Ron stared. The car was beautiful. All shiny black metal and gleaming chrome everywhere. Turning to the man beside him, whose name was Dave, He asked about the car.
“Isn’t she lovely?”
“Uh huh. How much?”
‘You gotta be kidding. Blue book is $23,000!”
“Blue book for this car, in this condition, is $26,500.”
“That’s for perfect. This car isn’t perfect.” Ron fingered a couple of small dents.
Dave said: “Those are from golf balls. Easy to fix.”
“It was a rental when you bought it, right? Those are hard miles,” Ron pointed out.
Back and forth they went, moving in small steps. Finally, they settled on a price of $24,250. Ron beamed as he took the keys.
The scenario above is a familiar example of negotiation. Broadly defined, negotiation is ‘Communication between two or more parties aimed at reaching an agreement through mutual adjustment regarding one or more disputed issues’. We all negotiate every day, everything from our kids’ bedtimes to huge business deals worth billions of dollars.
Because negotiation is such a part of our lives, it’s natural to believe we are good at it. Perhaps we are. But by learning more about the process, we can avoid certain pervasive errors that get in the way of our success. Also, when we are more aware of the process we will be alert for opportunities for gain.
Types of Negotiator
How we negotiate has a lot to do with our personality and how we are most comfortable. It also has to do with our role. We are likely to negotiate differently with our Mom than with our business rival.
The two main styles are competitive (approaching the negotiation as a contest to be won), and cooperative (approaching the negotiation as a deal to be made).
A competitive process looks like this:
- The volume of information exchanged is low.
- Suspicion is openly expressed.
- Parties do their own work. Others’ representations are verified.
- Opposing ideas are criticized and opposing parties’ confidence undermined.
- Threats and predictions of dire consequences are frequent.
- Power imbalances are important.
- The goal is to win.
The cooperative style looks like this:
- The volume of communication is high, as ideas are exchanged.
- Needs are openly expressed.
- Parties engage in joint efforts and division of labor. All are focused on the problem.
- Others’ ideas are readily explored, and accepted if they lead to joint success.
- An optimistic attitude is maintained.
- Power is less important than contribution to the process.
- The goal is to solve the problem everyone faces.
Obviously, cooperative negotiators, who share information and express needs in the expectation of reciprocation, will fare badly if they are paired with a competitive negotiator who hoards information and hides needs. This can be termed “the negotiator’s dilemma.” In response to this dilemma, Peter Robinson of Pepperdine University’s Straus Institute for Dispute Resolution advocates a ‘cautiously cooperative’ approach. The strategy calls for starting with a cooperative move, and by responding in kind to the counterpart’s move, whether it is positive or negative.
However, the cautiously cooperative negotiator continues to encourage her counterpart to cooperate.
Types of Negotiation
The two main types of negotiation are Distributive and Integrative. Each best suited to different situations Distributive negotiations are competitive, and focus on getting the biggest share of a fixed resource, sometimes referred to as “the pie.” Game theory calls such negotiations a “zero-sum” game. That is, where A and B are negotiating, more of the pie for A means proportionately less for B. The sale of a used car is classic distributive situation.
In the simplified example above, the fixed resource is not the entire price of the car. After all, the buyer expects to pay something. The pie here is the difference between the buyer’s preferred price ($23,000 in the example above) and the seller’s preferred price ($26,000). The $3,000 is the fixed resource, and the distributive negotiation has only one goal – dividing it up. A loss for the dealer is a gain for the customer, and vice versa.
Ron hopes to get the car for $23,000. This is his “aspiration price” Assume he won’t pay one penny more than $25,000. This is his “reservation,” or “walk-away” price. Now assume that although Dave wants $26,000, (his “aspiration price”) he will take as little as $22,500, because he needs to pay debts quickly. The overlap between Ron’s aspiration price and Dave’s reservation price ($22,500 to $25,000) is the Zone of Possible Agreement (ZOPA).[horizontal bar graph here]), within which settlement is possible.
Some negotiators will choose what they see as a reasonable point in the zone of possible agreement and refuse to move. This strategy is counterproductive. The process of negotiating –the negotiation “dance”– is what leads to agreement. Social pressure to respond to concessions in kind is what keeps the negotiation going. And because the social norm in distributive bargaining is a cycle of reciprocal concessions, the failure to participate leads one’s counterparts to be angry and frustrated, and to feel that the immovable negotiator is being “unfair.”
Also, the pattern of offer and demand can significantly impact the outcome. Even announcing that you are stuck at a reasonable offer will not help; your counterpart will assume that you have room to move, and will expect to do better than if you started higher. You will then not settle, or settle for less than you believe reasonable.
Distributive situations most often give rise to competitive negotiating. Competitive negotiators share little information with their counterparts, on the theory that any information about needs, desires, problems, or resources can be used (by another competitive negotiator) as leverage to extract a bigger piece of the pie. Competitive negotiators may bluff or mislead during the course of the negotiation, building false strength or hiding perceived weakness. Therefore, it is important to verify material factual assertions made by a negotiating counterpart before acting on them.
Dave’s situation in the scenario above shows why competitive negotiators are stingy with information. If Ron had known of Dave’s financial distress, he could have gotten the car for $1,750 less than he ultimately paid.
For the same reason, competitive negotiators also try to gather as much information as possible on their counterparts. Any additional information uncovered can be used as leverage to negotiate a better deal.
Competitive negotiators take firm stands, often beginning at extreme positions .Concessions are small, presented as difficult, and spaced over time. Competitive negotiators take firm positions and make small concessions take firm positions and make small concessions They often present themselves as prepared to walk from the negotiation table whenever it suits them. But given that they are at the table, they must see some value in remaining. And even the most aggressive negotiator must keep the Zone of Possible Agreement in mind. Being too extreme will likely result in no agreement, so good negotiators keep offers and demands realistic.
Integrative Bargaining (Interest-Based Negotiation)
Integrative negotiation is a cooperative process in which the parties attempt to “expand the pie.” Instead of seeing the process as a zero-sum game where value is divided, integrative negotiators see it as an opportunity to cooperatively create value for all concerned, focusing on needs and interests rather than rights and positions.
‘Integrative negotiation is possible when the parties have some shared interests or opportunities to realize mutual gains through trades across multiple issues.” The integrative negotiation philosophy was popularized by Roger Fisher and William Ury in their book “Getting to Yes,” which advocates a win-win approach.
Fisher and Ury identify four rules for conducting an integrative negotiation:
- Separate the people from the problem;
- Focus on interests (why parties want what they are demanding) rather than positions
(what parties are demanding);
- Generate a variety of options before settling on an agreement;
- Insist that the agreement be based on objective criteria.
It is important to understand that true integrative negotiation isn’t based on giving up part of what we want and expecting concessions in return. This is compromise. While it may work as a strategy, the downside is that by definition you gave up something you wanted or needed.
True integrative negotiators don’t do this. Instead, they brainstorm and problem-solve to meet everyone’s needs. Here’s an example:
George hesitated at the office door. He had to do it. He needed the money. He knocked, and Fred called him in.
“What is it, George?”
“Boss, I’ve worked for three years now without a raise. Frankly, I’m underpaid, and you know it. Susie’s pregnant again, and we need more money. Things are turning around for the company and it’s about time I shared. I need another $10,000 a year.”
Fred raised his eyebrows. “$10,000 is a big chunk, George. I could loan it to you…” “No good. Then I’d have to pay it back, and what about next year?”
Fred pondered. “If I’m going to justify that much, I need something back.”
George suggested “I could work Saturday afternoons….”
“The landlord charges an arm and a leg if the utilities are on over the weekend…”
“How about… You take over the Johnson account. Old man Johnson is a pain in my tail, and he likes you. The raise is guaranteed for one year. If at the end of the year the account is stable or has grown, the raise is permanent. If it shrinks, you go back to where you are now… and explain the loss to Susie.” Fred grinned.
“Explain less money to Susie? That’s not something I want to do… “
“It’s called motivation, George. Deal?”
Preparing for a Negotiation
Your negotiating session will go better if you prepare for it. Negotiation is largely about convincing your counterpart that she will be better off if she agrees to your proposal. If there are things to do before you are ready to negotiate – facts and figures you need to support your proposal, approvals to get, budgets to make, things to review with legal – get to it. If you are working with a competitive negotiator, remember that she will be stingy with information, you’ll have to gather as much as you can yourself.
Also, remember that things will evolve during the session. Either get the authority to make adjustments, or have someone with you who does. Don’t let the session be a waste of time.
Go over the negotiation history. What has been offered and refused? That will give you some idea of the boundaries you’ll start at. Remember, if you expect to end up at a number that’s been turned down, you’re going to have to convince your opponent they were wrong. Using objective data is probably the best way to do this.
Decide on concrete, realistic goals. Plan not only where you’d like to end up, but what concessions you’re willing to make – and which you aren’t. Understand that concession will be needed. Remember, the pattern of give and take creates pressure to move toward settlement, and if you do not concede, the other parties will be angry and freeze in place. Have an aspiration goal – the most you can reasonably hope for, and set your real sights on something right below it – the target goal. Now think about what the other side is likely to do and decide your reaction. Go through a number of possibilities.
Ask yourself what’s the best you can do if you don’t settle. This is your Best Alternative to a Negotiated Agreement, or BATNA. It could be a more expensive supplier, a lengthy, expensive lawsuit, or even bankruptcy. It will help you decide how badly you need an agreement, and when you can afford to walk away from the table. Don’t forget to factor in both the cost and the likelihood of success of alternatives to a negotiated agreement.
also think about the Worst Alternative to a Negotiated Agreement – how bad could things get? How likely is the catastrophic outcome? This will help define your level of risk. The more palatable alternatives you develop between your BATNA and your WATNA, the less concerned you have to be about accepting a bad deal. You’ve already figured out what to do if your counterpart is unreasonable. One effect of this is that you’ll be more confident, and seem stronger. This will make unreasonable behavior less likely.
If you are working with a truly cooperative negotiator, you will still have to prepare, to know what you want and what you will do if you can’t get it. Your task will be a little simpler, because if you need data from your counterpart, you can ask for it. But the work of planning still needs to be done.
If you are working with an integrative negotiator, the work is slightly different. There’s still a lot of value in knowing where you want to get, and what you will do if you can’t get there. But you also need to know the counterpart’s needs and goals, so you can jointly craft a solution that meets everyone’s needs. To get ready you need to understand what resources you have to bring to the problem, what your counterpart has that you want, what the issues and interrelationships are, and what your counterparts need. Brainstorm as much as possible. How would you solve the joint problem? Are there solutions you would refuse? Be prepared to explain why. Integrative problem solving is a very open process. Also, remember that you are probably in a complex relationship with your counterpart(s), and that winning too much in one negotiation could have negative impacts in the future. Consider the ‘cost of winning,’ even if you can.
Testing your understanding
Below are a number of questions to help you think about and understand the previous advice. It isn’t a test, but it may help you be more confident.
- Is it possible to be a cooperative negotiator in a purely distributive situation, like a car sale? Why or why not? If so, what would such a negotiation look like?
- Is there a difference between being cooperative and being integrative? Can one be integrative without being cooperative? If so, how? Can one be cooperative without being integrative? If so how?
- What is a BATNA? Would you expect the BATNA to a given negotiation to be better or worse than the target goal? Why?
- What, if any, are the drawbacks to distributive negotiation
- What, if any, are the drawbacks to cooperative negotiation?
- What, if any, are the drawbacks to integrative negotiation?
- Based on the facts and reasonable inference, what are some alternatives for George if Fred refuses the requested raise in the vignette above?
- What is a cautiously cooperative negotiating style?
- Assume that the seller of the car in the first example is your Mom. How would your approach to the negotiation differ, assuming your goal is the same?