Principles to successful negotiations

Principles to SuccessfulPrinciples to Successful
NegotiationsNegotiations
Kathleen LagraveKathleen Lagrave
2007 Awards Trip2007 Awards Trip

Negotiating: A Life SkillNegotiating: A Life Skill
 Negotiating is everywhere:Negotiating is everywhere:
 Family membersFamily members
 FriendsFriends
 NeighborsNeighbors
 ColleaguesColleagues
 Business associatesBusiness associates
 Applying these principles will help youApplying these principles will help you
achieve a balanced agreementachieve a balanced agreement

Misunderstanding AboutMisunderstanding About
NegotiatingNegotiating
 Nobody should loses in an agreementNobody should loses in an agreement
 But in practice, many accept agreementsBut in practice, many accept agreements
that work against their best interestthat work against their best interest
 Why?Why?
 Process information incorrectlyProcess information incorrectly
 Allow our judgment to be swayed by emotionsAllow our judgment to be swayed by emotions
or irrelevant eventsor irrelevant events

A Rational ApproachA Rational Approach
 The interplay in negotiations is as variableThe interplay in negotiations is as variable
as human personalityas human personality
 It is unlikely to conform perfectly to anyIt is unlikely to conform perfectly to any
business modelbusiness model
 However, if you understand the underlyingHowever, if you understand the underlying
dynamics of negotiations, you will be abledynamics of negotiations, you will be able
to isolate:to isolate:
 Common biasesCommon biases
 MistakesMistakes

Your Two GoalsYour Two Goals
 Integrative NegotiationsIntegrative Negotiations
 Increase the size of the “pie”Increase the size of the “pie”
 Extend the range of the issues in aExtend the range of the issues in a
negotiations to make the deal bigger andnegotiations to make the deal bigger and
betterbetter
 Distributive NegotiationsDistributive Negotiations
 Maximize your “share” of the pieMaximize your “share” of the pie
 Your goal is to work towards bothYour goal is to work towards both

Irrational Tendencies inIrrational Tendencies in
 Watch out for these:Watch out for these:
 Unrealistic ExpectationsUnrealistic Expectations
 Escalation of CommitmentEscalation of Commitment
 Over-competitivenessOver-competitiveness
 AnchorsAnchors
 FramesFrames

 Unrealistic ExpectationsUnrealistic Expectations
 Under-confident – we undervalue our assetsUnder-confident – we undervalue our assets
and what we have to bargain withand what we have to bargain with
 Other party may reduce value of assetsOther party may reduce value of assets
 Over-confident – often think they know it all inOver-confident – often think they know it all in
advance and shut out new sources ofadvance and shut out new sources of
information and refuse to considerinformation and refuse to consider
alternatives and creative solutions which canalternatives and creative solutions which can
increase the size of the “pie”increase the size of the “pie”

 Escalation of CommitmentEscalation of Commitment
 If it is taking too long to reach an agreement, we get nervousIf it is taking too long to reach an agreement, we get nervous
 We feel the pressure of time and effort building upWe feel the pressure of time and effort building up
 This leads us to escalate our commitment and accept a deal whichThis leads us to escalate our commitment and accept a deal which
actually makes us worse offactually makes us worse off
 Sometimes this is a tactic of the opposing partySometimes this is a tactic of the opposing party
 Over-competitivenessOver-competitiveness
 Humans love to competeHumans love to compete
 Pushes us into the mind set of “your loss, is my gain”Pushes us into the mind set of “your loss, is my gain”
 Distributive NegotiationsDistributive Negotiations
 We lose sight of important opportunities which may expandedWe lose sight of important opportunities which may expanded
the “pie”the “pie”
 Integrative NegotiationsIntegrative Negotiations

 Setting the wrong “anchor” or $$ valueSetting the wrong “anchor” or $$ value
 Research shows that people consistently lookResearch shows that people consistently look
for and rely on anchors in making a judgmentfor and rely on anchors in making a judgment
 Example: Depressed job market: take a job with aExample: Depressed job market: take a job with a
salary below industry averagesalary below industry average
 Anchor: Having a job in a depressed market isAnchor: Having a job in a depressed market is
better then not having a job at allbetter then not having a job at all
 Sometimes anchors have very littleSometimes anchors have very little
applicability to the current situationapplicability to the current situation
 If this happens, you have to work on changing theIf this happens, you have to work on changing the
anchor that has been previously setanchor that has been previously set

 Setting the wrong “frame”Setting the wrong “frame”
 People can react very differently to identical proposalsPeople can react very differently to identical proposals
when the perspective or framing changeswhen the perspective or framing changes
 Instead of focusing on risk, focus on opportunityInstead of focusing on risk, focus on opportunity
 Instead of purchase price, focus on net profitInstead of purchase price, focus on net profit
 Both the type of information brought into a negotiationBoth the type of information brought into a negotiation
and the word choice and phrasing can influence howand the word choice and phrasing can influence how
elements are being understood and interpretedelements are being understood and interpreted
 Know your “frames” and the opposing party’s “frames”Know your “frames” and the opposing party’s “frames”
before entering into a discussion and test yourbefore entering into a discussion and test your
perspectives to make sure they align with the opposingperspectives to make sure they align with the opposing
party’sparty’s

How to avoid irrational tendenciesHow to avoid irrational tendencies
 Your goal is to get the best possible dealYour goal is to get the best possible deal
thatthat improves your positionimproves your position
 We often make the mistake of assumingWe often make the mistake of assuming
because we are in negotiations, we mustbecause we are in negotiations, we must
reach an agreement and because of thisreach an agreement and because of this
we will escalate our commitmentswe will escalate our commitments
irrationallyirrationally
 To avoid this, we need to assess ourTo avoid this, we need to assess our
alternativesalternatives

How to avoid irrational tendenciesHow to avoid irrational tendencies
 BATNABATNA
 Reservation PriceReservation Price
 TargetTarget
 Be open to new informationBe open to new information
 FairnessFairness
 TrustTrust

BATNABATNA

What is yourWhat is your BBestest AAlternativelternative TTo ao a
NNegotiatedegotiated AAgreement?greement?
 This is the absolute bottom lineThis is the absolute bottom line
 Know what this is before going intoKnow what this is before going into
negotiationsnegotiations
 If an agreement is NOT better then yourIf an agreement is NOT better then your
BATNA, you are worse off – walk away!BATNA, you are worse off – walk away!

Reservation PriceReservation Price
 The valueThe value belowbelow which you would rather acceptwhich you would rather accept
an impasse and settle for BATNAan impasse and settle for BATNA
 Your goal is NOT to just get any deal nor is it toYour goal is NOT to just get any deal nor is it to
accept a deal that makes you just slightly betteraccept a deal that makes you just slightly better
offoff
 Your goal is to get the best deal you canYour goal is to get the best deal you can
 Although it may seem irrational to acceptAlthough it may seem irrational to accept
impasse over an agreement that improves yourimpasse over an agreement that improves your
position, you sometimes need to show theposition, you sometimes need to show the
willingness to walk away from a marginalwillingness to walk away from a marginal
agreement in order to achieve an excellent oneagreement in order to achieve an excellent one

TargetTarget
 Opposite of the reservation priceOpposite of the reservation price
 This is what you would like to achieveThis is what you would like to achieve
 Your dream agreement!Your dream agreement!
 When negotiating, be sure to focus on theWhen negotiating, be sure to focus on the
target not your reservation price or BATNAtarget not your reservation price or BATNA
 The target helps you establish yourThe target helps you establish your
anchor and frameanchor and frame

New InformationNew Information
 Stay open to mutually beneficial proposalsStay open to mutually beneficial proposals
 Good opportunities may expand the “pie”Good opportunities may expand the “pie”
 Know your counterpart’s BATNA andKnow your counterpart’s BATNA and
reservation price (RP)reservation price (RP)
 This will help you set your strengths andThis will help you set your strengths and
see if they are in-line with yourssee if they are in-line with yours
 Try to find out the underlying goals andTry to find out the underlying goals and
interests that motivate your opponent’sinterests that motivate your opponent’s
stated positionstated position

New InformationNew Information
 Be careful . . .Be careful . . .
 Our memories are often unreliable and selectiveOur memories are often unreliable and selective
 We remember vivid, spectacular or catastrophicWe remember vivid, spectacular or catastrophic
events, over mundane onesevents, over mundane ones
 We tend to be easily influenced by “presentation”We tend to be easily influenced by “presentation”
over substance – salesmanshipover substance – salesmanship
 Seek out hard figures and evaluate them carefullySeek out hard figures and evaluate them carefully

FairnessFairness
 Humans are very sensitive to fairnessHumans are very sensitive to fairness
issuesissues
 Often a negotiation will fail from anOften a negotiation will fail from an
economically rational agreement if one ofeconomically rational agreement if one of
the parties believes they have beenthe parties believes they have been
unfairly treatedunfairly treated
 Be aware of “fairness” and the perceptionBe aware of “fairness” and the perception
of itof it

TrustTrust
 Trust is essential to maintaining a perception ofTrust is essential to maintaining a perception of
fairnessfairness
 We are less likely to suspect ulterior motives,We are less likely to suspect ulterior motives,
traps or deceptiontraps or deception
 Accidental mistakes are less likely to escalateAccidental mistakes are less likely to escalate
into impassible challenges if trust is establishedinto impassible challenges if trust is established
 Although some “posturing” is expected, neverAlthough some “posturing” is expected, never
misrepresent your assetsmisrepresent your assets
 Most negotiations move well beyond a “one-shot”Most negotiations move well beyond a “one-shot”
dealdeal

It’s Time to Negotiate!It’s Time to Negotiate!
 Build Rapport –Build Rapport –
 Negotiators are people tooNegotiators are people too
 Courtesy, expressions of friendly concern re: health and family,Courtesy, expressions of friendly concern re: health and family,
interest in his/her business situation establish trustinterest in his/her business situation establish trust
 This helps encourage cooperative, integrative problem-solvingThis helps encourage cooperative, integrative problem-solving
 Continue Gathering InformationContinue Gathering Information
 Helps assess counterpart’s BATNAHelps assess counterpart’s BATNA
 Helps ID trade-offsHelps ID trade-offs
 Opportunities to expand “pie”Opportunities to expand “pie”
 Ask opened questionsAsk opened questions
 What are the advantages and disadvantages of the current productsWhat are the advantages and disadvantages of the current products
you dispense (or procedures you do)?you dispense (or procedures you do)?
 Do your LAERDo your LAER

 Exchange InformationExchange Information
 When your counterpart is reluctant to divulgeWhen your counterpart is reluctant to divulge
information, it is useful to initiate an exchange ofinformation, it is useful to initiate an exchange of
informationinformation
 Find out their true interests – This is the “unknown”Find out their true interests – This is the “unknown”
 Take turns asking and answering questionsTake turns asking and answering questions
 This builds trust and understandingThis builds trust and understanding
 Helps to discover items that you value differently andHelps to discover items that you value differently and
that you can trade offthat you can trade off
 Also, may help to increase the “pie”Also, may help to increase the “pie”

 First Offer -This is tricky!First Offer -This is tricky!
 Advantage of letting opponent make first offer:Advantage of letting opponent make first offer:
 Offer is better than what you would expectOffer is better than what you would expect
 Disadvantage of letting opponent make first offer:Disadvantage of letting opponent make first offer:
 Opponent has set an anchorOpponent has set an anchor
 Many times the position of the anchor strongly affects the finalMany times the position of the anchor strongly affects the final
outcomeoutcome
 When deciding what to do, information is your strongestWhen deciding what to do, information is your strongest
allyally
 If you do make the first offer, make sure the offer is ambitiousIf you do make the first offer, make sure the offer is ambitious
but also discussablebut also discussable
 Reasonable enough that the other party does NOT walk-awayReasonable enough that the other party does NOT walk-away

 Bidding StrategiesBidding Strategies
 Bids are offers but also signalsBids are offers but also signals
 Big changes/bids indicate that you areBig changes/bids indicate that you are
probably willing to make even furtherprobably willing to make even further
concessionsconcessions
 Smaller bids indicate less willingness toSmaller bids indicate less willingness to
changechange
 Careful of the speed of your offer/bidCareful of the speed of your offer/bid
 Faster your respond, more eager you will appear =Faster your respond, more eager you will appear =
more concessions you may makemore concessions you may make

 Negotiation RangesNegotiation Ranges
 First offer establishes one bound of rangeFirst offer establishes one bound of range
 First counteroffer establishes other boundFirst counteroffer establishes other bound
rangerange
 Generally most negotiations end somewhereGenerally most negotiations end somewhere
in the middlein the middle
 Control the negotiation range and you areControl the negotiation range and you are
likely to control the final outcomelikely to control the final outcome

 ImpasseImpasse
 You and your opponent cannot reach an agreement and you areYou and your opponent cannot reach an agreement and you are
at your BATNAat your BATNA
 How to move out of this impasse:How to move out of this impasse:
 Do creative, integrative problem solvingDo creative, integrative problem solving
 Can you expand the “pie?”Can you expand the “pie?”
 Make a small concession and insist on receiving one in returnMake a small concession and insist on receiving one in return
 If you don’t receive one in return, it is risky, but you can retract yoursIf you don’t receive one in return, it is risky, but you can retract yours
 Take a breakTake a break
 Consult with colleagues, re-focus on counterpart’s interestsConsult with colleagues, re-focus on counterpart’s interests
 Make sure your anchor and framing is correct to those interestsMake sure your anchor and framing is correct to those interests
 Third PartyThird Party
 A fresh perspective can sometimes get things back on trackA fresh perspective can sometimes get things back on track

ConcessionsConcessions
 Be gracious when you receive oneBe gracious when you receive one
 Reassure your opponent that the concessionReassure your opponent that the concession
is fair and in the interest of both partiesis fair and in the interest of both parties
 Provide value to your concessionProvide value to your concession
 But avoid pouting and bitterness after youBut avoid pouting and bitterness after you
make themmake them

 UltimatumsUltimatums
 Only give them if you are willing to followOnly give them if you are willing to follow
throughthrough
 If you don’t carry them out your credibility willIf you don’t carry them out your credibility will
suffersuffer
 TerminationTermination
 When your BATNA or RP are not exceededWhen your BATNA or RP are not exceeded
walk-awaywalk-away
 Be cordial and encourage future negotiationsBe cordial and encourage future negotiations
should circumstances change in the futureshould circumstances change in the future

Final CommentFinal Comment
 Negotiations can be frustratingNegotiations can be frustrating
 But they will be less if you do NOT expect people toBut they will be less if you do NOT expect people to
behave rationally at all timesbehave rationally at all times
 Note people’s irrationalities and make them work forNote people’s irrationalities and make them work for
youyou
 Control your anger and try to maintain a cordial,Control your anger and try to maintain a cordial,
rational negotiationrational negotiation
 Try to maintain positive emotionTry to maintain positive emotion
 Research shows negotiators who are in positive moods areResearch shows negotiators who are in positive moods are
more likely to achieve integrative agreementsmore likely to achieve integrative agreements
 People prefer to do business with people they likePeople prefer to do business with people they like
 Remain firm in demanding a good agreement but courteousRemain firm in demanding a good agreement but courteous
and cordial in the way you deliver that messageand cordial in the way you deliver that message

Negotiating ExerciseNegotiating Exercise
 Four TeamsFour Teams
 2 Rep Teams2 Rep Teams
 2 Account Teams2 Account Teams
 Teams will be paired up and given a NegotiationTeams will be paired up and given a Negotiation
ChallengeChallenge
 Break-off for 15 minutesBreak-off for 15 minutes
 Determine your TARGETDetermine your TARGET
 Determine your BATNA and RPDetermine your BATNA and RP
 Identify your trade-offs/concessionsIdentify your trade-offs/concessions
 Establish your anchor and how to frameEstablish your anchor and how to frame
 Identify questions you might ask for exchange of informationIdentify questions you might ask for exchange of information
 Think about possible expansions of the “pie”Think about possible expansions of the “pie”

TeamsTeams
Rep Team:Rep Team:
 MichelleMichelle
 LidaLida
 GinnyGinny
Rep Team:Rep Team:
 AshleyAshley
 ChristaChrista
 RachelRachel
Account Team:Account Team:
 JulieJulie
 JillJill
 JanetJanet
 GailGail
Account Team:Account Team:
 ShanaShana
 StacieStacie
 KarenKaren

Third Party AgentsThird Party Agents (if necessary)(if necessary)
 DaveDave
 SteveSteve
 PamPam
 RobinRobin
 HollyHolly
 StephanieStephanie (usually always booked with more pressing issues but maybe available)(usually always booked with more pressing issues but maybe available)

List of Shared InformationList of Shared Information
 These are the facts/interests that areThese are the facts/interests that are
known by both parties:known by both parties:

List of Unknown InformationList of Unknown Information
 These are things/goals known by one ofThese are things/goals known by one of
the parties:the parties:
 They are confidentialThey are confidential
 On separate paperOn separate paper
 Will hand out to each teamWill hand out to each team

Meet back at ?????Meet back at ?????
ForFor

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