Chapter 3 Negotiations
Chapter 3 Negotiations
Chapter 3 Negotiations
Chapter 3: Negotiations
Contents
If negotiators follow these basic value-claiming strategies, they can substantially increase
the probability they will obtain a favourable slice of the pie. ............................................... 5
5. Research the counterparty’s BATNA and estimate their reservation point. ............... 7
Concessions ....................................................................................................................... 11
1
Concessions Pattern ....................................................................................................... 12
Substantiation ..................................................................................................................... 13
2
Negotiation is a dialogue between two or more people or parties to reach a desired outcome
regarding one or more issues of conflict (Wikipedia)
The entire process of making an opening offer and then reaching a mutually agreeable
settlement is known as the negotiation dance.
3
The Bargaining Zone: Bargaining Surplus
• The bargaining surplus is the amount of overlap between negotiating parties’
reservation points.
• The bargaining surplus is a measure of the value that a negotiated agreement offers
to both parties compared to the value of not reaching a settlement.
• Skilled negotiators know how to reach agreements even when the bargaining zone is
small.
• The best possible economic outcome for the negotiator is one that just meets the
counterparty’s reservation point, thereby inducing the other party to agree, but allows
the focal negotiator to gain as much as possible.
4
• This outcome provides the focal negotiator with the greatest possible share of the
resources to be divided. In other words, one person gets all or most of the pie.
• The fact that negotiated settlements fall somewhere in the ZOPA, and that each
negotiator tries to maximize his or her share of the bargaining surplus, illustrates the
mixed-motive nature of negotiation: negotiators are motivated to cooperate with the
other party to ensure that a settlement is reached in the case of a positive bargaining
zone, but they are motivated to compete with one another to claim as much of the
bargaining surplus as they can.
Value-Claiming Strategies
The most commonly asked question about negotiation is:
• How can I claim most of the bargaining surplus for myself?
• Most negotiators will not reveal their reservation point.
• Even if someone reveals their reservation point, we have no way to verify whether
the information is valid or an exaggeration.
5
• As a first step in accurately assessing your BATNA, brainstorm every option you can
imagine in the event that you do not reach an agreement in your current negotiation.
Generate as many options as you can.
• As a second step, assign a probability to the likelihood of being able to exercise that
BATNA. For most negotiators, BATNAs involve some uncertainty. However,
uncertainty is not a good excuse for failure to assess your BATNA. Nothing can help
a negotiator get a bigger slice of the pie than having a great BATNA.
• After you have assigned a probability to the likelihood of being able to exercise a
given BATNA, the third step is to rank order your alternatives in terms of
attractiveness to you.
6
o You have a great BATNA and consequently, an aggressive reservation price,
and you would be happy if the counterparty matched or barely exceeded your
reservation point. In this sense, negotiators “signal” their BATNA.
7
Goal-setting paradox
• When a negotiator focuses on his or her target point during negotiation, this
increases the value of the outcome that is ultimately received.
Promotion-focused negotiators
• Promotion focused negotiators conceptualize goals, ideals, and opportunities and
excel at claiming value.
Prevention-focused negotiators
• Prevention focused negotiators conceptualize goals as obligations and necessities.
Boulwarism
• Boulwarism is named after Lemuel Boulware, former C E O of General Electric, who
believed in making one’s first offer one’s final offer; this often unsuccessful strategy
engendered hostility from the counterparty.
First Offers
The practitioner-researcher paradox refers to the fact that intuition and folklore advise
negotiators to never open first, yet much scientific research argues that negotiators should
always open first due to a “first mover advantage.”
8
o They serve as anchors that pull final settlements toward the initial first-offer
value (anchoring).
o They convey information about the sender’s priorities which makes the
sender vulnerable to exploitation and increases the risk of a first-mover
disadvantage.
• When senders did not reveal their priorities, they had a first-offer advantage;
however, when they revealed their priorities (either implicitly or explicitly), the first
offer became a distinct disadvantage. This effect was strongest when the recipient of
the offer was pro-self (as opposed to pro-social).
9
• Ideally your opening offer should not give away too much of the bargaining zone.
• Buyers who use the anchoring tactic claim more value than those who don’t use the
tactic, but the counterparty often believes their own outcome is worse than what they
expected and are less willing to negotiate in the future.
• Negotiators who make the first offer are protected from being psychologically
anchored by the counterparty’s offer. A negotiator’s first offer acts as an anchor for
the counterparty’s offer.
10
First Offers – Early v s. Late First Offers
• Late first offers are more likely to lead to creative agreements that meet parties’
interests as compared to early first offers.
• Late first offers give negotiators more time to learn about each other’s interests.
Concessions
• Concessions are the reductions that a negotiator makes during the course of a
negotiation.
• Negotiators need to consider four things when formulating counteroffers and
concessions:
1. Concession reciprocity
2. The pattern of concessions
3. The magnitude of concessions
11
4. The timing of concessions
Concessions Pattern
• Unilateral concessions are concessions made by one party.
• Bilateral concessions are concessions made by both sides.
• Premature concessions happen when one party makes more than one concession in
a row before the other party responds or counteroffers.
• Always wait for a response before making a further concession.
• Negotiators who make fewer and smaller concessions maximize their slice of the pie,
compared to those who make larger and more frequent concessions.
• Wait for a concession from the counterparty before making further concessions. An
exception would be a situation in which you feel that the counterparty’s offer is truly
at his or her reservation point.
Magnitude of Concessions
• Another consideration when making concessions is to determine how much to
concede.
• The magnitude of a negotiator’s concessions is a powerful communication tool, and it
is unwise to make consistently greater concessions than the counterparty.
• Making concessions may not have the desired effect. For example, salespeople who
make concessions to customers do not improve customer satisfaction.
• Negotiators who make large concessions may lose credibility and the other party
may be less willing to concede.
12
• Negotiators are advised to match the concession magnitude of the counterparty or
make concessions that are slightly smaller in magnitude.
• Negotiators can signal they are getting near their reservation point by reducing the
size of their concessions
• It is far better to make a large number of small concessions than a small number of
large concessions.
Timing of concessions
• The time of concessions refers to whether they are immediate, gradual, or delayed.
• Analysis has shown that sellers who made immediate concessions received the most
negative reactions from buyers.
• In contrast, when the seller made gradual concessions, the buyer’s reaction was
most positive, with high satisfaction.
Substantiation
• Substantiation refers to the arguments or persuasive rationale that often
accompanies an offer.
• Ideally, a rationale is presented that is objective and invites the counterparty to buy
into the rationale.
• Conversely, if your facts can be easily counter-argued by the other party, you will not
benefit by making arguments.
13
Substantiation – Power Conversation Tactics
• When first offers are presented in negotiation, they are often preceded by
conversational language.
• Negotiators tend to use five different conversation tactics to gain power:
1. Information-seeking
2. Patronizing
3. Organizing
4. Proposing
5. Sharing
• Information-seeking leads to greater power, whereas failure to seek information,
patronizing, and proposing lead to loss of power.
• Constraint rationales refer to one’s own limited resources (Ex: “I can’t pay more…”).
• Disparagement rationales critique the negotiated object or service (Ex: “It’s not worth
more…”).
• Negotiators who highlight their own constraints are more successful than negotiators
who argue down the value of an item. Constraint rationales signal negotiator’s limits
and are therefore more believable. Moreover, constraint rationales are less likely to
insult the counterparty.
14
• Negotiators often use one of three fairness principles when it comes to slicing the
pie: equality, equity, and need:
1. Equality rule, or blind justice, prescribes equal shares for all. Outcomes are
distributed without regard to inputs, and everyone benefits (or suffers)
equally.
2. Equity rule, or proportionality of contributions principle, prescribes that
distribution should be proportional to a person’s contribution.
3. Needs-based rule, or welfare-based allocation, states that benefits should be
proportional to need.
15
Substantiation – Relationships affect Judgement of Fairness
• When negotiators share similar attitudes and beliefs, are physically close to one
another, or when it is likely they will engage in future interaction, they prefer equality
rule.
• When the allocation is:
o public (others know what choices are made), equality is used;
o when allocation is private, equity is preferred.
o Friends tend to use equality, whereas non–friends or acquaintances use
equity
• People in relationships with others do not consistently employ one rule of fairness but
use different fairness rules in specific incidences.
• Fairness rules also depend on whether people are dealing with rewards versus costs.
Equality is often used to allocate benefits, but equity is more commonly used to
allocate burdens.
• Fairness rules also depend on whether people are dealing with rewards versus costs.
• Social comparisons also affect negotiators’ perceptions of fairness.
• When a situation is complex, involving multiple inputs in different dimensions, people
are more likely to use the equality rule.
• Different fairness rules are a potential source of conflict and inconsistency
16
Restoring equity
• When people find themselves in an inequitable relationship, they become distressed;
the greater the perceived inequity, the more distressed people feel. Distress drives
people to attempt to restore equity.
• Example: Two vice presidents of a company were promoted to senior vice president
at about the same time. Both of them moved into new offices, but one of them
suspected an inequity. It turned out the VP1’s office was bigger than VP2’s by a few
feet. VP2 decided to move the walls to make his office bigger.
• People use the following six means to eliminate the tension arising from inequity:
1. Alter the inputs.
• VP2 could work less hard, take on fewer projects, take more days off.
2. Alter the outcomes.
• VP2 could make his office bigger—which he did.
3. Cognitively distort inputs or outcomes.
• V2P could minimize the importance of his contributions and maximize the
perceived value of his office—for example, by deciding that his office was
quieter than that of his counterpart.
4. Leave the situation.
• VP2 could quit his job.
5. Cognitively distort either the inputs or the outcomes of an exchange partner.
• VP2 may view VP1 as contributing more, or perhaps regard the big office
to be less attractive than it actually is.
6. Change the object of comparison.
• VP2 may stop comparing himself to VP1 and start comparing himself to
someone else in the company.
➢ The use of the first two strategies depends on whether the person has been over-or
under-rewarded.
o Over-rewarded individuals can increase their inputs or decrease their
outcomes to restore equal ratios, whereas
o under-rewarded people must decrease their inputs or increase their
outcomes.
o Conversely, people may cheat or steal if they are underpaid.
➢ The equity drive is so strong that people who are denied the opportunity to restore
equity will derogate others, thereby restoring psychological equity.
➢ If distortion must occur, people focus on the other person’s inputs or outcomes
before distorting their own, especially if such distortion threatens their self-esteem.
17
Final Offers
• Making an irrevocable commitment such as a “final offer” should be done only when
you really mean what you say and are prepared to walk away from the bargaining
table
• You should only walk away from the bargaining table if your BATNA (Best Alternative
to a Negotiated Agreement) is more attractive than the counterparty’s offer.
18