Chapter 13: Negotiation

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definition of negotiation
process that occurs when two or more parties decide how to allocate scarce resources
Distributive bargaining
– bargaining over price of a car you want to buy
– any gain one person makes is at the other’s expense
– who gets what share of a fixed pie (set amount of goods needs to be divided up)
– labor-management negotiations over wages
– each wants to meet target point, won’t go higher or lower than resistence point, will probably meet in the middle (settlement range)
best thing to do in distributive bargaining
make the first offer, and make it aggressive.
– shows power, also anchoring bias (ppl fixate on initial information)
– ambitious, but justifiable
Integrative bargaining
– a clothing store does well and then in bad economic times, designers set-up payment plans with the store to help them out financially bcuz they’ve trusted the store for so long
– assumes one or more of the possible settlements can create a win-win situation
– preferable to distributive in OB because builds long-term relationships and trust
– feeling positive about one negotiation is more likely to be lenient in next negotiation
– requires two parties that are open with information, sensitive to each others needs, and maintain flexibility
Bargaining in teams
– reach more intagrative agreements than when bargaining alone
putting more issues on the table
– achieves higher joint-gain settlements (intagrative) because more opportunity for “logrolling” where issues are traded off according to individual preferences
– creates better outcomes for each side
focus on underlying issues of both sides
– better to understand why an employee wants/deserves or doesn’t deserve a raise rather than just the raise amount
– stay focussed on broad overlying goals rather than immediate incremental outcomes
compromise in integrative bargaining
– reduces pressure to bargain integritavely
– if opponent caves in easily, no one needs to reach a settlement
– ppl settle for less than they could have obtained if they had been forced to consider the other party’s interests, trade-off issues, and be creative.
steps in the negotiation process (5)
1) preparation and planning
2) definition of ground rules
3) clarifiction and justification
4) bargaining and problem solving
5) closure and implementation
Preparation and planning
– what’s the nature of the conflict, what’s the history leading up to the negotiation, who’s involved and what are their perceptions of the conflict, what do you want from the negotiation, what are your goals??
– put your goals in writing to keep you focused (“most helpful” and “minimally acceptable”
– what is the other party likely to ask, how can you combat it?
– consider how the negotiation may affect relationship: if you win, would they hate you? so should you pursue more of a compromise?
– if you don’t care, maybe chose a more aggressive style
– employees who felt more positive about the negotiation were less likely to turnover regardless of outcome
– DEVELOP STRATEGY: determine best alternative to a negoatiated agreement (BATNA), any offer higher than your BATNA is better than nothing; you also shouldn’t expect much success if the other side doesn’t reach or go over their BATNA
Definition of ground rules
– develop with other party
– exchange initial proposals and demands
who will do the negotiating? where will it take place? time constraints? to what issues will we be limited?
clarification and justification
– once you’ve explained initial conditions, you and other party must explain, amplify, clarify, and justify your initial demands
– not confrontational, but an opportunity to educate other
bargaining and problem solving
now you make concessions, employ your bargaining techniques, whichever you felt appropriate in preparation stage
closure and imlementation
formalizing agreement and developing procedures necessary for implementing and monitoring it
– like hammering out specifics in a normal contract
– handshake
personality traits in negotiation
– related weakly, so you can only sort of predict outcomes based on each others persoanlities
– research focuses on big five trait of agreeableness cooperative, compliant, conflict-averse), but still it’s weakly related to negotiations
– depends on situation
– tendencies of one personality trait may pull you in two different directions in a negotiation
– agreeableness is compliant but also warm and empathetic; former hinders outcomes, latter helps
moods/emotions in negotiations
– depends on emotion and context
– negotiator who shows anger induces concessions, because other party believes no further concessions from angry party are possible
– should show anger only if you have at least as much power as your counter part
– anger must be genuine (not surface0-acting, deep-acting)
– disappointment shown in one party makes other party concede more because they feel guilty
– experiencing more anxiety may lead you to be more deceptive than your opposing party; another study found anxious negotiators have lower outcomes and exit bargaining process more quickly
– negative emotions matter most to negotiation
culture in negotiation
– different cultures negotiate differently, depending on context
– generally negotiate more effectively within cultures than between them (colombian better with colombian than sri lankan)
– high openness is important in cross cultural negotiations
– avoid time constraint bcuz they inhibit on party
– emotions are culturally sensitive (chinese negotiators increase distributive negotiation when reacting to angry counterpart while US negotiators back down more)
gender differences in negotiation
– men and women negotiate differently
– men place higher value on status, power, and recognition, economic outcomes
– women place higher value on compassion and altruism, relationship outcomes
– women are less assertive, less self interested, and more accommodating
– women are more reluctant to initiate negotiations and more likely to settle to get out of one
– hurts women in managerial positions
-women are more likely to engage when bargaining on behalf of someone else than when bargaining on their own behalf
target price
your goal
resistance point
Your “bottom line,” or minimum acceptable agreement
Your best alternative if they or you walk away from this deal
zone of possible agreement, your “settlement range”
the lure of the midpoint
– it seems fair to just split down the middle
– but the midpoint is often based on sudjective calculations and is meaningless
– midpoint isn’t anymore fair than any other point in the ZOPA`
agreement bias
the more you work and prepare for the negotiation, the more you just want to make a deal. So, you will settle for terms that are worse than your current position
– sunk costs; need for closure
winner’s curse
– one person makes offer, other person immediately accepts, so you assume you offered too low/high and feel bad about yourself and walk away from the negotiation unhappy, even though you made a deal.
why does winners curse happen
– you didn’t do enough research, your target price was too low or too high.
– you may have settled for too little/too high
common causes for ineffective negotiation
– lack of planning and preparation for the negotiation
– lack of research (your BATNA, opponent’s BATNA, your target price)
– being satisfied with the negotiation, rather than optimizing
– many people find negotiating uncomfortable, so want to just get it over with
– feel bad for pushing for your own interests
claiming value: rights based
– what do I deserve? what do they deserve? what’s fair?
– need a lot of external information to determine this (list price, blubook)
– ex//reference points, justification
claiming value: power based
– I can walk away, so you have to comply with what I want because I have more power. You need this deal.
what’s the most basic negotiation strategy?
distributive (fixed pie, you lose some, I win some. )
how to set a target with distributive strategy
– Know what you want
– Should be ambitious, but justifiable
– Do not base your target on your BATNA
– Commit to your target
– Focus on your target first; later you can shift to your RP
how to set your reservation price in distributive?
– Decide what you need, to ensure you’re better off
– Commit to your RP
– Do not reveal yours, do try to discover theirs
guidelines for BATNA in distributive
– Don’t “fall in love” with what you’re negotiating for, leaves you vulnerable to going below/above reservation price and becoming worse off- consider your alternatives
aka “Fall in love with three” rule (Bazerman)
– Know your BATNA
– Grow your BATNA
– Don’t reveal your BATNA, except as a last resort
what are the tactics for claiming value (3 of them)
1) first offer
2) explanations
3) concessions
tactics for claiming value : first offer
– make the first offer!!
– this anchors the negotiation around that price, anchoring bias
– use a value, not a range, bcuz they’ll chose one end of the range that works best for them
– first offer must be ambitious but justifiable to anchor the negotation
what are the exceptions to offering the first value (when to hold back)
– if you think they might offer more than your target (winners curse)
– if you didn’t do enough research/ don’t have good information
– there is a strong social norm in that situation, like a job offer
If you don’t make the first offer…
IMMEDIATELY counter offer at your target point, try not to get anchored
another tactic for claiming value: explanation
– provide explanations for why you need it at this price that will appeal to your opponent (for this, use objective criteria and norms, like “the bluebook value is actually…”
– ask about your opponents subjective standards, and then use them (what is fair to you?)
tactics for claiming value: concessions
– don’t make a big concession (don’t go from 4k to 5k)
– don’t make concessions too quickly
– don’t concede before you start, before you give your target price
– never double concede, should be you concede a little, then them, then you
– provide explanations and expectations for concessions
how to get your opponent to make concessions
– Reciprocity
– The power of silence
– Looking shocked or surprised
– Create time pressure like deadlines, exploding offers
– Create competition
– Real or feigned
– Escalation of commitment (sunk costs) (you’ve already put so much into it, don’t you want to just make the deal already?)
– Be patient – most concessions happen in the last few minutes
hardball negotiation tactics
– Stonewalling (not budging, not talking)
– High-balling or low-balling
– Good cop/bad cop (if someone calls their wife and you feel bad, they are the good cop and you feel like the bad cop, then you feel bad and want to help them out)
– Nibble
– Bogey and other types of bluffing
– Leaving the table and threats to leave the table
– Overwhelming the opponent with incomprehensible information
what do you do if someone uses these tactics on you?
– play hardball back
– walk away
– address the process (this is what you’re doing, you need to stop, or else no deal)
Categories: Negotiation