Two skills that are essential in business and life are selling and negotiation. We do both activities nearly everyday. We're trying to sell an idea to a boss or negotiating who cooks dinner in the evening. I'm going to share a few techniques on effective negotiation and will use a case study from my MBA program.
Negotiations can be distributive where there is only one issue to negotiate (price of a car) or integrative (as the case study below) where there are many issues to negotiate. Before we analyze the case study we need to understand some terms negotiators use.
Issue is the thing being negotiated such as the price of a car or the amount of effort your kid is putting into keeping his room clean (monetary or non monetary). Position is your stand on the issue. For example, you want to pay $5000 for the car or you want your kid to increase his room cleaning efforts to thrice a week. Interests are what drives or motivates you to seek that specific position. For example, you feel it's a used car with a slight dent and hence deserves no more than $5000 or you want to instill good values in your kid and want your home to be clean. Target is what you hope to get. It could be equal to or different from your position. For example, you hope to get the car for no more than $6000 (target) but you start the negotiation at your position or $5000. Reservation is the point you walk away from the negotiation. For example if the seller of the car asks for $6500 you will not negotiate any further resulting in no agreement. ATNAs (Alternatives to Negotiated Agreement) are alternate options you consider if the negotiation does not work out. For example, you will rent a car a car for the next 12 months and once you get a job you will buy a new car or you will use lease a car. ATNAs and BATNAs are always outside a negotiated agreement. For example, you can't negotiate with the seller saying you could work out a financing option with him to get the car as this still is within the bounds of you and the seller. BATNA (Best Alternative to Negotiated Agreement) is your best alternative or your choice from the ATNAs if the deal does not work out. It has to be equal or equivalent to your Reservation. For example if your BATNA is to rent a car for 12 months then it has to be equivalent to $6500 or your Reservation price. Proposals are options to help with your negotiation. For example, you are willing to pay all cash if you get the car at the amount you want.
Sally Soprano is a case of a once popular soprano who wants to get the lead role for a famous opera. As her agent please negotiate with the opera company, Lyric, based on the details in the case (2 purple sheets on the right). Once you're done you can look at my preparation sheet: Sally Soprano Preparation Sheet
Useful techniques to use during a negotiation:
- Expanding the pie: adding more resources/issues to satisfy the interests of both parties. If the issue is to get more than 5% stock in the company expanding the pie would be I can only offer you 5% stock in the company but I'm willing to add 10 vacation days to your job contract (adding a resource). You may need to know the other parties underlying interests and you must add resources that matter to the other party. For example, in the Sally Soprano case you could get creative and think of the options as seen in the blue sheets.
- Cost cutting: Reducing the cost of one party so that you get what you want. For example, you are asked to work overseas but you don't want to leave your spouse so your boss decides to fly your spouse (reducing your cost) with you.
- Bridging: A new (third) solution that satisfies interests of both parties. You have to get their trust to help come up with this solution together.
- Decoupling/Unbundling Issues: Take one issue and break it into 2 or more issues. For example, if 2 people are deciding to divide an orange, usually you would divide it in half. But it is possible to separate the orange (one issue) into the pulp and the rind (2 issues). After understanding the underlying interests we found that one person wanted the pulp and the other the rind thus satisfying both parties.
- Logrolling: Trading issues based on one's priority (in the above example pulp and rind). You would prioritize issues for both parties and trade them according to priority. You would start by trading your least expensive issue in the beginning and thus progress forward.
- Contingency contract: Used when parties have different views about the future. For example, in the above case Sally's agent feels she can command an 85% audience while Lyric feels it will be less than contract where her salary is contingent upon audience capacity will help.
Things to keep in mind: Some negotiations are relationship based. You would rather maintain the relationship than win the deal at an aggressive price. Some negotiators use anger during the negotiation as they think it gives them the edge but bear in mind this could help you if you're negotiating with European Americans and harm you if you're negotiating with East Asians (Source: PsychCentral).
Dear Readers, It's time to practice your negotiation skills so that you never settle for less. If you have any negotiating stories, please do share.