

Consider what facts and arguments the other party is likely to use

in support of their claim.

Assess your relative strengths and weaknesses.

Strength is the power or influence you can exercise over the actions of the other party.

Power is of no use unless both parties know about it and have a similar view of its extent.

If you are stronger and both parties know it , then your basic use of this advantage will be to remind them of consequences of not conceding to your suggestions.

When your case is really hopeless, plan to minimize your losses rather than to defend the case.

Top line objective: best achievable outcome. Bottom line objective: lowest still acceptable outcome. Target objective: what realistically expect to settle for.

Bottom line objective

Target objective

Top line objective

Setting Objectives

Setting Bargaining Objectives

Party A

Top Line

Top LineBottom Line

Bottom Line

Settlement range

Party B

Calculate what is the most that you can lose i.e. best alternative to no negotiation.

Better your BATNA , stronger is your bargaining position and more demanding you can be.

BATNA and bargaining objective must not be altered.

Clarity and firmness are strengths in negotiation.

Step 2: Developing a strategy

2. Developing a strategy

What style to adopt

What tactics to use

Five Negotiation Style

Accommodating

Compromising

Collaborating

Controlling

Avoiding

By Thomas and Kilmann

Collaborating Working together – win/win Time-consuming Problem solving / brainstorming To build and maintain relationship

Compromising

Uses Cooperation Satisfy need of both parties It is alternative to no solution Issues are important but you can not afford controlling

Accommodating Relationship over objectives Sacrifice now / gain later Don’t use on key issues Don’t use if other party is gaining unfair advantage

Avoiding Passive – lose/lose Issues are not important Use if you would lose You need more time to collect information

Controlling

Aggressive style – win/lose You know you are right Use if you need a quick decision Use if other party would take advantage of co-

operative behaviour

Tactics

Where to negotiate

When to negotiate

Highlighting strengths ‘Of course, you realize that we are obliged to talk to other potential suppliers’

Minimizing weaknesses ‘We would like to get this problem solved quickly, but we are not stuck for time’

To generate move ‘You have heard my proposal. Perhaps we should adjourn to let you consider it and then come back with a revised offer’

Use humor A little boy asked J.F. Kennedy :’ Mr. President, how did you become a war hero?’ Reply :’ It was involuntary. They sank my boat.’

The first meeting

Tactics

Recognize Tactical Negotiating

Escalating demands

Lock-in tactics

Half- hearted partner

Calculated delay

Take it or leave it

Positional pressure

Psychological warfare

Deliberate deception

Step 3: Getting started

3. Getting started Opening the negotiation

Third Step of Negotiation First position of either side has more effect on final outcome than any of

the later moves.

Get the other party to make their opening statement first.

Opening move convey information about your attitude and aspirations.

It shapes the negotiation climate. Make it clear who is more experienced, confident, stronger and better

informed party. Demand more than you expect to get and offer less than you expect to

give.

Reject the first offer and don’t make your best offer first. The subject, scope and purpose need to be agreed before negotiations

commence therefore agenda should be in writing.

Opening

The very beginning is probably the most important part of any negotiation as

• It convey information about your attitude, aspiration, intention.

• Shape the negotiation climate

Points to be considered at opening: Let other party to opening statement first Pitch your opening ‘well away’ from your hope to settle.

Step 4: Building Understanding

Getting Information

Using timingand Adjournment

4. Building understanding

Getting information

Information is power in negotiation. The more information you can get from the other side the better.

Open questions: To obtain general information on issue or topic. For example ‘Tell me about…..’, ‘Could you describe what you think…….?’.

Probing questions: To elicit more information about issue. For example ‘Could you elaborate more on your argument?’

Closed questions: To get specific information and receive yes or no. For example ‘What is market price?’

Hypothetical questions: To encourage other party to explore his or her idea, feelings on a particular point. For example ‘how much discount would you give if we purchase double quantity?’

Using timing and Adjournments

In negotiation, positive attention should be paid to the duration of bargaining sessions, formal presentation, individual contribution to discussion.

Longer discussion often lead to boredom, loss of attention, fatigue etc.

When to use adjournments?

You recognize an important change in climate or style of other party.

You would like the other party to give proper considerations or new proposal.

A strategy or tactic becomes ineffective and you need to develop new one.

The discussion has been going to long and everybody feeling hungry and tired. You need a break.

Fourth Step of Negotiation

Look for flaws or distortions like factual errors or omissions,

faulty logic, selective use of statistics, hidden agendas. Do not interrupt. Say only what is necessary Summarize regularly what has been said. Use adjournments to keep control over team and discussions. Call for an adjournment when it is needed.

Step 5: Bargaining

Trading concessions

Moving towards anagreement

5. Bargaining Breaking deadlocks

Fifth Step of Negotiation A concession is a revision of a previous position you have held and

justified publicly. Make conditional offers to get something for something. Know exactly where you intend to stop conceding. A good concession usually is a small one. Concessions offered without specific pressure being applied are not

worth much. Go with possible concession in mind. Promote others willingness to make concessions.

Try to promote the other party’s willingness to make concessions by:- - Convincing them that they cannot hold to their present position. - Showing them how they can move without loss. - Indicating that you too will move at some time.

Breaking Deadlock

Deadlock or stalemate can arise due to: Both parties have widely divergent objectives. One party mistakes firmness for rigidity. As a deliberate tactic.

To break deadlock seek third party intervention- Conciliation-works with two parties to help them reach agreement. Mediation-both parties agree to consider a solution. Arbitration-both parties bind themselves in advance to accept

outsider’s solution

Moving towards agreement

Advice and suggestions. For e.g.. “The disadvantage of that is……”.

Promises For e.g. “If you give us…..we will be able to help you with….”.

Threats for e.g. “If you do this….then we shall be forced to……”.

Explanations to tell other party exactly why you want him to take certain actions.

Praise for e.g. “We appreciate your frankness...”.

Apologies for e.g. “I am sorry, I didn’t realize…”.

Humour can be used to reduce tension and help create a bond between the parties.

Step 6: Closing

Formulating An agreement

Reviewing your Negotiation experience

6. ClosingEnsuring

implementation

Sixth Step of Negotiation

Nothing is settled until it is settled right. To get an agreement, the other party needs to be convinced that

s/he cannot push you any further. Check that all aspects have been agreed. Ensure full understanding of agreement. Include an implementation program as an integral part of

agreement. Review your experience.

Formulating an agreement

To get an agreement the other party needs to be convinced that he cannot push you any further.

HOW TO FORMULATE AN AGREEMENT Clarify the terms of the agreement. Try to get the agreement in written.

HOW CAN YOU IDENTIFY A ‘GOOD DEAL’Expect the other party to ‘broadcast’ their satisfaction with the

deal to which he has agreed.

Securing Implementation

An agreement is not successful until it has been effectively implemented. Such a programme will define what has to be done, when and by whom.

It is required to define who needs to know what, how and by whom the information should be given, by what methods and to what time-scales.

Reviewing your negotiation experience

How satisfied are you with the outcome of the negotiations?

Who was the most effective negotiator? Who conceded most?

What strategies and actions helped the discussions most?

What actions hindered the discussion?

Did you trust the other party? What effected this feeling most? How adequate was your preparation? How did this effect the

negotiation?