The negotiation process
In a business negotiation, you have to make choices that impact the likelihood of achieving a successful outcome for your own business. To get the best outcome, it’s important to know the steps involved in the negotiation process. No matter which negotiation tactic you choose, the process is the same and consists of eight stages:
- Preparation stage: establish objectives and limits.
- Preliminary stage: exchange professional information with the other party and establish the ground rules and tone of the negotiation.
- Information stage: exchange views with the other party.
- Exploration stage: establish what each party wants and where agreements and disagreements lie.
- Bargaining stage: both parties let it be known they are willing to move toward concession.
- Packaging stage: identify agreeable trades and make proposals that offer concessions.
- Closing stage: agree on the details of the accepted proposal and confirm the agreement.
- Follow-up stage: sustain the terms of the agreement and, in most cases, maintain the relationship.
While many negotiations are straightforward, some will be among the most complex and difficult challenges you face in your career. Your success depends on planning, preparation, and choosing the right strategy. These four types of business negotiations are the most common:
Four business negotiation tactics
Negotiation through agents
Although we typically think of negotiations occurring directly between two or more principals, we often overlook the many situations where negotiations take place indirectly, through the use of representatives – otherwise known as agents.
Ordinarily, negotiations conducted between principals are preferable to negotiations through representatives. When the relationship between the two negotiating parties is fundamentally cooperative, agents are typically unnecessary. When the relationship is fundamentally flawed or irreparable, representative negotiation plays an important and necessary role.
When is it best to use agents?
Agent expertise makes a favourable agreement more likely, especially in complex negotiations with esoteric subject matter. In addition, agents are emotionally detached from the dispute, which is especially important in an emotionally charged conflict between principals. As a result, agents have the freedom to use negotiating tactics that principals may be reluctant to use or unable to employ.
When is it best not to use agents?
Have you ever played the telephone game? By having additional parties involved in the negotiation process, the risk of distortion of information and miscommunication is heightened. In addition, principals may become reliant on their agent to communicate with the other party at the conclusion of the negotiation if the relationship is fragmented.
Distributive or zero-sum negotiation
Distributive negotiation is an adversarial type of negotiation where it is assumed that a gain for one party results in a loss to the other party. Distributive negotiation is also known as a “zero-sum” negotiation because the assets or the resources which need to be distributed are fixed. In a distributive negotiation, maintaining the relationship is generally not a concern. Common negotiating tactics in a distributive situation include bluffing, claiming limited authority, reluctance, and intimidation.
The most effective negotiators in a distributive situation are those who spend time preparing to negotiate. Specifically, a negotiator should determine their best alternative to a negotiated agreement, also known as “BATNA.” It’s a contingency plan if it becomes apparent that the goal won’t be achieved through negotiation.
It’s important to note that your reputation as a negotiator makes a difference: negotiators with a reputation for being purely distributive have worse outcomes than those who do not have such a reputation.
Integrative or interest-based negotiation
Integrative negotiations – sometimes referred to as “interest-based” negotiations – are the polar opposite of distributive negotiations. In an integrative negotiation, it isn’t about winners and losers – it’s about aligning resources appropriately and creating value. An integrative negotiation is possible when the parties have some shared interests or opportunities to realize mutual gains through concessions across multiple issues. These are the kind of negotiations common between clients, suppliers, and colleagues. In these types of negotiations, it is important to maintain a positive relationship. The element of trust plays an important role in integrative negotiations.
Multi-party negotiations involve three or more parties. These negotiations add layers of complexity which need to be managed skillfully – there are more issues, more perspectives, and more arguments for certain outcomes. In multi-party negotiations, procedures must be established regarding how issues are treated (singly or as bundles), how to make decisions, how to move forward – even how to decide whose turn is it to speak.
Multi-party, multi-issue deliberations tend to involve the formation of coalitions, esp. blocking coalitions. Recognizing the fragility of coalitions is an important aspect of multi-party negotiations.
Paying Too Much Attention to Anchors
Anchors are part of a bargaining dynamic known as “anchoring and adjustment.” This involves clearly setting the parameters for negotiation. For example, a couple was selling their house for $500,000. The first offer came in at $375,000, which was too low to consider. If the couple had acknowledged the offer with a counter, they would have started bargaining somewhere between $500,000 and $375,000. Instead, they responded that it was not a reasonable offer and told the buyers to come back when they had a decent offer. The buyers came back at $425,000. The seller then countered at $495,000. The buyers then came up to $430,000, but the sellers still didn’t accept the offer.
The buyers argued that they had come up $55,000 from $375,000. But the sellers were careful to remind them that $375,000 was not their starting point; rather, it was $425,000, the first reasonable offer. Using that anchor, the sellers argued that they had come down $5,000 from $500,000 — and the buyer had come up $5,000 from $425,000. Both had moved the same amount in negotiations. One more round of bidding had the house sold — for a price well above the buyer’s initial bid. “The point is: You’ve got to watch the anchors and where they are set,” says Neale.
Caving in Too Quickly
Accepting a well-priced deal too quickly can cause anger on the other side, too. If you list a used car for $5,000, you might really be thinking of accepting $4,500. But when your first buyer has it checked by a mechanic and then immediately writes you a check for $5,000 without trying to bargain, how do you feel? Disappointed. You’ll think you sold it for too little. The lesson is: No matter what the price, even if it’s fair, always offer less — if only to make your opponent feel good about the deal. You may come up to full price in the end, but at least your opponent will feel as if he made you work for it. “Never give anyone their first offer; it makes them crazy,” says Neale.
Finally, when you’ve cut a sweet deal, never do the dance of joy in public by turning to your opponents and telling them you would have done it for less. Gloating will only drive your opponent to extract the difference from you sometime in the future. Today, flagging corporate allegiances and rampant job hopping make it essential to keep on professional terms with your negotiating opponents. You may find yourself on the same side of the bargaining table one day.