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Chapter 03
Negotiation
Students to Start-UpsEntrepreneurial Skills Series
Students to Start-UpsEntrepreneurial Skills Series
NegotiationNegotiation
My father said: "You must never try to make all the money that's in a deal. Let the other fellow make some
money too, because if you have a reputation for always making all the money, you won't have many
deals.”
J. Paul Getty
NegotiationNegotiation
• Much business-to-business selling involves negotiating skills
• The two parties need to reach agreement
– Price
– Others term of sale
• Salesperson need to win without making deep concessions that will
hurt profitability
• There are 2 exchange in marketing
– Routinized exchange : administered program of pricing and
distribution
– Negotiated exchange : price and others term area set via
bargaining behavior
Negotiation – What is it?
‘The process by which we search for the terms to obtain what we
want from somebody who
wants something from us’
Gavin Kennedy
Confer with others to reach a compromise
or agreement.
Concise Oxford Dictionary
To negotiate is to trade something we have for something we want.
Anon
‘Negotiation is an explicit voluntary traded exchange between people
who want something from
each other’
Gavin Kennedy
Debunking Negotiation Myths
Myth 1: There must be a winner & a loserMyth 1: There must be a winner & a loser Myth 2: Appears to involve conflictMyth 2: Appears to involve conflict Myth 3: Negotiation is not an optionMyth 3: Negotiation is not an option Myth 4: Only cheap, petty people haggleMyth 4: Only cheap, petty people haggle Myth 5: A good negotiator is manipulative Myth 5: A good negotiator is manipulative
Human NeedsHuman Needs
Manfred A. Max-Neef 1991. Manfred A. Max-Neef 1991. Human scale development: conception, application and further reflections. Human scale development: conception, application and further reflections. New York: Apex.New York: Apex.
NegotiationNegotiation
• The most frequently negotiated :– Price
– Contract completion time
– Quality of goods and service offered
– Purchase volume
– Responsibility for financing
– Risk taking
– Promotion and title
– Product safety
Three Views of ConflictThree Views of Conflict
• Traditional view - conflict must be avoided• Human relations view - conflict is a natural and inevitable outcome
in any group• Interactionist view - some conflict is absolutely necessary
– functional conflict - supports the goals of the work group and improves its performance
– dysfunctional conflict - prevents group from achieving its goals
Conflict and Group PerformanceConflict and Group Performance
Robbins et al., Fundamentals of Management, 4th Canadian Edition ©2005 Pearson Education Canada, Inc.
Conflict-Handling StylesConflict-Handling Styles
Uncooperative CooperativeCooperativeness
Ass
erti
ven
ess
Un
asse
rtiv
eA
sser
tive
Forcing
Resolving conflicts bysatisfying one’s own needsat the expense of another’s
Avoiding
Resolving conflicts bywithdrawing from orsuppressing them
Collaborating
Rewarding conflict by seekingan advantageous solution forall parties
Compromising
Resolving conflict by eachparty giving up somethingof value
Accommodating
Resolving conflicts byplacing another’s needsand concerns above yourown
Robbins et al., Fundamentals of Management, 4th Canadian Edition ©2005 Pearson Education Canada, Inc.
5 Levels of Communication5 Levels of Communication
Chris Spies, 2002
The Four Ears of ListeningThe Four Ears of Listening
Undine Kayser, 2003Undine Kayser, 2003
Active Listening Techniques (1)Active Listening Techniques (1)
Centre for Conflict Resolution, Cape Town, South Africa, 1999
Active Listening Techniques (2)Active Listening Techniques (2)
Centre for Conflict Resolution, Cape Town, South Africa, 1999Centre for Conflict Resolution, Cape Town, South Africa, 1999
Active Listening Techniques (3)Active Listening Techniques (3)
Centre for Conflict Resolution, Cape Town, South Africa, 1999
Active Listening Techniques (4)Active Listening Techniques (4)
Centre for Conflict Resolution, Cape Town, South Africa, 1999Centre for Conflict Resolution, Cape Town, South Africa, 1999
When to Negotiate ?When to Negotiate ?
• Based on Lee and Dobler :– When many factors bear not only on price, but also on quality
and service
– When business risks cannot be accurately predetermined
– When a long period of time is required to produce the items purchased
– When production is interrupted frequently because of numerous change orders
1. Preparation and planning skill
2. Knowledge of the subject
3. Ability to think clearly and rapidly under pressure and uncertainty
4. Ability to express thoughts verbally
5. Listening skill
6. Judgement and general intelligence
7. Integrity
8. Ability to persuade others
Art & Science of Negotiation - RAIFFA
34 Characteristics of an Effective Negotiator
9. Patience
10. Decisiveness
11. Ability to win respect and confidence of opponent
12. General problem-solving and analytical skills
13. Self-control, especially of emotions and their visibility
14. Insight into others’ feelings
15. Persistence and determination
16. Ability to perceive and exploit available power to achieve objective
Art & Science of Negotiation - RAIFFA
34 Characteristics of an Effective Negotiator34 Characteristics of an Effective Negotiator
17. Insight into hidden needs and reactions of own and
opponent’s organization
18. Ability to lead and control members of own team or group
19. Previous negotiating experience
20. Personal sense of security
21. Open-mindedness (tolerance of other viewpoints)
22. Competitiveness (desire to compete and win)
23. Skill in communicating and co-ordinating various objectives
within own organisation
Art & Science of Negotiation - RAIFFA
34 Characteristics of an Effective Negotiator34 Characteristics of an Effective Negotiator
24. Debating ability (skill in parrying questions and answers across the table)
25. Willingness to risk being disliked
26. Ability to act out skilfully a variety of negotiating roles or postures
27. Status or rank in organisation
28. Tolerance to ambiguity and uncertainty
29. Skill in communicating by signs, gestures and silence (non-verbal language)
Art & Science of Negotiation - RAIFFA
34 Characteristics of an Effective Negotiator34 Characteristics of an Effective Negotiator
30. Compromising temperament31. Attractive personality and sense of humour (degree to which
people enjoy being with the person)32. Trusting temperament33. Willingness to take somewhat above-average business or
career risks34. Willingness to employ force, threat or bluff
Art & Science of Negotiation - RAIFFA
34 Characteristics of an Effective Negotiator34 Characteristics of an Effective Negotiator
Negotiation Key ConceptsNegotiation Key Concepts
• BATNA• Reservation Price• ZOPA• Value Creation through Trades
Know your BATNA!Know your BATNA!
• Best Alternative to a Negotiated Agreement (BATNA)• Typical example: negotiate or go to court• Improving your situation
– Improve your BATNA– Identify the other side’s BATNA– Weaken the other party’s BATNA
Reservation PriceReservation Price
• The least favorable point at which one will accept a deal• The “walk-away”• Example: you are looking for larger office space. You set your
BATNA at $20/SF and your Reservation Price at $30/SF• If owner won’t budge from $35, you walk away and take advantage
of your BATNA
ZOPAZOPA
• Zone of Possible Agreement (ZOPA)• The difference between the Seller’s Reservation
Price and the Buyer’s Reservation Price• What happens if positions below are reversed?
ZOPA$275k
$250k
Seller’s Reservation Price
Buyer’s Reservation Price
Value Creation through TradesValue Creation through Trades
• Trade things you value less to the other party• Examples:
– For a supplier the greater value may be not price but an extended delivery time
– For a customer, extended warranty versus price– For an employee, working at home versus salary
Summary of Negotiation conceptSummary of Negotiation concept
• Zone of agreement exists– Simultaneously overlapping acceptable outcomes for the parties
• Reservation price– Seller’s
• The minimum will accept• Below s is worse than not reaching agreement• x > s , seller surplus
– Buyer’s• The maximum will pay• x above b is worse than no agreement• x < b , buyer surplus
– If s < b / than a zone of agreement exist = bargaining
The Zone of AgreementThe Zone of Agreement
Seller’s surplus Buyer’s surplus
Zone of agreement
s x bSeller’s reservation price
(seller wants s or more)
Seller wants to move x to the right
Final Contract Buyer’s reservation price
(buyer wants b or less)
buyer wants to move x to the left
Money ($)
Negotiating is about WHY, not WHATNegotiating is about WHY, not WHAT
The purpose of negotiating is seeing if you can get your interests met through and agreement, versus an alternative.
Positions are WHAT we want
Interests are WHY we want something
Negotiate the WHY….not the WHAT
Negotiating BehaviourNegotiating Behaviour
Gavin Kennedy (The New Negotiating Edge) describes 3 types of behaviour that we can display and encounter when in a negotiating situation
RED BLUE PURPLE
7
RED Behaviour
• Manipulation
• Aggressive
• Intimidation
• Exploitation
• Always seeking the best for you
• No concern for person you are negotiating with
• Taking
People behave in this manner when they fear exploitation by the other party, but by behaving this way to protect themselves, they provoke the behaviour they are trying to avoid.
8
BLUE BehaviourBLUE Behaviour
• Win win approach• Cooperation• Trusting• Pacifying• Relational• Giving
Kennedy talks of a ‘behavioural dilemma’, do you cooperate (blue) or defect (red)?
Can you trust the other person? And to what extent? Trusting someone involves risk, on the one hand being too trusting is naïve and on the other, not trusting at all can create deceitful behaviour.
The answer is to merge blue and red behaviour into purple.
9
PURPLE BehaviourPURPLE Behaviour
• Give me some of what I want (red)• I’ll give you some of what you want (blue)• Deal with people as they are not how you think they are• Good intentions• Two way exchange• Purple behaviour incites purple behaviour• Tit for tat strategies• Open• People know where they stand• Determination to solve problems by both sets of criteria of the merits
of the case and/or the terms of a negotiated exchange
To the red behaviourist the message is loud and clear, ‘You will get nothing from me unless and until I get something from you’.
10
Formulating a Negotiation StrategyFormulating a Negotiation Strategy
• Strategic plan– Commitment to an overall approach that has a good chance of
achieving the negotiator’s objectives• Soft : avoid conflict, make concessions; often end up exploited and
feeling bitter
• Hard : sees any situation as a contest of wills. Exhausts people and resources and harms relationships
• Other strategies are between hard and soft, but each involves a trade off
• Making good tactical decisions
Starting PointStarting Point
• A successful negotiation must have a basic framework– The alternative to negotiation– The minimum threshold for a negotiated deal– How flexible a party is willing to be, and what tradeoffs it is
willing to make
Principled Negotiation :The Method
• Separate the people From the problem
• Focus on interests, Not positions
• Invent options For mutual gain
• Use objective criteria
Modified from material obtained from the Harvard Negotiation Project
Separate the people from the problem
Relationship Issues:
Emotion/reason Understanding Communication Reliability Coercion/persuasion Acceptance/respect
Substantive Issues:
Money Terms Conditions Concessions Promises Dates/numbers
Modified from material obtained from the Harvard Negotiation Project
ProblemProblem
• Participants are friends• The goal is agreement• Make concessions to cultivate the
relationship• Be soft on the people and the problem• Trust others• Change your position easily• Make offers• Disclose your bottom line• Accept one-sided losses to reach
agreement• Search for the single answer: the one they
will accept• Insist on agreement• Try to avoid a contest of wills• Yield to pressure
• Participants are adversaries• The goal is victory• Demand concessions as a condition of the
relationship• Be hard on the problem and the people• Distrust others• Dig in to your position• Make threats• Mislead as to your bottom line• Demand one-sided gains as the price of
agreement• Search for the single answer: the one you
will accept• Insist on your position• Try to win a contest of wills• Apply pressure
SOFT HARD
Positional Which game should you play
“Getting to Yes” - Professor R. Fisher & W. Ury
Focus on Interests not Positions
Interests = desires and concerns that underlie positions
• Prepare for negotiation: – Clarify interests – Understand the interests of the other side
• Focus the negotiation discussion on:– Interests – not positions
Modified from material obtained from the Harvard Negotiation Project
Invent Options for Mutual Gain
To invent creative options:• Separate inventing from judging.• Broaden the options on the table, rather than look for a
single answer.• Search for mutual gains.• Invent ways to make their decision easy.
Modified from material obtained from the Harvard Negotiation Project
Insist on using Objective Criteria
• Frame each issue as a joint search for objective criteria
• Reason and be open to reason as to which standards are most appropriate and how they should be applied
• Never yield to pressure, only to principle.
Modified from material obtained from the Harvard Negotiation Project
Negotiation StylesNegotiation Styles
ACCOMODATE
Build friendly relationship
Characteristics:
Promote harmony
Avoid substantive differences
Give into pressure to save relationship
Place relationship above fairness of
the outcomes
CO
NC
ER
N F
OR
RE
LA
TIO
NS
HIP
CONCERN FOR SUBSTANCE
LOW
HIGHCOLLABORATE
Problem solved creatively, aiming for win-win
Characteristics:
Search for common interests
Problem-solving behaviours
Recognising both parties’ needs
Synergistic solutions
Win-win becomes the main purpose of the negotiator
HIGH
AVOIDTake whatever you can get/Inaction
Characteristics:
Feeling of powerlessness
Indifference to the result
Resignation, surrender
Take what the other party is willing to concede
Withdraw & remove = behaviour of negotiator
DEFEAT
Be a winner at any cost/Competitive
Characteristics:
Win-Lose competition
Pressure/Intimidation
Adversarial relationships
Defeating the other becomes a goal for the negotiator
COMPROMISE
Split the difference
Characteristics:
Meeting half way
Look for trade offs
Accept half-way measures
Aims to reduce conflict rather than problem solve synergistically
Source: Rollin & Christine Glaser
The Four Phases of NegotiationThe Four Phases of Negotiation
PLANPLAN
DEBATEDEBATE
PROPOSEPROPOSE
BARGAINBARGAIN
11
Step One - Prepare
• Research
• LIST your objectives and their objectives
• Those you INTEND to get
• Those you MUST get
Step Two - Debate
• Listen carefully• Ask questions• Clarify• Summarise• Don’t argue, interrupt or assume
...BUT
Step Three - Propose
• Make proposals• State conditions• Express concerns• Search for common interests
• Use positive body language
AND
Step Four - Bargain
• Key words are IF and THEN• Start making concession:
– Every concession should have a condition (IF you … THEN I will … )
– Conserve your concessions - don’t give everything away too soon
– You don’t have to share every piece of information with the opposing side!
– Don’t be afraid to say no
Classic Bargaining TacticsClassic Bargaining Tactics
• Acting Crazy• Big Pot• Get a Prestigious Ally• The Well is Dry• Limited Authority• Whipsaw / Auction• Divide and Conquer• Get Lost / Stall for Time• We Noodle• Be Patient• Let’s Split the Difference• Trial Balloon• Surprises
Classic Bargaining TacticsClassic Bargaining Tactics
• Acting Crazy– Put on good show
– Visibly demonstrating your emotional commitment to your position
– Increase credibility
– Give opponent a justification to settle on your terms
• Big Pot– Leave your self a lot of room to negotiate
– Make high demand at the beginning
– After making concessions, you’ll still end up with a larger payoff
• Get a Prestigious Ally– Try to get opponent to accept less
Classic Bargaining TacticsClassic Bargaining Tactics
• The Well is Dry– Take a stand and tell the opponent you have no more concessions to
make
• Limited Authority– Negotiate in good faith
– If you ready to sign the deal, say I have to check with my boss
• Whipsaw / Auction– Several competitors know you are negotiating in the same time
– Schedule competitors with you for the same time and keep them all waiting to see you
Classic Bargaining TacticsClassic Bargaining Tactics
• Divide and Conquer– Negotiation with opponent team
– Sell one member to help you sell the other members of the team
• Get Lost / Stall for Time– Leave the negotiation completely for a while
– Come back when things are getting better and try to renegotiate
– Time period can be long or short
• We Noodle– Give no emotional or verbal response
– Don’t response to his or her force or pressure
• Be Patient– If you can afford to outwait
– You will probably win big
Classic Bargaining TacticsClassic Bargaining Tactics
• Let’s Split the Difference– The person who first suggest this has the least to lose
• Trial Balloon– Release your possible / contemplated decision through a so-called
reliable source before the decision is actually made
– To test reactions to your decisions
• Surprises
– Keep the opponent off balance by • Drastic
• Dramatic
• Sudden shift
– Never be predictable
• Keep the opponent from anticipating your move
Step Five - Agree
• Usually final concession :“IF you do that, THEN we have a deal!”
• Gain commitment• Record and agree results• Leave satisfied
Think about your influencing styleThink about your influencing style
Inspirational
Logical
Personal
Forceful
7 Deadly Sins of Negotiating7 Deadly Sins of Negotiating
• Pride - Be prepared to compromise• Gluttony - Don’t bite off more than you can chew• Anger - Handle objections calmly• Covetousness - Prioritise needs/wants• Envy - Know competitors strengths & weaknesses…
AND your own• Sloth - Do your homework• Lust - Don’t look desperate to settle
An Unconditionally Constructive StrategyAn Unconditionally Constructive Strategy
Do only those things that are both good for the relationship and good for us - whether or not they reciprocate
RATIONALITY Even if they are acting emotionally, balance emotions with reason
UNDERSTANDING Even if they misunderstand us, try to understand them
COMMUNICATION Even if they are not listening, consult them before deciding on matters that affect them
RELIABILITY Even if they are trying to deceive us, neither trust them nor deceive them: be reliable
NON-COERCIVE MODES OF INFLUENCES
Even if they are trying to coerce us, neither yield to that coercion nor try to coerce them, be open to persuasion and try to persuade them
ACCEPTANCE Even if they reject us and our concerns as unworthy of their consideration, accept them as worthy of consideration, care about them and be open to learning from them
"Getting Together" Fisher
Three Approaches To Resolving DisputesThree Approaches To Resolving Disputes
MOVING FROM A DISTRESSED TO AN EFFECTIVE RESOLUTION SYSTEM
Distressed System
Power
Rights
Interests
"Dispute Resolution" Goldberg Green Sander
Effective SystemEffective System
Power
Rights
Interests
Goldberg
MOVING FROM A DISTRESSED TO AN EFFECTIVE RESOLUTION SYSTEM
Three Approaches To Resolving DisputesThree Approaches To Resolving Disputes
Salary Negotiation: Best Practices• Know what want-prioritize and logroll• Conduct research to understand your worth
• how it compares• what you will do if don’t get what you want
• Know with whom to negotiate and what can
be negotiated• Find the minimum, midpoint and maximum salary
grades for the position• Think total compensation• Consider enlarging the shadow of the future
Salary Best Results
• What until you have an offer to negotiate– allow employer to initiate discussion– be prepared to discuss salary at any time
• Preserve the relationship – no ultimatums; appear accommodating; be concerned with their
interests– ask questions when encountering resistance
• Consider long term effects of your plan• Practice• Watch for signals• Get offer in writing
Salary: Things to Avoid
• Personal needs or self-serving perks• Gamesmanship: one more thing or hard squeeze• Multi-company leveraging• Appearance of desperation• Lying, exaggeration or misleading• Quick decisions or countering too soon
$$$
Tip #1 Negotiating is not CompromisingTip #1 Negotiating is not Compromising
It is joint problem solving
Our goal is to efficiently reach a satisfying agreement for both parties, and to conclude on a positive note.
Fisher and Ury define negotiations as “Back and forth communication to reach agreement where some interests are shared and some interests are opposed.“Getting to Yes”
Tip #2 People Skills Make the DifferenceTip #2 People Skills Make the Difference
•What is your “preferred style” of communicating?
•What is the “style” of the other person with whom you will be negotiating?
•Are these styles compatible, or are they opposites?
Tip #2A: Listening is the most powerful negotiating skillTip #2A: Listening is the most powerful negotiating skill
• It begins with effective communication…understanding your preferred method and learning the method of the other party.
• Communicate with them in a way that will be most effective with their style
• This helps to eliminate the possibility of misunderstanding, as we communicate in many ways
Listening is your most powerful negotiating toolListening is your most powerful negotiating tool
But before you can listen, you have to be skilled at asking questions:
Three critical questioning skills1. Know where your questions
are going2. Ask for permission to ask
questions3. State why you want to ask
questions
Purpose-Process-Payoff
Listening is your most powerful negotiating toolListening is your most powerful negotiating tool
If that is the case, why are we such bad listeners?
We listen to reply, argue, rebut, make our point, or win.
We do not typically listen to understand.
As Covey said, “Seek first to understand, then be understood
Tip #3: Have a game plan before beginning to negotiateTip #3: Have a game plan before beginning to negotiate
Few people plan before beginning to negotiate
If you cannot walk away from the negotiation at any time, you will lose.
Knowing your options outside of the negotiation is a direct function of preparation.
Without a plan you risk agreeing to something worse than what you may have done on your own.
Negotiation Check ListNegotiation Check List
Good Practice Avoid
Actively listen Question for clarification Summarising Test commitment Seeking & giving information Encourage two way conversation State and plan your proposal – then summarise Use the ‘if you ….then we’ll’ principle
×Interrupting×Attacking×Blaming×Talking too much×Sarcasm×Threats×Taking it personally×Closed body language
42
QuestionsQuestions
To be continued in the next chapter………To be continued in the next chapter………
kurniawan_260305@yahoo.com
Communication Stumbling Blocks (1)Communication Stumbling Blocks (1)
Centre for Conflict Resolution, Cape Town, South Africa, 1999
Communication Stumbling Blocks (2)Communication Stumbling Blocks (2)
Centre for Conflict Resolution, Cape Town, South Africa, 1999
Communication Stumbling Blocks (3)Communication Stumbling Blocks (3)
Centre for Conflict Resolution, Cape Town, South Africa, 1999
Communication Stumbling Blocks (4)Communication Stumbling Blocks (4)
Centre for Conflict Resolution, Cape Town, South Africa, 1999Centre for Conflict Resolution, Cape Town, South Africa, 1999