Negotiating

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Negotiating

Basic rule of negotiating: You never

get anything you dont ask for.
Dont negotiate until youve created
value a differential competitive
advantage.
Dont discuss price/cost until youre
ready to negotiate and close.

Negotiate to close the deal.

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The Negotiating and Closing

Process

Your Negotiating Approach

1.

Information-based

2.
3.
4.

Information about your customers and their

competitors
Information about your competitors
Information about the other sides cultural
background
The style and tactics of the other side

Relationship-based
Ethical
Flexible
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Preparation
1.

Assess the situation.

There are four basic bargaining

situations depending on:

The perceived importance of the ongoing

relationship
The perceived conflict over the the stakes
involved (to what degree do both sides
want the same limited resource such as
money, power, terms, etc.)

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The Situational Matrix

Perceived Conflict Over Stakes
High

Low

High
I. Balanced Concerns: Business
partnership, joint venture, merger

II. Relationships: Marriage, friendship,

or work team

Importance
of Relationship
III. Transactions: Divorce, house
sale, or stock market transaction

IV. Tacit Coordination: Highway intersection or airplane seating

Low

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Negotiating
1.

Tacit Coordination - Calls for tactful

avoidance of conflict, not negotiation.

2.

Transactions Stakes, such as price, are

substantially more important than
relationships. Leverage counts.

3.

Relationships - Treat the other party well,

generously, the stakes are secondary.
Accommodate.

4.

Balanced Concerns - Problem solving and

compromise are vital. Stakes and
relationships equally important.
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Preparation
2.

Assess negotiating styles.

Competitors
Accommodators
Narcissists
Cooperators

Match the other sides style if

Competitor or Cooperator.

Youre a cooperator, a competitor will

eat your lunch.
If youre a competitor, you will tend to
gouge a cooperator.

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Preparation
3.

Identify other sides interests, needs

and objectives.

4.

Fill out Negotiating and Closing Planner

Determine your targets.

Specific opportunity/product/event/job
Price
Size of the deal
Share of budget
Terms and conditions
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Preparation
5.

Determine your BATNA (Best

Alternative to a Negotiated
Agreement).

If you have one.

6.

Determine your HLE (Highest

Legitimate Expectation).

7.

Determine your walk-aways.

Price
Terms and conditions
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Negotiating Initial Discussion

Deliver bad news (deal breakers,

threats) early in a negotiation.

Sell all the deal terms early.

Indicate where you can and cannot be
flexible (increase credibility).
When selling a perishable product,
always set a deadline on your offers.

Signal your expectations (HLE)

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8.

Determine tactics
Tit-for-tat
Warning
Bluff

9.

Use a mixed strategy, bluff on a random

basis, only if youre experienced.

Estimate Ball Park

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The Ball Park

$100

$150

$0

$250

Sellers bottom line:

Seller must get at
least $100.

Buyers bottom line:

Most buyer will pay
is $150.

During negotiations, people tend to gravitate toward their bottom line--the dominant
reference point--and measure success with reference to the bottom line as it is difficult
to reorient to an ambitious bargaining goal.
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10. Assess

and signal leverage

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Signaling Leverage
Your Leverage as You See It
Strong

Weak

Firm

How
You
Want
to
Act

Flexible

Make confident demands and

credible threats.

Emphasize the uncertain future.

Display your alternatives and

leave the decision to the other
Side take it or leave it.

Bluff (act strong when you are not).

Show (and tell) the other side

youre investing in the
relationship.

Acknowledge the other sides power

and stress the potential gains from
future cooperation.

Be generous.

Appeal to the other sides sympathy.

What would they say in your position?

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Maneuvering for Dominance

and Control

Whoever controls the agenda,

usually controls the outcome.
The other side only has the power
you give it.

Tactics to get you frustrated: Hurry up,

interruptions, keep you waiting, bring in
the boss.
Have confidence in yourself and your
value.

Check your ego at the door (its not

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about you).

Negotiate at the highest level

possible.
Negotiate on your own turf if
possible.

Negotiate face-to-face whenever

possible.

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Opening and Making

Concessions

Bargaining formally begins when one

side opens with a concrete, plausible
(in their mind) offer.

Dont respond emotionally to any offer

or any tactic.
Getting emotionally involved leads to
awful outcomes.
Dont include most of the other sides
requests in your initial offer.
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Opening Tactics: Open First?

If you are not informed about the

other sides business, interests, or
demands, dont open first.
If you are well informed, open first:

It lets you fix the range, the zone of realistic

expectations.
Sometimes forces the other side to rethink its
goals.
Most important, allows you to set the anchor.
We tend to be heavily influenced by first
impressions.
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Anchoring

When the other side hears a high or low

number, they adjust their expectations
(unconsciously) accordingly.

The first offer anchors the other sides

perception of your walk-away price.

First offer must be somewhat reasonable (no more

than 50% higher than you will settle for).
As high as possible within the Ball Park--as close
to the other sides walk-away as possible (thats
the home run).

Outlandish numbers at the beginning can kill

the deal or destroy your credibility if you
drastically reduce the offer later.

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Framing

Frame all of your offers.

Framing emphasizes the value of your offer.

Framing provides justification for the other side to make
concessions.

To those who like to win (promotion

focus), frame as a gain, a win emphasize
benefits.
For those who are afraid to lose
(prevention focus for whom losses loom
larger than gains), frame as a possible loss
emphasize the pain and shame of losing.

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Framing Example

Group I
1
If Program A is adopted, 200 people will be
saved.
2
If Program B is adopted, 1/3 probability that all
will be saved, 2/3 probability that none will be
saved.
Group II
1
If Program A is adopted, 400 people will die.
2
If Program B is adopted, 1/3 probability that all
will be saved, 2/3 probability that none will be
saved.
76% in Group I chose Program A, only 12% in
Group II chose Program A.
Same deal.

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Opening: Optimistic
or Reasonable

Depends on the situation:

Relationship Open optimistically, then

be generous with concessions.
Transaction - Open optimistically (high,
but not too high). The highest for which
there is a supporting standard or
argument enabling you to make a
presentable case.

Make the highest opening you can with a

straight face.
Dont open high if you have no leverage and
the other side knows it.

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Optimistic Openings

Take advantage of two psychological

tendencies: The Contrast Principle and the
Norm of Reciprocity.

The Contrast Principle: If I want you to pay

me $500,000 for my house, and I open with
$750,000 (supported by a presentable,
straight-face argument), my settlement of
$500,000 seems very reasonable and gives the
perception of giving a very good deal.
If I had opened for $550,000 and only come
down to $500,000, the contrast would have
been small and the deal not as satisfying.

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Optimistic Openings

The Norm of Reciprocity:

I make an optimistic opening ($750,000),

and you reject it.
I moderate my offer by making a significant
concession ($650,000), and you feel
obligated to accept it (reciprocity).

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Big then smaller offer = door in the

face. Second offer seems reasonable.
Other side feels compelled to
reciprocate.
Small then bigger offer foot in the
door. Second offer seems reasonable
because theyve already said yes.

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Concession Tactics

Open optimistically and have room

to make concessions.
Concessions are the language of
cooperation. They tell the other
side in concrete, believable terms
that you accept the legitimacy of
their demands and recognize the
necessity to cooperate and sacrifice
to get a fair deal.
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Concession Tactics

To get movement, offer a small

concession/trade show that agreement
is possible.

Give a concession/trade in your least

important area (i.e. Lower price to get a
desired deal term or payment term.)

The other sides first concession is in its least

important area of concerns.
Try not to give the first major concession (it
raises expectations and confuses people).

Put the major issues aside, agree on small,

easy issues first.
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Concession Tactics

Give small concessions and give

them slowly.

The slower you give them, the more

value they have.
A fast concession makes the buyer feel
awful (couldve gotten more) and
devalues your product.

Make the other side work hard for every

concession; they will appreciate it more.
Make concessions progressively smaller.
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Building Agreement

Summarize agreements and restate

the other sides position on a regular
basis.
Be patientwith patience and hard
work in exploring alternatives, you
can make the deal better for both
sides.

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Closing

Expect to close the deal.

If you walk away, always leave the
door open.

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Closing Tactics

Split the difference?

The most likely settlement point in a negotiation is

the midpoint between two opening offers.
People who prefer a cooperative style like to cut
through the bargaining process and often offer to
split the difference at the beginning.
When the relationship is important, split the
difference; its a smooth way to close.
In a transaction situation, the midpoint may be too
much in the other sides favor; dont split.
In a balanced concerns situation; problem solve
widen the options before splitting.
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Closing and Gaining

Commitment

Closing tactic the scarcity effect:

The scarcity tactic works even better at the

end rather than at the beginning of a
negotiation:

Competition (someone else wants it)

Deadlines (agree now or elements or terms of
the deal explode)

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Closing Tactics

Use a variety of trial closes

throughout the negotiating process:

The
The
The
The
The
The

Clincher Close
Assumption Close
SRO Close
Minor-Point Close
T-Account Close
Pin-Down Close

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Closing

Ask for a decision.

Non-binding Letter of Intent (LOI)

Commitment to send a contract.

48-hour hold

What else is left?

If I can resolve these issues, do we
have an agreement?

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Closing

Be careful about trying to close too

aggressively.
You can create a sense of urgency,
but the timetable has to be the other
sides.

Too much pressure can kill a

prospective sale.

High pressure raises suspicion.

People want to buy, they dont like being
soldor closed.
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Buyers Tactics

The Big Bait (search for rock

bottom)
Deliver Garbage (lowers
expectations and confidence)

Good Guy/Bad Guy (forces the

wrong comparison)

The Flinch (brings out guilt feelings)

The Price Tag (sets a limit)

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Buyers Tactics

Red Herring (manufactures an issue,

tries to transfer concessions)
The Crunch (implies theyre hot, but
wont give a number)

Silence (tries to get the other side to

respond with concessions)

Cherry Pick

Auction

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Buyers Tactics

Blackmail (never give in to threats,

makes you vulnerable in the future)
Change of Pace (brings you close,
then backs off to get you frustrated
and to concede)
Escalation (takes back a concession)
Split the Difference (after a low
offer)
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Buyers Tactics

Nibble (offers a settlement, then

takes little bites back)
Declare the Other Side the Winner
(dont believe it)

Take It or Leave It (an ultimatum;

always look to the future)

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Confidence Gives You

Power

The buyer will never be forgiven for

not asking for a better deal), but will
always be forgiven for not getting it.
Recognize negotiating tactics.

Accuse the other side of not being

fair flinch.
Take reasonable risks equate risk
with a positive outcome.

If youre comfortable with risk.

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Confidence

A good deal is an individual

perception that is unique to every
person.

Low price
Someone else wanted it
High quality, reasonable price
Got the last one
Low risk of dissatisfaction

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Got a discount (wholesale)

Feel that they won
Something else thrown in
Price/results ratio is high
Compared to alternatives

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Get Commitment

Social Ritual

Public Announcement

Accountability

Simultaneous Exchange

Once you get commitment, say

thank you, shut up and scram.

Nothing good can happen after a yes.

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Get Commitment

Agreements alone are not enough

unless the relationships and trust
between both sides are deep and
stable.
Set the situation up so that the
other side has something to lose if it
fails to perform, and be willing to
take a similar step yourself.
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On Becoming an
Effective Negotiator

Seven tools for highly cooperative

people:
1.

2.

3.

Avoid concentrating too much on your

bottom line. Spend extra time preparing
your goals and developing high
expectations.
Develop a specific alternative such as a
fallback if the negotiation fails. If you
cant walk away, you cant say a simple
no, you need a fallback position.
Get an agent and delegate the
negotiating task.
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4.

5.

6.

Create an audience (youre more

assertive when people are watching).
Say, Can you do better than that
because (push back a little with a
truthful reason).
Insist on commitments, not just
agreements (dont be too trusting).

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Summary

Plan. Know your and the other

sides negotiating style and
objectives, and plan tactics.
Identify the negotiating situation
(Balanced Concerns, Relationship,
Transaction, Tacit Coordination)
Negotiate to close and get a
commitment.
Make the other side feel like it got a
good deal.
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