How to negotiate (part two)
The following is part two in a series I am doing based off of the course 'Successful Negotiation: Essential Strategies & Skills'
The material contained within this post is based around University of Michigan Business School’s course by George Siedel called: Successful Negotiation: Essential Strategies & Skills. You can find the link on Coursera here. His book titled Negotiating for success : essential strategies and skills essentially covers the same material as the course and can be ‘checked out’ for free with a login at internet archive here.
In part one, we discussed how to determine when to negotiate, and I shared some examples for how to do this as a part of the initial steps in the negotiation process. I also laid out the steps in the negotiation process which are:
1. Prepare: Plan Your Negotiation Strategy
2. Negotiate: Use Key Tactics for Success
3. Close: Create a Contract
4. Perform and Evaluate: The End Game
I also touched on ethical and legal considerations in negotiating too. In this post, we will be discussing position-based vs interest-based negotiating, defining what those terms mean, giving examples from the course I’m taking, and implications:
So let’s say we have determined through logical analysis that we are going to negotiate. The next step is determining if this is a position-based negotiation or an interest-based one. The following is from Watershed negotiations:
Position negotiation is centered around the stances each side has taken, whereas interest negotiation is centered around the “why” the underlying motivations which may or may not be apparent or even shared that each side has.
In Siedel’s book he gives the example of negotiating over who gets a pizza. Let’s say there’s a pizza with toppings that you and another person both want. A position based negotiation may determine that you slice the pizza down the middle and you both walk away with half a pizza. Arguably a fair outcome.
An interest based negotiation may uncover however: That you only wanted the pizza crust so you could make bread crumbs out of it, and the other person mainly wanted the center of the pizza and the toppings. So in an interest based negotiation, you walk away with 100% of the crust, and the other person walks away with 100% of the center of the pizza. This is a better outcome than negotiating on position alone.
Now some folks say, “well that’s nice, but some if not many business negotiations are win/lose”. However… always see if you can find a way to “grow the pie” and always try to get at the other side’s underlying interests. This helps you be more likely to be successful. However, if you are mainly involved in a positional negotiation, it’s possible that identifying the other side’s interests if it takes too long, is not a productive use of your time.
So you have to ask at the outset (as quoted from the course), “what type of negotiation are you involved with? Dividing the pie or enlarging the pie? This shapes your strategy.”
It’s also important to call out the fact that negotiations often are fluid and go back and forth between positional and interest based negotiations:
“With any negotiation you will probably start from a position, then you search for underlying interests. Why do you want what you’re requesting? What’s the reason for your position? At that point you will not be able to identify interests in which case you return to positional bargaining, or you ARE able to identify interests and build a larger pie, in which case you will also return to positional bargaining because you still have to argue how big a piece of a larger pie will you get.”
Another example is negotiating over the sale of a car. This is one where on the surface, it does seem to be a win/lose situation. You can’t really split a car in half after all, and someone is going to pay more than maybe they could have, or receive less from the sale of the car than they could have. We’ll take a look at it from the position and interest based style and also discuss stretch goals, which I spoke briefly about in part one. The car example also comes from Siedel’s course:
Let’s take a look at it in detail.
One of the steps in preparing for the car negotiation is to answer the following questions prior to negotiating:
What is my overall goal in the negotiation? Why is this my goal?
What issues are most important to me in reaching this goal and why are these issues important?
What is my Best Alternative to a Negotiated Agreement (BATNA)?
What is my reservation price? (A reservation price is the highest price a buyer is willing to pay or the lowest price a seller is willing to take.)
What is the most likely price?
What is my stretch goal?
Crucially, remember regarding point 6, that although the most successful negotiators do set the most ambitious stretch goals, those stretch goals need to be based within reality and supported by the facts. If they are wildly out of touch with reality, you risk losing credibility in a negotiation which will result in a negotiation failing.
Now for the sale of the car, here is the situation (straight from the book):
"Let's assume that you are engaged in a simple, everyday negotiation, the sale of a car. You are preparing to negotiate with a potential buyer, Kyle. Kyle is the only person who responded to your sales ad. You need at least $4,000 from the sale of the car to finance the purchase of a truck you have ordered.
You want to keep your car for three more weeks, which is when the truck will arrive. The reasonable value of the car (based on several online calculators) is $5,000. If you can't find a buyer willing to pay at least $4,500, you will sell the car to your friend Terry for $4,000. You know that Terry will let you keep the car for the next three weeks."
Before we start negotiating… let’s answer the 6 questions I laid out originally. This example is from the book as well:
Position: Your goal is to sell your car.
Interest: You want to sell the car so that you can finance the purchase of a truck that is on order.
The key issues and interests are price (so that you can finance the purchase of the truck) and transfer date (because you need the car for the next three weeks while you await the delivery of your truck)
Your best alternative (BATNA) is to sell the car to your friend Terry for $4,000. Your willingness to accept a lower rice from Terry than the minimum amount ($4,500) you would require from Kyle illustrates the importance of relationships in negotiations. Where this is a strong relationship negotiators are often more flexible in their demands.
In this negotiation your reservation price is $4,500
In this negotiation the facts indicate that the reasonable value of the car is $5,000
Your stretch goal in a negotiation like this is a number that is higher than the most likely price from the seller's perspective and lower than the most likely price from the buyer's perspective. Let's assume here as the one selling the car that your stretch goal is $6,000.
For Kyle, it may look like this:
"These numbers will not be precise and you will try to obtain additional information after negotiations begin. But for the time being, let's assume that Kyle's reservation price (that is, the most that Kyle will pay) is $5,500, the most likely price estimate is $4,500 and the stretch goal is $3,500. We can also assume that Kyle's BATNA is to purchase a car from someone else."
Now let’s put this in a visual example:
^ Where the two areas overlap (between $4,500 and $5,500) is called the ZOPA or Zone of potential agreement. This is the area where a deal could take place. Coming in to a negotiation with a large ZOPA and a great BATNA is ideal.
But there’s also a wrinkle here. Remember you want to keep your vehicle for 3 additional weeks?:
"You should try to anticipate Kyle's response to this request. There are two possible responses. First, Kyle might not care about the transfer date. As a shrewd negotiator Kyle might feign interest in order to lower the price, but at least you will be able to work out a deal.
The more challenging response might be that Kyle needs the car immediately, so that your two positions are directly in conflict. You should prepare for this possibility by moving beyond Kyle's position-'I need the car immediately'-to explore underlying interests.
For instance, when you ask Kyle the 'why' question ('why do you need the car immediately?'), the response might be that Kyle needs the car to travel to work. You might then be able to figure out a way to meet this need by providing alternative transportation over the next three weeks. You might even offer to drive Kyle to work."
So there you have it. An example of a negotiation in action. Although on the surface it seems like a car sale negotiation is purely positional, in actuality it also pays (in some cases literally) to go back and forth between position-based and interest-based negotiating.
In the next post, I will talk about disputes, and dispute resolution mechanisms in negotiation.
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