Two sisters were negotiating, arguing actually, over possession of their last orange, so the story goes. Finally, they decided to split it in half. The elder sister took her half of the orange and used only the rind for baking, throwing away the pulp. The younger sister squeezed her half to make juice and threw away the rind. If they had been better at negotiating, they would have realized that both could have come out ahead, one getting all of the rind and the other getting all the fruit. This simple parable shows one of many aspects of negotiation.
The Truth About Negotiations is the title of a recent book by Prof. Leigh Thompson [©2008, FT Press, Upper Saddle River, NJ]. She is a distinguished professor at the Kellogg School of Management at Northwestern University. She has authored nearly 100 research articles as well as seven books. My article is based almost entirely on her excellent book. I obtained the book through amazon.com and had it read to me using their Kindle’s text-to-speech feature, which I find very valuable.
Take as an example the purchasing of a house. You are the buyer, negotiating with the seller. Going first, the seller has presented an asking price for the house, probably somewhat more than she expects to get. By making the first move in the negotiations, the seller has already to some degree framed the issue, indicating to you roughly what price range the negotiation will be covering. Both parties will tend to make their offers and counter-offers in relation to this initial “framing” price-setting.
Your first bid in response will be informative as well. You might choose to accept the asking price. If you do so, you are likely to suffer later on “buyer’s remorse,“ the feeling that you could have gotten it for a lower price if you had negotiated more skillfully, offering less at first. You would probably be right about that. Alternatively, you might decide to make a much lower bid, perhaps only half the asking price. This is also likely to be a mistake, being viewed as insulting by the seller of the house, who no doubt expected to drop her price by some percentage but certainly not by half. She may cease negotiating with you.
Prof. Thompson emphasizes that both parties to this kind of negotiation likely have, in their minds, reservation prices, the highest price the buyer is willing to pay, the lowest price the seller is willing to take. If there is a gap between these two prices, the deal is unlikely to be consummated, unless some side issues can be negotiated successfully as well. Perhaps the terms of payment, the timing of payment, and / or the purchase of some associated furnishings and equipment can be negotiated simultaneously, so as to make a package deal that is attractive to both parties.
Often the seller’s reservation [lowest] price is somewhat lower than the buyer’s reservation [highest] price, and the deal can be consummated. Neither party is wise to reveal his or her reservation price to the other. The negotiating dance of offer and counter-offer will ensue. Each party should keep track of the offers, and try to judge from these what the other party’s reservation price really is. Typically, at some point in the negotiations one party or the other will suggest that they “split the difference.” While this sounds fair, it may or may not be a wise choice, depending on how the bidding process has proceeded and what the actual reservation prices are.
Prof. Thompson emphasizes that skilled negotiators are involved in creating value and claiming value. They create value by finding new combinations or packages that let both sides gain. They claim value by skillfully working to gather as much of the created value for their side as they can, while still satisfying their negotiating partner. The goal is a win-win outcome, where possible.
In the simplest buyer-seller negotiation, it seems that whatever one gains, the other loses, a “fixed-sum” negotiation. However, by introducing side deals or subsequent deals into the process, the participants can look for trade-offs, concessions and gains, that can leave both better off than they would be otherwise. I have used this myself in some circumstances, seeking to find additional areas of possible agreement to “sweeten the deal” for each. The situation then becomes “variable-sum,” with a “win-win” outcome more likely.
Prof. Thompson lays out four golfing-analogy “sand traps” of negotiating. The first is not getting all one might have gotten, “leaving money on the table.” The second is somewhat similar, settling for too little, which often would be the case if one immediately gives the seller her initial asking price. The third error or Is walking away from the table prematurely, especially when done in anger, and when further negotiation might well have been productive. The fourth, surprisingly, is settling for terms to leave you worse off than if you had made no deal at all. She emphasizes that each party has what she calls a “BATNA,“ the Best Alternative To a Negotiated Agreement. In the context of buying and selling a home, for the buyer it might be getting another house that is for sale or just staying where he lives. It is in his interest to continue to look for other homes to buy even as this negotiation proceeds. Similarly, the seller’s BATNA is either not to sell the home or to sell it to another buyer, so she should continue to look outside this negotiation for another buyer.
Negotiating styles can make a difference. Studies indicate that being perceived as manipulative, or as a push-over, are particularly ineffective. Being firm but fair or, better yet, seeming to be quite reasonable, has generally produced better results in controlled studies.
Prof. Thompson presents her material in a series of “truths,” 53 truths to be exact, and there is not space in this article to go into all of them, but I will summarize a few more: To the extent possible you want to understand the interests of the counter-party. To do this, light but probing questions can be very valuable, and you may need to reveal more about your interests as well, in the hope of reaching a mutually beneficial settlement, such as the sisters in our sharing-the-orange example could have done. Giving in on some issues in return for concessions on others is often productive. Personal styles matter as well, and if possible you should try to be friendly and try to emphasize areas of similarity between the two of you. A sense of humor helps. Keep in mind that it may be necessary to allow the other party to “save face” by giving him tangible or cosmetic concessions. There is leverage in “I have to check with my spouse [or with my boss].”
Where possible, try to have your negotiations face-to-face rather than over the telephone. You should develop a reputation for being an honest negotiator, one whose word can be counted upon. Very often you will end up in a negotiation with the same party again in the future, or at the very least the proceedings of the negotiation will become known to others. Finally, if for some reason you have made an error in your negotiating, you must do what you can to repair the damage and restore trust.
I thoroughly enjoyed Prof. Thompson’s very informative and interesting book, and I highly recommend it to you. Keep some of the lessons in mind the next time you buy a car or a home or determine a curfew for your teen-ager.
Douglas Winslow Cooper, Ph.D., is a retired environmental physicist, a current care-giver, and the author of Ting and I: A Memoir of Love, Courage, and Devotion, available through amazon.com, bn.com, or the web site, tingandi.com. He is also a freelance writer and book coach. At one time, as a faculty member, he ran the Environmental Health Management Program at the Harvard School of Public Health.
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