Lec 5 Negotiations

8/7/2019 Lec 5 Negotiations

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NEGOTIATION SKILLS


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Negotiating

Negotiating is the art of

reaching an agreement by

resolving differencesthrough creativity


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STEPSSTEPS ININ THETHE NEGOTIATIONNEGOTIATIONPROCESSPROCESS


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STEP 1: PREPARATION

STEP 2: BUILDING THERELATIONSHIP

STEP 3: EXCHANGING

INFORMATION/FIRST OFFER

STEP 5: CONCESSIONS

STEP 6: AGREEMENT

STEP 4: PERSUASION


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STEP 1: PREPARATIONSTEP 1: PREPARATION

Is the negotiation possible?

Know what your company wants

Know the other side

Send the proper team

Agenda

Prepare for a long negotiation

Strategy


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The Situational Matrix

I: Balanced Concerns(Business partnership, joint venture,or merger)

II: Relationships(Marriage, friendship, or work team)

III: Transactions

(Divorce, house sale, or markettransaction)

IV: Tacit Coordination

(Highway intersection or airplaneseating)

High Low

Perceived Conflict Over Stakes

High

Low

Importance

of Relation-

ship


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Negotiating

Tacit Coordination - Calls for tactful avoidance ofconflict, not negotiation.

T

ransactions-

Stakes are substantially more importantthan relationships. Leverage counts.

Relationships -Treat the other party well, generously,the stakes are secondary. Accommodate.

Balanced Concerns - Problem solving and compromiseare vital. Stakes and relationships equally important.


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Preparation

Assess negotiating styles.

Competitors

Cooperators

Match the other sides style.

If youre a cooperator, a competitor will eat yourlunch.

If youre a competitor, you will tend to gouge acooperator.


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Preparation

Identify other sides interests and objectives.

Fill out Negotiating andClosing Planner

Determine your targets. Specific opportunity/product

Price

Size of order

Terms


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Preparation

Determine your BATNA (Best Alternative to

a Negotiated Agreement).

Determine your HLE (Highest LegitimateExpectation).

Determine your walk-aways.

Price

Terms and conditions


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Negotiating Initial Discussion

Deliver bad news (deal breakers, threats)

early in a negotiation.

Sell all the deal terms early. Indicate where you can and cannot be flexible

(credibility).

Signal your expectations (HLE) and leverage.


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STEP 2: BUILDING THE RELATIONSHIPSTEP 2: BUILDING THE RELATIONSHIP

No focus on business

Partners get to know each other

Social and interpersonal exchange

Duration and importance vary by culture


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STEP 3: EXCHANGING INFORMATIONSTEP 3: EXCHANGING INFORMATION

AND THE FIRST OFFERAND THE FIRST OFFER Bargaining formally begins when negotiators

on one side open with a concrete, plausible

(in their mind) offer. Dont respond emotionally to any offer or any

tactic.


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Opening Tactics: Open First?

If you are not informed about the other sidesbusiness, interests, or demands, dont open first.

If you are well informed, always open first: It lets you fix the range -- the zone of realistic

expectations.

Sometimes forces the other side to rethink its goals.

Most important, allows you to set the anchor. We tend to be heavily influenced by first impressions.


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Opening: Optimistic or Reasonable

Depends on the situation:

Relationship Open optimistically, be generous

Transaction -Open optimistically (high, but nottoo high) - the highest for which there is asupporting standard or argument enabling you tomake a presentable case.

Make the highest opening you can with a straightface.

Dont open high if you have no leverage and theother side knows it.


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Optimistic Openings

Take advantage of two psychologicaltendencies:TheContrast Principle and theNorm of Reciprocity. The contrast principle: If I want you to pay me

$500,000, and I open with $750,000 (supported bypresentable, straight-face argument), mysettlement of $500,000 seems reasonable and

gives the perception of getting a good deal. If Ihad opened for $550,000 and only come down to$500,000, the contrast would have been small andthe deal not satisfying.


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Optimistic Openings

The Norm of Reciprocity: I make an optimistic opening ($750,000), and you

reject it.

I moderate my offer by making a significantconcession ($650,000), and you feel obligated toaccept it (reciprocity).

Big then small offer -- door in the face -- second

offer seems reasonable.


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STEP 4: PERSUASIONSTEP 4: PERSUASION

Heart of the negotiation process

Attempting to get other side to agree to a

position

Numerous tactics used


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Anchoring

When the other side hears a high or lownumber, they adjust their expectations(unconsciously) accordingly. The first offer anchors the other sides perception

of your walk-away price. First offer must be somewhat reasonable (no more than 50% higher

than you will settle for).

As high as possible--as close to the other sides walk-away as possible

(thats the home run).

Outlandish numbers at the beginning can kill thedeal or destroy your credibility if you drasticallyreduce the offer later.


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Framing

Frame all of your offers. Framing emphasizes the value of your offer.

Framing provides justification for the other side to make

concessions. Just pennies a day frames an offer.

To those who like to win, frame as a gain, awin -- emphasize benefits.

For those who are afraid to lose (losses loomlarger than gains to many), frame as apossible loss -- emphasize the pain andshame of losing.


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Framing Example

Group I

1 If Program A is adopted, 200 people will be saved.

2 If Program B is adopted, 1/3 probability that all will be saved, 2/3

probability that none will be saved. Group II

1 If Program A is adopted, 400 people will die.

2 If Program B is adopted, 1/3 probability that all will be saved, 2/3probability that none will be saved.

76% inGroup I chose Program A, only 12% inGroup II chose ProgramA.


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VERBAL AND NONVERBAL NEGOTIATIONVERBAL AND NONVERBAL NEGOTIATION

TACTICSTACTICS Promise

Threat

Recommendation Warning

Reward

Punishment

Normative appeal

Commitment

Self disclosure

Question Command

No

Interrupting


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DIRTY TRICKSDIRTY TRICKS ININ NEGOTIATIONSNEGOTIATIONS

Dirty tricks are negotiation tactics thatpressure opponents to accept unfair or

undesirable agreements or concessions


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STEPS 5 AND 6: CONCESSIONS ANDSTEPS 5 AND 6: CONCESSIONS AND

AGREEMENTAGREEMENT

Final agreement: The signed contract,agreeable to all sides

Concession making: requires that each side

relax some of its demands


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Concession Tactics

Open optimistically and have room to make

concessions.

Concessions are the language of cooperation.They tell the other side in concrete,believable terms that you accept the

legitimacy of their demands and recognize

the necessity to cooperate and sacrifice toget a fair deal.


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Concession Tactics

To get movement, offer a small trade -- show thatagreement is possible.

Give a trade or concession in your least important

area. Price to get a desired deal term or payment, e.g.

The other sides first concession is in its least importantarea of concerns.

Try not to give the first major concession (it raisesexpectations and confuses people).

Put the major issues aside, agree on small, easyissues first.


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Concession Tactics

Give small concessions and give them slowly.

The slower you give them, the more value they

have. A fast concession makes the buyer feel awful and

devalues the product.

Make them work hard for every concession, they willappreciate it more.

Make concessions progressively smaller.


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Styles of concessionStyles of concession

Sequential approach

Each side reciprocates concessions

Holistic approach

Concession making begins after all issues arediscussed


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BASIC NEGOTIATION STRATEGIESBASIC NEGOTIATION STRATEGIES

Competitive

The negotiation as a win-lose game Problem solving

Search for possible win-win situations


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CONCLUSIONCONCLUSION

Successful negotiators:

Understand the negotiation steps

Build cross-cultural communication skills

Understand nonverbal communication

Avoid attribution errors


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A Good Negotiator Is..

Creative

Versatile

Motivated

Has the ability to

walk away

Documents

Lec 5 Negotiations