Bargaining for Advantage: Negotiation Strategies for Reasonable People
Successful negotiations rely on six important elements: how you negotiate, what you want, the rules, your relationships, what the other side wants, and your leverage. To do well in the four negotiation stages: planning, sharing information, compromising, and closing the deal, this book provides a detailed guide to help you get the best outcome possible.
Full title: Bargaining for Advantage – Negotiation Strategies for Reasonable People By G. Richard Shell, 2000 (first edition), 2006 (current revised edition), 282 pages.
Chronicle and summary of the book “Bargaining for Advantage”:
Part 1: The six key foundations to a successful negotiation
Chapter 1: The first foundation – Your negotiation skills
Two men walked into a big meeting room in New York to discuss a potential merger between their companies. One was Peter Jovanovich, the CEO of a struggling American publishing company called HBJ. The other was Dick Smith, who owned a successful conglomerate called General Cinema. They both had their teams with them.
Smith thought HBJ was the right fit for his company but wasn’t sure if Jovanovich would agree. He had a presentation ready, emphasizing General Cinema’s financial strength and reputation. He planned to offer help to HBJ but wanted to be cautious not to promise too much.
Jovanovich’s team had coached him to be curious but not reveal how desperate their situation was. When Smith started his presentation, Jovanovich unexpectedly interrupted. This surprised everyone, and they wondered what he was up to.
While talking, Jovanovich took a little box out of his pocket and put it on the table between him and Smith. He opened the box and showed a watch with “HBJ” engraved on it. Then, he pushed the watch towards Smith
“My father always gives a watch like this to his partners at the beginning of a new business relationship. This shows my sincere feeling that General Cinema is the right buyer for HBJ”.
The statement was risky, and both men were aware of it. The tension in the room eased, and they, along with their teams, started to have a serious discussion about how to finalize the deal. They talked all night.
Many years ago, far away from New York
in the Tanzani Valley, East Africa, two respected elders from different branches of the Arusha people gathered one late morning under a cluster of shady trees. In the distance, behind them, loomed a towering mountain called Mount Meru, standing over 4,500 meters tall. They were accompanied by groups of men on either side of an open space beneath the trees. In rural Africa, these shaded areas served as meeting places.
The two elders formally spoke to each other as they recounted a disagreement between two neighboring farmers. Each elder listed grievances and sought compensation for various offenses. Both men claimed ownership of a piece of land that lay vacant between their farms, once belonging to a family whose lineage had ended. This dispute had resulted in a series of incidents. One farmer’s son damaged an irrigation fence on the other farmer’s land, leading the owner of the fence to retaliate by striking the son. The beaten son’s father then approached the elders, requesting a formal meeting to resolve the dispute.
A full day of debate was needed. Everyone had brought food
- Richard Shell starts his book Bargaining for Advantage, with stories that show how people from different backgrounds and cultures engage in a common human activity called “negotiation” to achieve their goals and solve problems. Negotiation is something we all do every day. As kids, we negotiated for things like attention, treats, or toys, and as adults, we negotiate for more complex things that often boil down to the same basic desires.
Negotiation is a specific form of communication, but we may not always realize when we’re doing it. To make it clearer, here’s a simple definition: Negotiation is a way we interact with others when we want something from them or when they want something from us.
Your personal negotiation style is crucial in this process. If you’re naturally friendly, it’s hard to be aggressive in negotiations, and if you’re naturally aggressive, it’s tough to hide it. Even if you dislike negotiations, you can still do well by acknowledging your style and learning to manage it.
So, before diving into the art of negotiation, take a moment to reflect on how you naturally handle negotiations and use that as a foundation to build valuable skills and strategies to achieve your goals.
There are five main negotiation strategies, and we can understand them better through a simple experiment:
Picture yourself as one of ten strangers sitting around a big table. Someone enters the room and says, “I’ll give a $1,000 prize to the first two people who can convince the person in front of them to stand up, walk around the table, and stand behind their chair.”
The first two to succeed get $1,000 each, while the rest get nothing. What would be your plan in this situation? Take a moment to think about it with your eyes closed.
Got it? Great! Each possible response corresponds to a different type of negotiation strategy:
- Avoidance Strategy: One option is to do nothing, perhaps out of suspicion or a fear of looking foolish. You might think, “Negotiation isn’t my thing, so I won’t participate unless I have to.” This is like how North Korea avoided negotiations for years and built up its nuclear program to gain leverage in negotiations.
- Compromise Strategy: The most straightforward approach would be to offer the person in front of you €500 to get them to stand behind your chair. This is the compromise strategy.
- Accommodation Strategy: Another response is to simply stand up and go behind the chair of the person opposite you. This is the accommodation strategy. If you do it because your partner offers to share the money, you could use this response in future money-related negotiations. However, it relies heavily on trusting a stranger you may never see again.
- Competition Strategy: The competition strategy involves aiming to win the €1,000 and deciding how to split it. You might propose a 50-50 split but later renege on the deal. While this can be seen as unethical, it’s an example of a competitive strategy. Some competitive strategies are more ethical, but this one isn’t the best at balancing ethics and competitiveness.
- Collaboration Strategy: The most imaginative strategy is to jump out of your chair and suggest, “Let’s all run around and stand behind each other’s chairs! We’ll all win €1,000 each!” If executed swiftly, this is the collaboration or troubleshooting strategy. Instead of dividing the pie, you try to ensure that everyone gets a whole pie. It’s the most challenging strategy to implement because it requires thorough analysis, transparency, and brainstorming to find the best solutions that consider all options.
We all have our unique ways of doing things, but we can adapt when needed. The book bargaining for advantage: provides a test to help you discover your personal traits.
In addition to the five negotiation strategies we discussed, there are two fundamental approaches: cooperative and competitive. The media often portrays negotiators as competitive individuals who use aggressive tactics like threats or loud arguments. However, studies from the United States and the United Kingdom suggest that most people actually have a cooperative negotiation style, and these cooperative negotiators tend to be more successful. In fact, research shows that typical negotiators use about 10.8 aggressive tactics per hour, while experienced negotiators use only 2.3 per hour.
Gender and cultural background also play a significant role in negotiation. American women, for instance, are less likely to negotiate for things like salaries or promotions compared to men. They tend to be more cooperative in their approach. This gender difference can result in women receiving lower offers, but those who do negotiate, regardless of gender, usually get better deals.
Another interesting aspect is how stereotypes affect negotiations
Since women are generally seen as more cooperative, both men and women bring this stereotype to the table and may act accordingly.
Cultural differences can lead to misunderstandings in negotiations. When dealing with someone from a different culture, it’s crucial to be well-informed and considerate of these differences. There are dedicated books available on this topic.
Apart from negotiation style, gender, and culture, there are four common practices among successful negotiators: thorough preparation, high expectations, active listening, and strong personal ethics. These practices are detailed in the book bargaining for advantage, in that order.
Chapter 2: The second foundation – Your objectives and expectations
In 1955, a small Japanese company called Sony had a new product: a tiny transistor radio priced at $29.95. It sold well in Japan, but Sony’s leader, Akio Morita, wanted to introduce it to the massive U.S. market.
Morita went to New York and attracted interest from Bulova, a respected electronics company. Bulova offered to buy 100,000 radios and distribute them in the USA. This offer was worth much more than Sony’s entire value. But there was a catch: Sony would be an Original Equipment Manufacturer (OEM), meaning they’d build the radios, but Bulova would sell them under its own name. This clashed with Morita’s goal of establishing Sony as an independent global brand known for innovation and quality.
Morita asked his executive committee in Japan for advice, and they urged him to accept the deal, putting aside the brand issue. Morita took a week to think it over, then declined Bulova’s offer, shocking them. Bulova’s purchasing manager didn’t understand, as this OEM arrangement was standard. He questioned why Morita turned it down, given that Bulova’s brand was well-known and Sony’s wasn’t. Morita responded that 50 years ago, nobody knew Bulova, just as nobody knew Sony at that moment. He promised that in 50 years, Sony would be as famous as Bulova.
Soon after, Morita received a smaller order from another American distributor who allowed Sony to put its brand on the radios. The miniature radio was an instant hit, putting Sony on the map.
Morita’s decision to reject Bulova’s lucrative offer was risky but demonstrated his strong vision for Sony. He had high expectations and believed in them.
This story highlights how your purpose shapes your negotiation path.
Research confirms that investing time to achieve your goals yields better results without harming your reputation or relationships.
To become a successful negotiator, you must define clear, fact-backed objectives. Transform these objectives into realistic and suitably ambitious expectations by adding attitude. Objectives are what you strive to achieve and exceed your past performance. Expectations are judgments about what you can and should achieve.
Having a clear vision and optimism is crucial. Your objective should excite you and be attainable. You’ll dismiss suggestions below your aim and engage your intuitive problem-solving abilities. This focus gives you an advantage.
Your clear vision also conveys trust and commitment to the other party, making a significant difference in negotiations. Confidence in knowing what you want and why can set you apart.
Chapter 3: The third foundation – Authority and regulatory standards
In 1932, anthropologist R. F. Barton shared an intriguing story about a Philippine tribe called the Ifugao:
A man borrowed two pigs from his neighbor, part of a standard practice in their tribe, where borrowing included the “natural growth rate” of the animals during the loan period. Typically, a two-year loan of two pigs meant repaying four pigs.
But here, the lender, who wanted a lavish wedding, insisted on six pigs, citing a rare and larger breed. The borrower argued that four was the right number. Their dispute escalated, and they even dug up an old chicken debt from the lender’s grandfather to justify reducing the pigs to three.
The conflict grew, and they involved a respected elder as a mediator. In the midst of negotiations, the lender’s son stole a valuable ancestral gong from the borrower’s home, halting the talks.
Ultimately, the elder proposed a solution: the lender would return the gong, the borrower would waive the chicken debt, and the borrower would pay five pigs. The elder, however, kept two pigs as his fee for resolving the dispute.
What can we learn from this?
While borrowing or lending pigs may not apply to us today, the story illustrates the importance of adhering to accepted rules and norms in negotiations. When someone strays too far from these guidelines, it can lead to frustration and problems.
In negotiations, just as in childhood toy-sharing or corporate strategy discussions, people tend to rely on established rules and criteria. Knowing and preparing for these rules gives you an advantage, as it allows you to present your objectives convincingly and anticipate counterarguments based on these rules.
Rules and regulations matter in negotiation because people want to appear consistent and rational in their decisions. We tend to make choices that align with our past actions and character, aiming to maintain our perceived consistency. Skilled negotiators recognize this tendency and use it to their advantage, while manipulators set “pitfalls” to trap you into obligations that can work against you.
For example, they might ask if you want to save money, and if you agree, they may reveal data showing how their service can save you money based on your past usage.
Why don’t we begin immediately?
The logical answer is usually “yes” in a negotiation. Saying “no” requires finding a new reason, but telemarketers are prepared for objections, so be cautious not to get caught in their traps.
In important negotiations, following rules or using clever words alone won’t win against experienced negotiators. People don’t agree just because of an inconsistency or a strong argument. They agree when it aligns with their best interests and objectives.
A well-researched presentation supporting your position is a good start. It shows your claim is valid and piques the other side’s interest. However, the presentation itself usually doesn’t lead to a successful negotiation. Your proposal must align with the other side’s interests, and your expectations must be convincing. Ultimately, the right price depends on what the buyer is willing to pay and what the seller is willing to accept.
In the pig borrowing story, a crucial aspect of the negotiation was the theft of the ancestral gong.
This gong held great significance for the family as it protected them from spirits, so it was like a hostage taken by the lender’s son. This made the borrower eager to resolve the dispute swiftly.
However, the theft made the lender lose respect in the eyes of the Elder. These two factors led the borrower to agree to pay five pigs, while the lender ended up with fewer pigs than if he had accepted the usual offer.
Chapter 4: The 4th foundation – Relationships
Negotiation revolves around people – their goals, requirements, and interests. The fourth key to successful negotiation is your ability to establish and manage personal connections at the negotiation table. These personal relationships build trust, reduce uncertainty, and improve communication. For instance, most people wouldn’t charge a close friend the same price for a service as they would a corporate client.
So, how do you build and maintain trust in negotiations? It boils down to a simple yet powerful human behavior rule: the rule of reciprocity.
Research in psychology and anthropology has repeatedly shown the significance of the rule of reciprocity in various situations, whether big or small. People are more likely to send greeting cards to those who sent them cards first, donate to charities that have helped them, and make concessions in negotiations when the other party has compromised for them.
In negotiations or business discussions, we keep track of the concessions and compromises made along the way. For example, “I’ve shared what I need; now, let’s hear about your requirements” or “I made the last set of concessions, so it’s your turn.”
Let’s look at an example from the past that illustrates the importance of reciprocity in negotiations:
In the late 19th century, steel magnate Andrew Carnegie shared a story about banker J. P. Morgan in his autobiography. During the financial panic of 1873, Carnegie found himself in a desperate need for cash to meet his obligations. Realizing there was a profitable opportunity, Morgan asked Carnegie if he would sell him his share of their joint partnership.
Desperate for money, Carnegie replied that he “would sell anything for money.” Morgan inquired about the price, and Carnegie stated that he would sell his share for $60,000 – $50,000 to cover his part of the partnership’s cost and $10,000 as profit. Morgan agreed to this deal. While $60,000 may seem small compared to their usual millions, it was a substantial sum in 1873, equivalent to hundreds of thousands of dollars today.
The next day, Carnegie went to collect his money from Morgan. To his surprise, Morgan gave him two checks: one for $60,000 and an extra $10,000.
Seeing the puzzled look on Carnegie’s face, Morgan explained that after reviewing the partnership’s accounts, he discovered that Carnegie had miscalculated the share repayment – it should have been $60,000, not $50,000. So Morgan paid the correct $60,000 to settle the share, along with the additional $10,000 they had agreed upon the day before.
Carnegie, appreciative of Morgan’s integrity, offered him the $10,000 check as a gesture of gratitude. However, Morgan declined, saying, “No thanks, I can’t accept that.” Carnegie ultimately kept the full $70,000.
The story of Morgan reimbursing Carnegie with $10,000, even though it was Morgan’s mistake, left a lasting impression on Carnegie
In his autobiography, Carnegie expressed his determination to support Morgan and his family, vowing that they would never suffer while he was around. He considered himself a loyal friend to the Morgans.
Morgan had the legal right to pay only the agreed $60,000, but he chose to go beyond that. Why? Because he saw an opportunity to strengthen his relationship with Carnegie, going beyond the typical “every man for himself” approach in business. Over the years, their mutual trust and reliance on each other in business dealings paid off significantly, well exceeding the $10,000 they exchanged that day.
The rule of reciprocity in negotiation can be distilled into three straightforward principles:
- Be trustworthy and reliable yourself. Don’t expect others to be trustworthy if you aren’t.
- Be loyal to those who show loyalty to you.
- Speak up when you feel you’ve been treated unfairly. Unaddressed unfairness can lead to exploitation, resentment, and ultimately, the breakdown of a relationship.
Researchers have used a simple experiment known as the “ultimatum game” to demonstrate people’s sensitivity to fairness and justice in negotiations. Here’s how it works:
Imagine sitting next to a stranger in a bar. Someone offers you both a €100 bill but with a condition: the stranger decides how to split it, and you must either accept or refuse their proposal.
If the stranger offers to keep €98 for themselves and give you only €2, would you accept? Most people would refuse this unfair offer, even though €2 is better than nothing. Rejecting such an offer teaches the proposer a lesson.
In a second round of the game, the stranger must again decide how to split €100 between you two. If you accepted their first unfair offer, they might offer the same split again. But if you rejected their initial proposal, they are likely to make a fairer offer, perhaps even up to €50.
Now, suppose the stranger offers you €50. Almost everyone would accept this fair proposal.
If the stranger offers you €55, you’d probably accept it as well, even though it’s not entirely equitable. However, you might feel a sense of indebtedness to the generous person. Just like Carnegie, who felt obligated to repay Morgan’s $10,000 favor, you may find ways to return the favor when the opportunity arises.
The lesson from these examples is that having power doesn’t always mean you should wield it. Sometimes, following in Morgan’s footsteps by using the situation to strengthen the foundation of a relationship can be wiser in the long run.
Here are some important precautions to consider in negotiation:
- Don’t rush in too quickly: Cooperative individuals often assume others are as honest and fair as they are. However, it’s wise to take your time and build trust gradually. If possible, use your network to verify the other party’s reputation. If that’s not an option, start with small commitments before making bigger ones.
- Be cautious of reciprocity tricks: Some unethical negotiators may attempt tricks based on reciprocity. They might make a small concession and then request a much larger one in return. Resist the temptation to accept such offers, even if they appear to be based on a sense of fairness. Instead, carefully evaluate the exchange being proposed.
- Be mindful when negotiating with friends: While friends and couples often strive for fairness in profit-sharing, high-stakes negotiations can bring out the worst in people, even among close friends or long-time partners. Imagine a scenario where you and your friend have a one-time negotiation for a €10 million sum. Your friend, given the power to decide, might offer you just €1 million while keeping €9 million for themselves, believing that your friendship isn’t worth €9 million. This behavior may not reflect the best aspects of human nature, but it’s something many people might do in such situations.
Chapter 5: The 5th foundation – The other side’s point of view
To be a good negotiator, you need to grasp things from the other side’s perspective and understand their needs and concerns to achieve your goals. However, it can be challenging to read someone else’s thoughts, and here’s why:
- Self-Centered View: We tend to see the world and prioritize our interests, which can make it difficult to shift our perspective and understand the other party’s point of view.
- Competitive Mindset: Negotiations often involve different expectations, and people may approach them with a competitive mindset. This can lead to a focus on differences rather than seeking common ground. Research shows that many believe negotiations involve dividing a fixed pie, but finding ways to satisfy both sides can lead to a bigger pie, as seen in the example of the chair game where teamwork results in everyone winning €1000.
- Lack of Common Interest: Even though it’s essential to identify common objectives during negotiations, research indicates that people fail to do so about half the time. This failure can occur because both sides may engage in bluffing and pretend compromise, making it challenging to recognize shared interests.
Understanding these challenges can help negotiators work more effectively towards mutually beneficial outcomes.
To better understand and address the other side’s interests during negotiations, follow these four steps:
- Identify the Decision-Maker: Figure out who holds the final decision-making authority. While organizations have rules and objectives, negotiations ultimately involve people, and the personality, position, confidence, and interests of the decision-maker play a crucial role.
- Seek Common Ground: Try “role reversal” to see things from the other party’s perspective. Imagine you are in their position and ask yourself, “What benefits can I gain by helping the opposing party achieve their goals?” This exercise can reveal the thought process of the other side and help you find common ground.
- Identify Potential Conflicts: Anticipate objections and potential points of conflict before entering negotiations. In your role reversal exercise, explore why the other party might say “no” to your proposal. Understanding their objections can lead to constructive responses.
- Find Affordable Solutions: Look for creative, cost-effective solutions that address the other side’s concerns while aligning with your goals. Consider secondary interests beyond the obvious ones, and think outside the box. An example is a waste management contract in Oceanside, California, where the company promised to bring back sand for the city’s eroding beaches in addition to waste disposal.
By following these steps, you can enhance your ability to understand and accommodate the other party’s needs, leading to more successful negotiations.
Chapter 6: The 6th foundation – Leverage
Let’s explore how leverage can give you the upper hand in negotiations through an example:
1st Example: Eastern Airlines’ Clever Leverage
Imagine Eastern Airlines, a major American airline, faced a significant challenge in the late 1970s. They desperately needed to replace their outdated aircraft fleet with new planes, but they were buried in debt due to a recent acquisition. To make matters worse, the dominant aircraft manufacturers in the US market, Boeing and McDonnell Douglas, were hesitant to strike a deal with an airline teetering on the brink.
However, a few months later, Eastern Airlines CEO Frank Borman proudly announced a massive order of 50 aircraft worth $1 billion. How did he pull off this seemingly impossible feat?
The Answer: Airbus, the world’s third-largest aircraft manufacturer, had a brand-new plane called the Airbus A300 ready for sale. But here’s the catch: Airbus hadn’t sold a single plane in the past year, and they had long struggled to break into the lucrative American market. They were under intense scrutiny from major players in the aviation industry.
Frank Borman, using his negotiation skills, devised a groundbreaking agreement. Eastern Airlines secured loans from an American bank, two French banks, and even Airbus itself. The French government chipped in with substantial subsidies to cover export costs and support the deal. In essence, Airbus not only provided the planes but also facilitated the necessary financial arrangements to make the purchase possible.
Borman achieved his goal of acquiring the aircraft by looking beyond the usual supply chain. He found a seller, Airbus, who needed a buyer desperately—more so than Eastern Airlines needed new planes. He brilliantly harnessed his leverage by rebalancing the equation in his favor when sealing the deal.
This example demonstrates how leveraging your position and understanding what the other side needs can help you negotiate successfully on your terms.
Example 2: Tapping into Ego as Leverage in Hollywood
In the world of entertainment, particularly Hollywood, negotiations often involve leveraging the egos of the individuals involved just as much as the actual objectives of the companies. One of the most renowned Hollywood producers, Peter Guber, managed to strike one of his most advantageous deals early in his career. He secured a 20% share of the Casablanca record company (which represented artists like Kiss, Donna Summer, Cher, The Village People, and Parliament) in exchange for only 5% of the earnings from the film “The Deep,” which was a not-so-great attempt at recreating the success of “Jaws.” How did Guber achieve such a favorable agreement?
Neil Bogart, the CEO of Casablanca, shared a common aspiration with many in Hollywood – he yearned to be a “film magnate.” As one of Bogart’s business partners put it, “What Neil wanted more than anything was to get into the film business, and he was prepared to pay anything to do that.” Bogart’s burning desire to earn the prestigious Hollywood title provided Guber with the leverage he needed to seal the deal.
This example demonstrates how understanding and using someone’s ego-driven ambitions can be a powerful form of leverage in negotiations, sometimes even more potent than the primary objectives of the companies involved.
Let’s explore another example that illustrates the concept of creating a competitive edge through leverage:
Example 3: Gaining a Competitive Edge in the Power Industry
Imagine an American public electricity company called the Houston Power & Lighting Company. They had an annual bill of $195 million, paid to the Burlington Northern Railway Company for transporting coal to their massive power plant. The purchasing manager, Janie Mitcham, was growing increasingly frustrated with the exorbitant costs and subpar service provided by Burlington Northern. But she faced a dilemma: Burlington Northern held a virtual monopoly on rail access to their plant because they owned the tracks, and rail was the only feasible way to transport the large quantities of coal required to run the plant. Despite her attempts to negotiate lower costs based on fairness and their longstanding relationship, all she received was indifference.
However, Janie had a clever idea: she proposed constructing their rail line that would connect with the tracks of a competing railway company, Union Pacific, located 15 kilometers away.
When she mentioned this idea to Burlington Northern, they dismissed it as unbelievable. The estimated cost of the project was a staggering $24 million, and even her own team was skeptical, dubbing it “Dream Rails.”
Nevertheless, Janie persisted. She obtained approval from her superiors and initiated the construction of the track, which they now called “Janie’s Way.” The process was far from easy. Burlington Northern even sued them, and they had to deal with the monumental task of moving vast amounts of soil, navigating around cemeteries and homes, addressing residents’ complaints, and more. Yet, through determination and hard work, they successfully built the track. Union Pacific offered to transport coal at a 25% lower cost than Burlington Northern. This move allowed them to recoup the construction expenses for the track.
Now, Janie Mitcham found herself in a position of strength. In fact, when Union Pacific faced some delivery delays, she redirected some business back to Burlington Northern. This quickly prompted Union Pacific representatives to apologize and pledge to improve their services.
By approaching the situation creatively and constructing their rail line, Janie Mitcham significantly bolstered the leverage she could wield and resolved the supply chain issues her company faced. This strategic move empowered her company to establish strong relationships with both their existing and new suppliers, ultimately gaining a competitive edge in the power industry.
Part 2: The negotiation process
Chapter 7: Phase 1 – Develop your strategy
In this second part, we will explore how the six foundations can assist you in reaching your goals as you navigate each step of the negotiation process.
This section is structured to highlight a fundamental fact: negotiation involves four essential steps:
- Sharing information.
- Making offers and compromises.
- Reaching agreements.
Anthropologists and scientists have observed these four phases in negotiations across various contexts, from small personal matters in rural Africa (as mentioned in Part I, Chapter 1) to large multinational mergers and acquisitions. However, different cultures may emphasize one phase over another. Negotiators in the industrialized West often move quickly past the information-sharing phase, eager to make initial offers, while negotiators in Asia, Africa, or South America may prioritize a more extended information-sharing phase to build trust before proceeding to offers and compromises.
The goal of thorough preparation, even for simple negotiations, is to develop a tailored plan for a specific situation and the potential challenges that may arise. Typically, there are four negotiation situations, primarily influenced by two factors:
- The perceived value of the future relationship between the parties: How much each side will rely on the other to achieve their future objectives.
- Potential conflicts beyond the immediate issues at stake: The extent to which each side desires the various elements involved in the deal, such as money, power, or space, and in what proportions.
The following situation matrix illustrates these four types of negotiation situations resulting from the combination of high or low perceived importance of future relationships and high or low perceived conflicts outside of the relevant issues:
So, the first step in your preparation is to identify which of the four situations you are in. Depending on your situation, you will need different strategies:
- Quadrant I: Rational Concerns – Best strategies: Resolve issues or compromise.
- Quadrant II – Best strategies: Acknowledge other issues, resolve issues or compromise.
- Quadrant III – Best strategies: Competition, acknowledge other issues, resolve issues or compromise.
- Quadrant IV: Tacit Agreements – Best strategies: Acknowledge other issues, resolve issues or compromise.
If you’re comfortable with these strategies, you’ll be able to handle the situation effectively. If they seem challenging or unfamiliar, consider seeking assistance, which should also be part of your preparation.
Generally, cooperative people are well-suited to negotiate in situations involving unresolved deals and agreements, while competitive individuals are better at handling actual deals as they arise. Situations that involve both aspects require a balanced approach.
Once you’ve determined your strategy, the third step in preparation is to consider the situation from the other side’s perspective, as explained in Chapter 5 of the first part.
The fourth step is deciding how you want to communicate your message. There are two important dimensions to consider:
- Direct vs. Representative: Will you communicate directly with the other side, or will you use a representative? Hiring a broker or lawyer can be beneficial if you’re a very compliant negotiator dealing with a tough opponent.
- Communication Methods: If you negotiate directly, will it be face-to-face, by phone, or via email? Complex negotiations may require a combination of these methods, and experienced negotiators will have strategies for each.
The main communication methods, ranked from hardest to easiest, are:
- Face-to-Face: Offers the most comprehensive communication, allowing for subtle cues, questions, feedback, and relationship-building.
- Video-Conferencing: Provides many advantages of face-to-face meetings while accommodating remote participants.
- Telephone: Loses some elements like body language but retains voice and intonation.
- Email: Practical for distant negotiations, allows time for reflection, maintains a clear record, and handles large data. It’s also suitable for those who prefer to avoid face-to-face confrontations.
However, electronic communication, like email, has its drawbacks, so be mindful of its limitations.
Research has shown that using email for negotiations can lead to several issues:
Research has shown that using email for negotiations can lead to several issues:
- Higher Risk of Deadlock: Emails lack tone of voice, facial expressions, and body language, which can make them seem more aggressive or confrontational than spoken words.
- Careless Clicks: Email’s casual nature and privacy can cause people to be less cautious about what they write. Remember that emails can be easily copied and forwarded, so write messages as if they were on a public presentation board.
- Prolonged Resolution: Research indicates that sorting out problems through email takes longer than face-to-face or phone communication. Limited written communication can slow down information processing and interpretation.
- Decisions from Afar: Negotiating solely through email can lead to biased decision-making that favors one side over the other.
If you must negotiate via email, consider these three safeguards:
- Think Before You Click: Avoid sending messages when you’re in a negative state of mind.
- Use Casual Language: Start your email with a friendly greeting (e.g., “Hi Francis”) to create a more approachable tone.
- Maintain Phone Contact: Especially in extended negotiations, regularly communicate by phone and try to arrange in-person meetings when possible.
Based on this information, choose the best communication method for your negotiation process. Once you’ve completed this fourth step, use the six foundations discussed earlier to prepare for how you’ll handle the negotiation. The book bargaining for advantage provides a framework for this.
Chapter 8: Phase 2 – Sharing information
Think back to the Arusha tribe and Jonavich’s gift in the earlier part of this series. These were not typical negotiations but rather initial steps in a ritual that precedes actual negotiations. This ritual involves sharing information, and it serves several important purposes:
Sharing information allows both parties to assess each other’s willingness to reciprocate. If this reciprocity is present during information sharing, it builds trust and confidence, which can be crucial in reaching an agreement during the negotiation process.
Now, let’s explore the specific objectives of the information-sharing phase:
1st Objective: Building a Good Relationship
To start things off, it’s crucial to create a relaxed and friendly atmosphere during negotiations. Why? Because effective communication depends on a positive rapport between the negotiators. Building a good relationship can make sharing information much smoother.
A proven method to establish rapport is finding common ground or shared interests that are unrelated to the negotiation itself. Research suggests that we are more inclined to say “yes” to someone we know and like. So, discovering shared hobbies or interests can go a long way in building rapport. However, be cautious not to let the other side use this rapport to gain an unfair advantage. If they start seeking concessions based solely on your friendly rapport, it’s a red flag.
2nd Objective: Gathering Information About Interests, Concerns, and Perspectives
The second major goal of the information-sharing phase is to learn more about the other side’s interests. Who are they? Why are they at the negotiation table? What matters to them in this negotiation? Understanding their plans, viewpoints, and decision-making authority within their organization is crucial.
Here’s a key insight: Experienced negotiators focus more on gathering information than giving it away. They ask questions to uncover essential facts and ensure both sides are on the same page. They also pay close attention to what the other party says in response.
But here’s the catch: Information is power in negotiations, especially information about what each side wants. Skilled negotiators often try to learn your needs and preferences before revealing their own. So, remember, managing the flow of information strategically takes time. It’s often wise to listen more than you speak and reveal your needs thoughtfully and strategically.
3rd objective: Identifying Priorities and Leverage Points
In a negotiation, how strong or weak you appear matters a lot. Sometimes, it’s not just about your actual strength but also how the other side perceives it. During the information-sharing phase, you can strategically reveal certain aspects to enhance your negotiating position.
Here are four scenarios based on your negotiation position (strong or weak) and your preferred negotiation style (tough or accommodating), along with how to approach each situation:
- Strong and Tough: If you’re in a strong position and prefer a tough approach, it’s okay to assert your dominance and show you have other attractive options.
- Strong and Accommodating: If you’re strong but prefer an accommodating style, you can still maintain your strength while keeping a friendly and cooperative tone.
- Weak and Tough: If you’re in a weaker position but opt for a tough approach, focus on finding creative solutions and leveraging what you do have.
- Weak and Accommodating: When you’re in a weak position but prefer an accommodating style, emphasize collaboration and seek common ground to improve your standing.
Remember, how you present your strengths and weaknesses during information sharing can significantly impact the negotiation’s outcome.
Chapter 9: Phase 3 – Initiate and engage in trade-offs
Now that you’ve built some rapport, defined the topics to discuss, and shared information about your positions and negotiation strengths, it’s time to dive into the negotiation itself. Among all the elements of negotiation, researchers have focused heavily on the art of compromise and the actual deals that are struck, as these lie at the heart of the negotiation process. Let’s explore the key findings from their research.
Should you be the first to offer a proposal?
Experts often recommend not making the first offer in a negotiation. Let’s see why with an example:
Brian Epstein, the manager of The Beatles, was negotiating their share of profits for their first film, “A Hard Day’s Night.” Epstein didn’t have much knowledge of the film industry and started the negotiation by suggesting a high percentage: 7.5% of the film’s profits. The producers immediately agreed to this proposal. However, they had initially planned to offer the Beatles up to 25%, so they were quite happy with Epstein’s suggestion. While “A Hard Day’s Night” became a hit, The Beatles ended up making less money than they could have.
This story illustrates the risks of making the first offer in a negotiation. The expert advice is often to stay quiet and let the other party state their terms first. You can always adjust your offer if it surpasses what is considered “fair and reasonable.”
The rule of “never making the first offer” is straightforward but may not always be the best strategy. The key to improving your negotiation is considering how much information you have at your disposal
What really mattered in Epstein’s case was his lack of knowledge about the film industry. He didn’t understand the standard deals or how to assess profit percentages in that market. When you’re entering a negotiation without enough knowledge, it’s often best to stay quiet and let the other party do the talking. This is especially true when you’re unsure about the market value of what you’re buying or selling.
However, if you’re well-informed about the scope of the negotiations, then initiating the discussion can be advantageous. When you make the first offer, it helps set realistic boundaries for the deal, and it forces the other party to reconsider their goals.
Additionally, social science and psychology researchers have discovered a psychological phenomenon called the “anchor and adjustment effect.” This effect reveals that people tend to be influenced by the first numbers they encounter. For example, when people see the series of numbers 8x7x6x5x4x3x2x1, they often perceive it as high. But when they see 1x2x3x4x5x6x7x8, they consider it much lower. Interestingly, these two sequences are identical mathematically. This difference in perception occurs because we tend to focus on the first few digits and adjust our expectations based on that initial anchor.
In a negotiation, this means that people who hear high or low numbers at the beginning of a discussion often unconsciously adjust their expectations toward those numbers. However, it’s important to use this tactic with caution, as an extremely unrealistic number can provoke a negative reaction.
Should I begin optimistically or realistically?
When it’s your turn to start the negotiation, the question is whether you should begin optimistically with a strong demand or make a fair and reasonable offer. The answer depends on your leverage and the type of negotiation you’re in, particularly in Transaction-type negotiations (Quadrant III).
Optimistic opening means proposing the highest (or lowest) number for which you have valid grounds or arguments to support it. If you start with an unrealistic suggestion that lacks justification, it can be counterproductive. However, in certain cultures like South America or Africa, starting with an optimistic proposal is essential.
Why does a confident approach work at the beginning of a Transaction-type negotiation? It’s because it leverages two well-established advantages supported by research: the principle of constraint and the rule of reciprocity. If I want you to pay €50 for something and I begin with €75 (supported by relevant facts), when I eventually accept €50, it seems like a much better deal compared to starting at €55 and dropping to €50. Additionally, by offering a compromise and lowering my price, the principle of reciprocity often encourages you to reciprocate by increasing your purchase price, perhaps matching my desired figure of €50.
What compromise strategy will work best?
If you prefer to be fair from the start, it’s a good idea to leave some room for making compromises during negotiations. Research actually shows that people who receive concessions during negotiations often feel like they’ve achieved a better deal compared to someone who was initially offered a single, fair, and “honest” price. Surprisingly, they feel better even if the final price is higher than what they initially wanted to pay.
Concessions play a role in cooperation. They signal to the other negotiator that you acknowledge the validity of their expectations and are willing to sacrifice something that benefits you to reach a mutually agreeable decision.
Here’s a summary of the opening and compromise strategies to consider for each quadrant:
- Quadrant I (Rational Concerns): Start optimistically and be prepared to make concessions.
- Quadrant II (Acknowledgement of Other Issues): Begin with optimism but stay open to compromises.
- Quadrant III (Competition): Adopt an optimistic approach and use concessions strategically.
- Quadrant IV (Tacit Agreements): Open with optimism and be willing to make concessions as necessary.
Chapter 10: Phase 4 – Get closure and the deal signed
Close the deal
The final stage of closing a deal can either be straightforward or quite stressful. Negotiators who enjoy the process relish the fast-paced tactics of this stage, while those less comfortable with negotiations may feel uneasy when faced with the pressure. There are two key psychological factors to consider when closing a deal, and it’s important to be aware of them.
One of the most influential psychological factors is the scarcity principle, as defined by Robert Cialdini in his work on Influence and Manipulation. This principle is rooted in the human tendency to desire something more when we believe it’s in limited supply and dwindling. Whether we can successfully secure our desired terms in a deal often hinges on the other party’s perception of what we stand to lose if the deal falls through. Demonstrating that we have other attractive alternatives and are willing to walk away without a deal strengthens our position. It makes our offer appear unique and time-sensitive, as it can be withdrawn without consequences to us at any moment.
You can and should use the principle of scarcity right from the start of the negotiation.
You can apply the scarcity principle throughout the negotiation, but it’s most potent when used towards the end. While bluffing is an option without a better offer, creating viable alternatives, as explained in David A. Lan and James K. Sebenius’ book “3D Negotiation,” is the best approach. This allows you to set a negotiation deadline or even walk away from the table strategically, hoping the other party will stop you before you exit.
However, use this strategy cautiously. The scarcity effect taps into emotions, not rational thinking. Manipulative negotiators may employ it to induce haste or panic in a situation that’s otherwise under control. Sometimes they tell the truth—they genuinely have multiple proposals, demands, and a specific timeframe. Other times, it’s a bluff, hoping you’ll cave under pressure and close the deal. Your judgment, informed by an understanding of the other side’s bargaining power, will guide you when deciding whether to concede or resist the impulse to panic.
The second psychological factor is engagement, or sometimes, over-engagement in the negotiation process. It’s another concept described in “Influence and Manipulation.” Picture yourself at an amusement park, standing in line for a popular ride you’ve heard about. After a few minutes, a park employee announces that the wait will be an hour and a half. What do you do? Do you stay in line, or do you opt for a different activity?
Now put yourself in the same situation, but the announcement is made after you have queued for 45 minutes. So you still have 45 minutes more to wait. Do you stay in the queue or go and do something else?
Research indicates that people are more inclined to leave in the first scenario, even though the total time waiting is the same in both cases. Why? Because in the second scenario, you’ve already invested 45 minutes, and leaving would feel like “wasting” that time. In the first scenario, you’ve invested only a few minutes, making it easier to decide to leave.
This phenomenon also applies to negotiations. The more time, effort, and resources you invest in a negotiation process, the stronger the inclination to reach an agreement. This can occur naturally, even when the other party is sincere. However, manipulative adversaries may use a cunning tactic. They set their trap just before reaching an agreement, presenting a last-minute request with apparent regret, claiming it’s “essential” for the deal. They’ll say, “We’ve come so far; let’s not waste all that time and effort.” Fearing that the negotiations might fail, there’s a temptation to agree to some of their demands to salvage the deal.
Be careful about this.
Imagine waiting for an hour and a half in a queue for a ride, and then they suddenly tell you it’s more expensive. You’d be really upset. Well, when faced with last-minute requests in a negotiation, you should approach them in a similar way – insist on getting something in return.
These two factors are mostly seen in situations involving customers and companies, which are exceptions compared to our daily negotiations. They are especially relevant in Transaction-type negotiations (Quadrant 3) when the stakes are high, but the importance of future relationships between the parties is low. However, it’s important to remember that when a good relationship is on the line, using “softer” tactics to finalize a deal is crucial. The last thing you’d want to do with someone you want to work with is to present a “take it or leave it” ultimatum and walk away.
In real Relationship situations (Quadrant 2), closing a deal is quite straightforward: your goal is to provide assurance of your good intentions, and being adaptable is crucial.
In cases where decisions hang in the balance (Quadrant 1), when the stakes are high, and future relationships are significant, the closure of a negotiation becomes more complex. Here, you want the other side to feel satisfied, but you also aim to achieve your objectives and gain significant benefits from the deal.
A common tactic used in this context is to split the pie in half, agreeing on a number that divides each side’s demands down the middle. This approach is prevalent because it aligns with our sense of fairness and reciprocity, laying a solid foundation for future relationships. It’s simple and easily understood, requiring no explanation or complaints. It’s a quick way to reach an agreement and is so commonly used that refusing it can seem rude and irrational in many situations.
However, there are at least two instances when this approach should be avoided. The first is when the suggested middle ground doesn’t offer an equal balance for both sides. For instance, if you made a fair and realistic first offer, but the other side proposed a tough and competitive one, the middle ground between these two offers will likely favor the other side more.
Finally, when a lot of money or an important policy is in the balance; if you are too eager to propose to split things in half you could miss out on the chance; to put other more innovative alternatives in place.
The agreed undertakings
The final step in negotiations involves reaching an agreement on the commitments, not just agreeing on terms. The level of commitment varies depending on the type of negotiation. For simple agreements like helping a neighbor babysit, a verbal agreement may suffice, especially if trust exists between the parties. However, complex negotiations, such as multi-billion-dollar mergers and acquisitions, often require legal contracts, consulting teams, lawyers, accountants, and official concluding ceremonies due to higher stakes and lower trust levels.
Different methods can be used to solidify commitments:
- Social Ritual: In Western societies, a handshake is often considered a binding agreement. In some communities, one’s word and handshake carry significant weight. Failing to honor such commitments can lead to loss of reputation and status within that community.
- Public Announcement: When the stakes are high, social events or public announcements may be used to reinforce the commitments made by each party. These announcements can be directed to a broad audience or the entire group involved.
- Accountability: In situations where a person’s or company’s reputation is at stake, a written contract is commonly used to enhance commitment and accountability. Legal contracts are often required and provide a basis for legal action if the agreement is breached.
- Simultaneous Exchange: For deals where trust is limited, simultaneous exchanges can be prudent and productive. For instance, in a car purchase, both parties may exchange the car and payment simultaneously to ensure the reliability of the agreement.
Chapter 11: Negotiate with the Devil – Ethics of Negotiation
Ethical dilemmas play a crucial role in many negotiations. Deception is a common aspect of negotiations, but so is the importance of the integrity of the individuals involved. If you are perceived as compromising your ethics even once during a negotiation, it can severely damage your credibility not just for that negotiation but also in the long run. Successful negotiators take their personal integrity very seriously, while less successful ones may not.
To address these conflicting issues, the book bargaining for advantage introduces three approaches for handling ethical concerns: the Poker method, the Idealist method, and the Pragmatic method. Some negotiators, like G. Richard Sell, believe in telling the truth whenever possible, even if it means sacrificing some leverage. This approach aligns with their values and helps them maintain self-respect.
Ultimately, how you navigate the ethical aspects of negotiations is a personal choice. The author’s expectation, as mentioned in Chapter 1, is that negotiators who value their personal integrity will act consistently based on their core values, which they can explain and justify when necessary.
Conclusion about the book Bargaining for Advantage
The book “Bargaining for Advantage” may not win any design awards, as it’s plain and lacks visuals, but its content is what makes it valuable. It’s a comprehensive guide on negotiation, offering a solid theoretical framework and practical skills for every negotiation phase. It introduces six foundational principles and addresses common questions and problems in each of the four phases identified by the author.
Additionally, the book’s chapter on ethics encourages self-reflection, and the accompanying appendices include a negotiation skills test and a practical plan. While it lacks source citations within the main text, the credits can be found at the end of the book.
Overall, “Bargaining for Advantage” is a valuable companion to “3D Negotiation,” focusing on tactics while the latter emphasizes strategy. With practice and experimentation, these two books can give you a significant advantage in major negotiations. Despite minor inconveniences, this book is a treasure trove of knowledge to prepare you for future negotiations.
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