Types of Negotiations
The two basic types of negotiations require different approaches.
• Integrative negotiations are based on cooperation. Both parties believe they can walk away with something they want without giving up something important. The dominant approach in integrative negotiations is problem solving. Integrative negotiations involve:
• Multiple issues. This allows each party to make concessions on less important issues in return for concessions from the other party on more important issues.
• Information sharing. This is an essential part of problem solving.
• Bridge building. The success of integrative negotiations depends on a spirit of trust and cooperation.
• Distributive negotiations involve a fixed pie. There is only so much to go around and each party wants as big a slice as possible. An example of a distributive negotiation is haggling over the price of a car with a car salesman. In this type of negotiation, the parties are less interested in forming a relationship or creating a positive impression. Distributive relationships involve:
• Keeping information confidential. For example, you don’t want a car salesman to know how badly you need a new car or how much you are willing to pay.
• Trying to extract information from the other party. In a negotiation, knowledge truly is power. The more you know about the other party’s situation, the stronger your bargaining position is.
• Letting the other party make the first offer. It might be just what you were planning to offer yourself!
The Three Phases
The three phases of a negotiation are:
1. Exchanging Information
These phases describe the negotiation process itself. Before the process begins, both parties need to prepare for the negotiation. This involves establishing their bargaining position by defining their BATNA, WATNA, and WAP (see Module Three). It also involves gathering information about the issues to be addressed in the negotiation.
After the negotiation, both parties should work to restore relationships that may have been frayed by the negotiation process.
It is essential to pay attention to all the phases of negotiation. Without the first phase, the exchange of information, and the establishment of bargaining positions, the second phase cannot happen in any meaningful sense because no one knows where they stand. It sets a scene for demands to be manageable and reasonable. Negotiations are, after all, about the art of the possible. Without the third phase, anything that has been decided during phase two cannot be formalized and will not take hold – leading to the necessity for further negotiation or an absolute breakdown in a relationship.
Skills for Successful Negotiating
Key skills include:
• Effective speaking
• Effective listening
• A sense of humor
• A positive attitude
Without the above factors, negotiations will be difficult if not impossible. The necessity for negotiation arises because neither party will be able to get everything they want. Knowing that there must be concessions, each party in the negotiation is required to adopt an attitude of understanding that they must get the best deal possible in a way which is acceptable to the other party. The importance of effective speaking and listening is clear; it is necessary to establish what you are looking for and what you are prepared to accept, while understanding what the other parties will be happy with.
A sense of humor and a positive attitude are essential because they allow for a sense of give and take. Negotiations can become fraught, and having the ability to see the other side’s point of view while being sanguine with regard to what you can achieve will be essential. Of course you will want as much as you can get – but the other side needs to achieve what they can, too. Seriously uneven negotiations will simply lead to further problems along the line. An atmosphere of respect is essential. If you do not make concessions while demanding them from your counterpart, it makes for a negotiation which will end in dissatisfaction.
However important a sense of understanding for your “opponent” may be, it is also necessary to have the confidence to not settle for less than you feel is fair. Good negotiators understand the importance of balance. Yes, you will have to make concessions, but the point of making concessions is to secure what you can get – so you need to pay attention to your bottom line and ensure you are not beaten down to a minimum. Knowing what is realistic, and ensuring that you can get the best deal, relies on being ready to insist upon something that the other side may not be willing to give initially. Emotional intelligence, persistence, patience, and creativity can all play a part here.
Preparing for Negotiation
Like any challenging task, negotiation requires preparation. Before you begin a negotiation, you need to define what you hope to get out of it, what you will settle for, and what you consider unacceptable. You also need to prepare yourself personally. The key to personal preparation is to approach the negotiation with self-confidence and a positive attitude.
Without this preparation, you will end up giving more than you get from negotiations. It may be unavoidable that you will have to give up more than you would ordinarily be willing to, but finding the balance between acceptable concessions and getting the best deal for yourself relies on you being ready to go into negotiations with the strongest bargaining position you can.
Establishing Your WATNA and BATNA
In most negotiations, the parties are influenced by their assumptions about what they think are the alternatives to a negotiated agreement. Often the parties have an unrealistic idea of what these alternatives are, and they are unwilling to make concessions because they think they can do just as well without negotiating. If you do not have a clear idea of your WATNA (Worst Alternative to a Negotiated Agreement) and BATNA (Best Alternative to a Negotiated Agreement), you will negotiate poorly based on false notions about what you can expect without an agreement.
Often the parties in a negotiation need to decide how likely a particular outcome will be. If your WATNA is something that would be difficult for you to accept, but the likelihood of it happening is small, you might not feel compelled to give up much in negotiations. Realism is essential in this situation. If you could have the ideal situation, the “blue sky” scenario, negotiations would not be necessary. In order to focus on the negotiations with a sense of purpose, your WATNA is important. What is often referred to as the “worst case scenario” is something that any sensible person will think about before embarking on any initiative. What if it goes wrong? How will we deal with that? How you feel about the WATNA will dictate how flexible you need to be (and therefore will be) in negotiations.
The BATNA is almost more important than the WATNA. If you look at your situation in the absence of a negotiated agreement, and find it almost unthinkable, you will be pressed to enter negotiations in the hope of getting a satisfactory agreement. The word “satisfactory” is important here. Is the WATNA better than satisfactory? Is the BATNA worse? Generally, people only enter into negotiations because they feel they have to. They arrive at this conclusion based on analysis of their WATNA and BATNA.
Identifying Your WAP
In any negotiation, it is important that you keep your WAP (Walk Away Price) to yourself, especially if it is significantly less than your initial offer. If the other party knows that you will be willing to take a lot less than you are offering, then you will be negotiating from a position of weakness. If the other party knows, or has an idea of your WAP then it stops being your WAP and simply becomes your price.
Establishing a WAP in your mind, and ensuring that those negotiators on your side of the bargain (and only they) know it, allows you to take your strongest possible bargaining position. The other party will try to argue you down from your proposed price, so you will need to remain firm. If they want to pay less, then you may be prepared to agree on a lower price in return for concessions.
The opposing party will then have to consider what is acceptable to them. Rather than push too hard and lose out on a deal which would be beneficial to themselves, they will have their own areas where they are willing to make concessions. However, if they know that you have set a WAP that would save them money, they will simply hold firm at that price. They have no incentive to make concessions to you. In many ways, negotiation is about keeping as much to yourself as you possibly can until you can no longer maintain that position.
Once you have set your WAP, it is essential to keep to it. A walk away price becomes absolutely meaningless if you are not prepared to walk away should it not be met. You should give the impression to opponents in negotiation that you could walk away at any time. They will, after all, not be prepared to stop once they get a price which is satisfactory to them – they will look to wring a bit more value out of the deal for themselves, testing you to see what you will give up. A warning against setting your WAP unrealistically low is that the other party will not take you seriously if you are a pushover in negotiations. They will seek to test you at every turn.
Identifying Your ZOPA
In the negotiation for the used car, both parties should feel good about the outcome. Even though the parties might have hoped for a better deal, both got a better price than their WAP.
This negotiation demonstrates the importance of keeping your WAP to yourself if you want to negotiate the best deal. Your range in this situation falls between the price that you would ideally, realistically get and the WAP you have set. In an ideal world you could demand a million dollars and expect to get it. In a realistic world, you need to be realistic in negotiations.
You should arrive at your ideal realistic price by seeing what the accepted market value for what you are offering is. By adjusting for your specific negotiating position (whether you are approaching it from a position of need, etc.), you can find your best realistic price. Then think about a price at which it would no longer be worthwhile to strike a deal.
Your co-negotiator will have done the same. What he hopes to pay and what you hope to get are just that – hopeful. The ZOPA (Zone Of Possible Agreement) is the area in which the final price will sit, and within that ZOPA you will ideally end up with a price closer to their WAP than yours. If you hint at where your WAP is, the other party will be less likely to come to an agreement that is substantially better than that.
One way to relieve some of the tension you may be feeling before a negotiation is to remind yourself that there is nothing to be afraid of. As long as you understand your position, there is no danger that you will “lose” the negotiation. During and before negotiation you should always be:
• Polite – It never reduces your argument
• Firm – Removes Perceptions of Weakness
• Calm – Facilitates Persuasion and Compromise
• Do not take things personally
Knowing your position before entering negotiations means that you are sure of your “red lines”. Things that you are not prepared to consider that would make your position worse than it is now. Many people get pushed into a deal which is unsatisfactory to them because they have failed to prepare for the negotiation in this way. If you go into negotiations with vague ideas, that vagueness will become a weakness in your negotiating position.