As pointed out in the article written by Girish, learning how to negotiate can drastically change the impact of your life. Whether it is negotiating your contract or bargaining on the local market, negotiations can save you a lot of time and money, but ultimately can give you the edge in life.
In order to understand the concept of negotiations, one must understand the underlying academic Terminology. Let’s start with the basic terms:
- The Bargaining zone. The bargaining zone lies between the two initial offers of the two opposing parties.
- The BATNA. BATNA, or Best Alternative to a negotiated agreement is your maximum, or minimum, price you are willing to make a deal for called the reservation point (or walk away). The BATNA is usually quantified and based upon research of other alternatives. Thus when you reach your BATNA you should go for the other alternatives.
- The ZoPA. The ZoPA, or zone of possible agreement is situated in between your BATNA and your counterparts BATNA. If you know your counterparts BATNA, this can give you a sizable advantage. It will allow you to make realistic offers and get the highest or lowest possible price. Moreover, it will also allow you to call the other sides bluff when necessary.
- The Frame. In what setting are you negotiating, what are your points of reference (or precedence) and what is the negotiation really about? How will this negotiation affect future relationships? These are all questions to take into account when bargaining. The frame in which negotiations take place are usually more important than the bargaining process itself. For example, a mutual dependent, long standing negotiation is more likely to see a higher level of trust and a more win-win (integrative) approach to negotiations, while a market transaction is often a hard ball, win-lose (distributive) approach. The difference between integrative and distributive approaches and when to use them will be explained later on.
Before starting to negotiate, it is important that there are multiple dilemmas and emotions that can affect the outcome of the negotiations. These are extremely important to take into account.
Problems with control over one’s own emotions:
- Overconfidence. Not a lot of explanation needed here, if you are overconfident, you are more likely to walk right into the desired outcome of you counterpart. While it is important to be confident at the table,overconfidence can make you blind to see suitable alternatives or moves made by the counterpart.
- Lack of confidence. Lacking confidence makes you an easy pray to be manipulated. Your counterpart may manipulate your emotions to get a desired outcome.
- Emotional stability/stamina. Ever tried to focus after a fight or breakup, or tried to take an exam with an insufficient amount of sleep? We all know the feeling of not being able to focus and thus making easy mistakes. This is the same when negotiating.
- Escalation of commitment. The longer a process takes, the more invested you become in the process and wanting it to succeed, even though you might surpass your BATNA. This is why it is important to accept failed negotiations and always have an alternative on which your BATNA is based on.
- Neediness. Being needy of a deal or personal desires makes you perhaps out of all the easiest target. If your counterpart knows that you need to close this deal in order to keep your job, or that his or her products are your only alternative, he is more likely to put the squeeze on you getting an unfavorable deal. Make sure that you balance your amount of interest at the table.
Influencing the other side’s emotions
- Creating negative emotions: Creating negative emotions timely may give you the edge in negotiations, however often they hurt the negotiation process. Angering your counterpart is suitable if you are not interested in a deal, but will otherwise hurt your negotiation process. If your counterpart walks away angrily, yet he needs the deal, this will mean he will have to come back humbled, giving you the emotional edge.
- Creating positive emotions. Creating positive emotions are a good way of advancing your negotiations and key to building trust. The more trust there is, the more concessions you will get, but also the better terms you are likely to achieve. Paired with this is that expectations will be raised in order to complete the deal, so make sure you can live up to the expectations, otherwise the trust will be damaged.
Dilemma of Honesty. How honest should you be to the counterpart? Should you tell him everything in order to build trust, or show some of your cards you can concede? On the one hand this may strengthen your position, on the other hand the counterpart might exploit your honesty by telling you false facts and misleading you. If you want to build trust, fold some cards that hold little value to you, yet create value to your counterpart and watch his move.
Dilemma of Trust. Negotiations can be ugly, some negotiators might even lie or attempt to deceive you. The dilemma of trust refers to the fact of how much you can trust the other part. Often affecting trust is the possible future relations depending on the negotiation, the mutual dependency and past actions. Be sure to know as much as possible about your counterpart and occasionally scrutinize your counterparts claims in negotiations and don’t be afraid to call him out (subtly).
Phases of negotiations:
- Pre negotiation. The most important phase, in this phase you have to determine your BATNA be seeking alternatives and gather information about your counterpart
- Building a relationship. If you want to negotiate successfully, building a relationship with your counterpart might help. Identifying his personality and learning what his interests are before presenting offers greatly helps the negotiation process.
- Presenting Offers. In this phase, the Bargaining zone will be determined by an offer and a counter offer. If the difference is too big, a negotiation is more likely to fail. If the difference is too small, you might miss out on possible profits.
- Bargaining. (will be explained further down)
- Closing. Setting up the terms of agreement and agreeing upon a final price.
- Post negotiations. Completing the transaction and dealing with possible dispute resolutions.
Generic Bargaining questions to ask as a buyer
- Why are you selling this product?
- How long have you been in business for? This determines the trustworthiness of your counterpart. If your counterpart has been in business for a long time, he or she must be at least somewhat trustworthy or make good quality products.
- How much do you expect to obtain for your product? This question prones or even obtains your counterparts BATNA if he is not careful
- What is unique or special about your product?
- How did you determine your price? This helps you determine what is true and what is not true. It also gives a transparent insight out the price buildup. Moreover, it will also allow you to bargain about the cost buildup of the product.
- What options are available? Asking for packages forces your opponent to come up with possible concessions such as the higher the volume, the lower the price. However doing such concessions will undermine his position by unknowingly signalling a compromise.
- What is your deadline for selling? See if your counterpart is under time pressure, if he or she will need a deal now, you can pressure him into growing concessions rapidly.
- Does this ever go on sale? If so, when? Try to see if you can get a precedent for the terms of negotiation as well as the price. This will strengthen you position as well as that of your opponents. Moreover, it will also give a frame to the negotiation.
Generic Bargaining questions to ask as a Seller
- Why are you considering purchasing this product at this time? This tries to determine the timeframe and time pressure of your counterpart.
- Have you purchased one of these before? Try to prone how experienced and knowledgeable your counterpart is, as well as try to see if he ever had a solid precedent in the negotiations.
- What attributes are most important to you? This question gives valuable insight in what is really important to your counterpart. By determining what is important, it will allow you to satisfy his needs, while optimizing what is important to you. Moreover, you will now also know what is unimportant to him and that some of his (previous) demands are thus more irrelevant.
- Are you considering a similar product? What? This will help you determine your opponents BATNA if you know the prices and terms of the other products. Moreover, if your counterpart is not considering other products it means you are most likely his only option, making your counterpart dependent on you.
- What will you primarily use the product for? This will help determine what factors are important to your counterpart, as well as in making more personalised offers according to his usage scenario increases the likelihood of a deal.
- Will you be paying cash or financing? (on major purchases). This might help you avoid taxes or determine if your counterpart is able to afford it at all.
- Do you have a deadline for buying? Try to see if your counterpart is under time pressure in order to force a deal on your terms.
- If you don’t buy this, what would you use the money for? This will help to see what your opponent’s BATNA is, as well as helping to identify alternative products he might be interested in.
Don’t be a wimp!
Wimps are people in negotiations who make classic calculated mistakes, yet try to justify set mistakes. Therefore I will list all wimp types so you can avoid being one!
- Addicted wimp: An addicted wimp falls in love with the product, forgets the alternatives (BATNA) and decides upon wanting the product right now no matter the terms. These negotiators want a deal no matter the costs.
- Anxious wimp: These negotiators, frankly, hate negotiating. They want to get it over with as quickly as possible and are prone to accepting the first acceptable offer.
- Apathetic Wimp: The apathetic negotiators have the presumption negotiating is not worth their time. They do not want to spend time researching their BATNA or haggling to push the price time, even though they know they could get a better deal. The apathetic negotiators justifies this behavior by saying the time and energy saved makeup for the higher price they pay.
- Aristocratic Wimp: The aristocratic wimp will walk straight to the manager, pretend they are a big fish and therefore are able to spend plenty of money and subsequently they deserve special treatment. They are a combination of the Anxious wimp and Apathetic wimp who have the presumption negotiating makes them feel cheap and therefore it is not worth doing so.
- Amiable Wimp: Amiable negotiators make the mistake of getting to know the salesperson too well. They tend to get into lengthy conversations about their lives. In the end, because they know the set salesperson too well, they are likely to accept any price because they know who the salesperson is. In the end for the Amiable wimp, it is more important to be likeable than to get the best deal.
The ultimatum. An ultimatum must be specific, including a deadline for compliance. Moreover, an ultimatum must always stress the consequences of not complying with the ultimatum. The aim of the ultimatum is to pressure the other side into (unwillingly) complying with your demands. If you want to use an ultimatum successfully make sure you take the following into account:
- Explain your reasons for issuing the ultimatum. Understanding is key and creating sympathy and empathy can go a long way.
- Issue only ultimatums that you are willing to execute, so if the other side rejects it, you must walk away otherwise you lose all credibility
- Make sure that your counterpart perceives the ultimatum as credible, be ready to walk away and let the costs be known.
- ALWAYS give your counterpart the opportunity to save face or come up with a suitable alternative for your needs. This helps when the other side is willing to comply but can’t, but is able to provide an alternative. It will also mitigate the aggressive nature of the ultimatum in your long term relations with the seller.
Dealing with ultimatums by the other side, some tips and tricks:
- Ask for clarification. Why do you issue this negotiation, what are your issues? Is there any other way to resolve them
- Calculated Delay. Waiting for the 11th hour to respond. Do this when you suspect the other side is bluffing. By delaying your response they might fold on their ultimatum.
- Ignore it, or recognize it. Be ready to walk away and look for a face saving option for your counterpart to back off. This is especially true in the ‘take it or leave it’ scenario. Often if you walk away and the other side bluffed they will chase you and offer you a better price.
One last piece of practical advice
We all have some times of the year that we go shopping for the more expensive goodies in life and often these goodies can be expensive. Let’s say you want to go shopping for a suit and you also need a tie. That is gonna cost you. So what are you going to do about it? Well, ask the salesperson to help you. Make him commit time and effort, therefore escalating his commitment. After you have chosen the suit, select the tie you want but don’t let it know to the salesperson just yet. Now the more time the salesperson is to invest, the more he wants to sell the product, so when you are paying, start doubting whether it is the right investment. The salesperson would likely try to convince you by explaining something about the good quality or service. Instead, offer them that you would only buy the suit if you get the tie for free. A similar trick can be used for any kind of contracting costs with subscriptions (in addition to getting extra packages) and other long term or big purchases. Be aware that your threat to walk away has to be credible and that the value of the extra demanded product is not too large compared to the other product.
I would like to thank Andreas M. Hartmann from my negotiating classes for the tips and tricks on negotiating.