Students to Start-Ups

Entrepreneurial Skills Series

Chapter 03

Negotiation
Negotiation

My father said: "You must never try to make all the money
that's in a deal. Let the other fellow make some money too,
because if you have a reputation for always making all the
money, you won't have many deals.”
J. Paul Getty
Negotiation
• Much business-to-business selling involves negotiating skills
• The two parties need to reach agreement
– Price
– Others term of sale
• Salesperson need to win without making deep concessions that will
hurt profitability
• There are 2 exchange in marketing
– Routinized exchange : administered program of pricing and
distribution
– Negotiated exchange : price and others term area set via
bargaining behavior
Negotiation – What is it?
‘Negotiation is an
explicit voluntary
traded exchange
‘The process by between people who
which we search for
want something from
the terms to obtain
what we want from each other’
somebody who
wants something Gavin Kennedy
from us’ To negotiate
is to trade
Gavin Kennedy
something we
have for
something we
want.

Confer with others to Anon

reach a compromise or
agreement.

Concise Oxford Dictionary

Debunking Negotiation Myths

 Myth 1: There must be a winner & a loser

 Myth 2: Appears to involve conflict
 Myth 3: Negotiation is not an option
 Myth 4: Only cheap, petty people haggle
 Myth 5: A good negotiator is manipulative
Human Needs

Manfred A. Max-Neef 1991. Human scale development: conception, application and further reflections. New York: Apex.
Negotiation

• The most frequently negotiated :

– Price
– Contract completion time
– Quality of goods and service offered
– Purchase volume
– Responsibility for financing
– Risk taking
– Promotion and title
– Product safety
Three Views of Conflict
• Traditional view - conflict must be avoided
• Human relations view - conflict is a natural and inevitable outcome
in any group
• Interactionist view - some conflict is absolutely necessary
– functional conflict - supports the goals of the work group and
improves its performance
– dysfunctional conflict - prevents group from achieving its goals
Conflict and Group Performance

Robbins et al., Fundamentals of Management, 4th Canadian Edition ©2005 Pearson Education Canada, Inc.
 Conflict-Handling Styles

Forcing
Collaborating
Assertive

Resolving conflicts by
Rewarding conflict by seeking
satisfying one’s own needs
an advantageous solution for
at the expense of another’s
all parties

Resolving conflict by each

party giving up something
Assertiveness

of value
Compromising

Resolving conflicts by Resolving conflicts by

withdrawing from or placing another’s needs
suppressing them and concerns above your
Avoiding own
Unassertive

Accommodating

Uncooperative Cooperative
Cooperativeness

Robbins et al., Fundamentals of Management, 4th Canadian Edition ©2005 Pearson Education Canada, Inc.
5 Levels of Communication

Chris Spies, 2002

The Four Ears of Listening

Undine Kayser, 2003

Active Listening Techniques (1)

Centre for Conflict Resolution, Cape Town, South Africa, 1999

Active Listening Techniques (2)

Centre for Conflict Resolution, Cape Town, South Africa, 1999

 Active Listening Techniques (3)

Centre for Conflict Resolution, Cape Town, South Africa, 1999

 Active Listening Techniques (4)

Centre for Conflict Resolution, Cape Town, South Africa, 1999

When to Negotiate ?

• Based on Lee and Dobler :

– When many factors bear not only on price, but also on quality
and service
– When business risks cannot be accurately predetermined
– When a long period of time is required to produce the items
purchased
– When production is interrupted frequently because of numerous
change orders
34 Characteristics of an Effective Negotiator

1. Preparation and planning skill

2. Knowledge of the subject
3. Ability to think clearly and rapidly under pressure and
uncertainty
4. Ability to express thoughts verbally
5. Listening skill
6. Judgement and general intelligence
7. Integrity
8. Ability to persuade others

Art & Science of Negotiation - RAIFFA

 34 Characteristics of an Effective Negotiator

9. Patience
10. Decisiveness
11. Ability to win respect and confidence of opponent
12. General problem-solving and analytical skills
13. Self-control, especially of emotions and their visibility
14. Insight into others’ feelings
15. Persistence and determination
16. Ability to perceive and exploit available power to achieve
objective

Art & Science of Negotiation - RAIFFA

 34 Characteristics of an Effective Negotiator

17. Insight into hidden needs and reactions of own and

opponent’s organization
18. Ability to lead and control members of own team or group
19. Previous negotiating experience
20. Personal sense of security
21. Open-mindedness (tolerance of other viewpoints)
22. Competitiveness (desire to compete and win)
23. Skill in communicating and co-ordinating various objectives
within own organisation

Art & Science of Negotiation - RAIFFA

 34 Characteristics of an Effective Negotiator

24. Debating ability (skill in parrying questions and answers

across the table)
25. Willingness to risk being disliked
26. Ability to act out skilfully a variety of negotiating roles or
postures
27. Status or rank in organisation
28. Tolerance to ambiguity and uncertainty
6. Skill in communicating by signs, gestures and silence (non-
verbal language)

Art & Science of Negotiation - RAIFFA

34 Characteristics of an Effective Negotiator

30. Compromising temperament

31. Attractive personality and sense of humour (degree to which
people enjoy being with the person)
32. Trusting temperament
33. Willingness to take somewhat above-average business or
career risks
34. Willingness to employ force, threat or bluff

Art & Science of Negotiation - RAIFFA

Negotiation Key Concepts
• BATNA
• Reservation Price
• ZOPA
• Value Creation through Trades
Know your BATNA!
• Best Alternative to a Negotiated Agreement (BATNA)
• Typical example: negotiate or go to court
• Improving your situation
– Improve your BATNA
– Identify the other side’s BATNA
– Weaken the other party’s BATNA
Reservation Price
• The least favorable point at which one will accept a deal
• The “walk-away”
• Example: you are looking for larger office space. You set your
BATNA at $20/SF and your Reservation Price at $30/SF
• If owner won’t budge from $35, you walk away and take advantage
of your BATNA
ZOPA

• Zone of Possible Agreement (ZOPA)

• The difference between the Seller’s Reservation
Price and the Buyer’s Reservation Price
• What happens if positions below are reversed?

$250k $275k
ZOPA

Seller’s Buyer’s
Reservation Price Reservation Price
Value Creation through Trades
• Trade things you value less to the other party
• Examples:
– For a supplier the greater value may be not price but an
extended delivery time
– For a customer, extended warranty versus price
– For an employee, working at home versus salary
Summary of Negotiation concept
• Zone of agreement exists
– Simultaneously overlapping acceptable outcomes for the parties
• Reservation price
– Seller’s
• The minimum will accept
• Below s is worse than not reaching agreement
• x > s , seller surplus
– Buyer’s
• The maximum will pay
• x above b is worse than no agreement
• x < b , buyer surplus
– If s < b / than a zone of agreement exist = bargaining
 The Zone of Agreement

Zone of agreement

Seller’s surplus Buyer’s surplus

Money ($)
s x b
Seller’s reservation price Final Contract Buyer’s reservation price
(seller wants s or more) (buyer wants b or less)

Seller wants to move x to the right buyer wants to move x to the left
Negotiating is about WHY, not WHAT

The purpose of negotiating is seeing

if you can get your interests met
through and agreement, versus an
alternative.

Positions are WHAT we want

Interests are WHY we want

something

Negotiate the WHY….not the

WHAT
 7

Negotiating Behaviour

Gavin Kennedy (The New Negotiating Edge) describes 3

types of behaviour that we can display and encounter when
in a negotiating situation

RED BLUE PURPLE

 8

RED Behaviour

• Manipulation
• Aggressive
• Intimidation
• Exploitation
• Always seeking the best for you
• No concern for person you are negotiating with
• Taking

People behave in this manner when they fear exploitation by the other party,
but by behaving this way to protect themselves, they provoke the behaviour
they are trying to avoid.
 9

BLUE Behaviour
• Win win approach
• Cooperation
• Trusting
• Pacifying
• Relational
• Giving

Kennedy talks of a ‘behavioural dilemma’, do you cooperate (blue) or defect

(red)?
Can you trust the other person? And to what extent? Trusting someone
involves risk, on the one hand being too trusting is naïve and on the other,
not trusting at all can create deceitful behaviour.
The answer is to merge blue and red behaviour into purple.
 10

PURPLE Behaviour
• Give me some of what I want (red)
• I’ll give you some of what you want (blue)
• Deal with people as they are not how you think they are
• Good intentions
• Two way exchange
• Purple behaviour incites purple behaviour
• Tit for tat strategies
• Open
• People know where they stand
• Determination to solve problems by both sets of criteria of the merits
of the case and/or the terms of a negotiated exchange
To the red behaviourist the message is loud and clear, ‘You will get nothing
from me unless and until I get something from you’.
Formulating a Negotiation Strategy

• Strategic plan
– Commitment to an overall approach that has a good chance of
achieving the negotiator’s objectives
• Soft : avoid conflict, make concessions; often end up exploited and
feeling bitter
• Hard : sees any situation as a contest of wills. Exhausts people and
resources and harms relationships
• Other strategies are between hard and soft, but each involves a
trade off
• Making good tactical decisions
Starting Point
• A successful negotiation must have a basic framework
– The alternative to negotiation
– The minimum threshold for a negotiated deal
– How flexible a party is willing to be, and what tradeoffs it is
willing to make
Principled Negotiation :The Method
• Separate the people From the problem

• Focus on interests, Not positions

• Invent options For mutual gain

• Use objective criteria

Modified from material obtained from the Harvard Negotiation Project

Separate the people from the problem

Relationship Issues: Substantive Issues:

 Emotion/reason
 Money
 Understanding
 Terms
 Communication
 Conditions
 Reliability
 Concessions
 Coercion/persuasion
 Promises
 Acceptance/respect
 Dates/numbers

Modified from material obtained from the Harvard Negotiation Project

Problem
Positional Which game should you play
SOFT HARD
• Participants are friends • Participants are adversaries
• The goal is agreement • The goal is victory
• Make concessions to cultivate the • Demand concessions as a condition of the
relationship relationship
• Be soft on the people and the problem • Be hard on the problem and the people
• Trust others • Distrust others
• Change your position easily • Dig in to your position
• Make offers • Make threats
• Disclose your bottom line • Mislead as to your bottom line
• Accept one-sided losses to reach • Demand one-sided gains as the price of
agreement agreement
• Search for the single answer: the one they • Search for the single answer: the one you
will accept will accept
• Insist on agreement • Insist on your position
• Try to avoid a contest of wills • Try to win a contest of wills
• Yield to pressure • Apply pressure

“Getting to Yes” - Professor R. Fisher & W. Ury

Focus on Interests not Positions
Interests = desires and concerns that underlie positions

• Prepare for negotiation:

– Clarify interests
– Understand the interests of the other side
• Focus the negotiation discussion on:
– Interests – not positions

Modified from material obtained from the Harvard Negotiation Project

Invent Options for Mutual Gain

To invent creative options:

• Separate inventing from judging.
• Broaden the options on the table, rather than look for a
single answer.
• Search for mutual gains.
• Invent ways to make their decision easy.

Modified from material obtained from the Harvard Negotiation Project

Insist on using Objective Criteria
• Frame each issue as a joint search for objective
criteria
• Reason and be open to reason as to which
standards are most appropriate and how they
should be applied
• Never yield to pressure, only to principle.

Modified from material obtained from the Harvard Negotiation Project

Negotiation Styles
HIGH COLLABORATE
ACCOMODATE Problem solved creatively, aiming for win-
win
Build friendly relationship Characteristics:
Characteristics: Search for common interests
Promote harmony Problem-solving behaviours
Avoid substantive differences Recognising both parties’ needs
Give into pressure to save relationship COMPROMISE
CONCERN FOR RELATIONSHIP

Synergistic solutions
Place relationship above fairness of Win-win becomes the main purpose of the
the outcomes Split the difference negotiator

Characteristics:
Meeting half way
AVOID Look for trade offs DEFEAT
Take whatever you can get/Inaction
Accept half-way measures Be a winner at any cost/Competitive
Characteristics:
Aims to reduce conflict rather than problem solve Characteristics:
Feeling of powerlessness synergistically Win-Lose competition
Indifference to the result
Pressure/Intimidation
Resignation, surrender
Adversarial relationships
Take what the other party is willing to
Defeating the other becomes a goal for the
concede
negotiator
Withdraw & remove = behaviour of
negotiator

CONCERN FOR SUBSTANCE

LOW HIGH
Source: Rollin & Christine Glaser
 11

The Four Phases of Negotiation

BARGAIN

PROPOSE

DEBATE

PLAN
Step One - Prepare
• Research
• LIST your objectives and their objectives
• Those you INTEND to get
• Those you MUST get
Step Two - Debate
• Listen carefully
• Ask questions
• Clarify
• Summarise
• Don’t argue, interrupt or assume

...BUT
Step Three - Propose
• Make proposals
• State conditions
• Express concerns
• Search for common interests

• Use positive body language

AND
Step Four - Bargain
• Key words are IF and THEN
• Start making concession:
– Every concession should have a condition
(IF you … THEN I will … )
– Conserve your concessions - don’t give everything away too
soon
– You don’t have to share every piece of information with the
opposing side!
– Don’t be afraid to say no
Classic Bargaining Tactics
• Acting Crazy
• Big Pot
• Get a Prestigious Ally
• The Well is Dry
• Limited Authority
• Whipsaw / Auction
• Divide and Conquer
• Get Lost / Stall for Time
• We Noodle
• Be Patient
• Let’s Split the Difference
• Trial Balloon
• Surprises
Classic Bargaining Tactics
• Acting Crazy
– Put on good show
– Visibly demonstrating your emotional commitment to your position
– Increase credibility
– Give opponent a justification to settle on your terms
• Big Pot
– Leave your self a lot of room to negotiate
– Make high demand at the beginning
– After making concessions, you’ll still end up with a larger payoff
• Get a Prestigious Ally
– Try to get opponent to accept less
Classic Bargaining Tactics
• The Well is Dry
– Take a stand and tell the opponent you have no more concessions to
make
• Limited Authority
– Negotiate in good faith
– If you ready to sign the deal, say I have to check with my boss
• Whipsaw / Auction
– Several competitors know you are negotiating in the same time
– Schedule competitors with you for the same time and keep them all
waiting to see you
Classic Bargaining Tactics
• Divide and Conquer
– Negotiation with opponent team
– Sell one member to help you sell the other members of the team
• Get Lost / Stall for Time
– Leave the negotiation completely for a while
– Come back when things are getting better and try to renegotiate
– Time period can be long or short
• We Noodle
– Give no emotional or verbal response
– Don’t response to his or her force or pressure
• Be Patient
– If you can afford to outwait
– You will probably win big
Classic Bargaining Tactics
• Let’s Split the Difference
– The person who first suggest this has the least to lose
• Trial Balloon
– Release your possible / contemplated decision through a so-called
reliable source before the decision is actually made
– To test reactions to your decisions
• Surprises
– Keep the opponent off balance by
• Drastic
• Dramatic
• Sudden shift
– Never be predictable
• Keep the opponent from anticipating your move
Step Five - Agree
• Usually final concession :
“IF you do that, THEN we have a deal!”
• Gain commitment
• Record and agree results
• Leave satisfied
Think about your influencing style

Inspirational Personal

Logical Forceful
 7 Deadly Sins of Negotiating

• Pride - Be prepared to compromise

• Gluttony - Don’t bite off more than you can chew
• Anger - Handle objections calmly
• Covetousness - Prioritise needs/wants
• Envy - Know competitors strengths & weaknesses…
AND your own
• Sloth - Do your homework
• Lust - Don’t look desperate to settle
An Unconditionally Constructive Strategy

Do only those things that are both good for the relationship and good for us
- whether or not they reciprocate

RATIONALITY Even if they are acting emotionally, balance emotions with reason
UNDERSTANDING Even if they misunderstand us, try to understand them
COMMUNICATION Even if they are not listening, consult them before deciding on matters that
affect them

RELIABILITY Even if they are trying to deceive us, neither trust them nor deceive them:
be reliable

NON-COERCIVE MODES OF Even if they are trying to coerce us, neither yield to that coercion nor try to
INFLUENCES coerce them, be open to persuasion and try to persuade them

ACCEPTANCE Even if they reject us and our concerns as unworthy of their consideration,
accept them as worthy of consideration, care about them and be open to
learning from them

"Getting Together" Fisher

Three Approaches To Resolving Disputes

MOVING FROM A DISTRESSED TO AN EFFECTIVE RESOLUTION

SYSTEM

Power

Rights

Interests

Distressed System
"Dispute Resolution" Goldberg Green Sander
Three Approaches To Resolving Disputes

MOVING FROM A DISTRESSED TO AN EFFECTIVE RESOLUTION

SYSTEM

Interests

Rights

Power

Effective System
Goldberg
Salary Negotiation: Best Practices
• Know what want-prioritize and logroll
• Conduct research to understand your worth
• how it compares
• what you will do if don’t get what you want
• Know with whom to negotiate and what can
be negotiated
• Find the minimum, midpoint and maximum salary
grades for the position
• Think total compensation
• Consider enlarging the shadow of the future
Salary Best Results
• What until you have an offer to negotiate
– allow employer to initiate discussion
– be prepared to discuss salary at any time
• Preserve the relationship
– no ultimatums; appear accommodating; be concerned with their
interests
– ask questions when encountering resistance
• Consider long term effects of your plan
• Practice
• Watch for signals
• Get offer in writing
Salary: Things to Avoid

• Personal needs or self-serving perks

• Gamesmanship: one more thing or hard squeeze
• Multi-company leveraging
• Appearance of desperation
• Lying, exaggeration or misleading
• Quick decisions or countering too soon

$$$
Tip #1 Negotiating is not Compromising

It is joint problem solving

Our goal is to efficiently reach a

satisfying agreement for both parties, and
to conclude on a positive note.

Fisher and Ury define negotiations as

“Back and forth communication to reach
agreement where some interests are
shared and some interests are opposed.
“Getting to Yes”
Tip #2 People Skills Make the Difference

•What is your “preferred

style” of communicating?

•What is the “style” of the

other person with whom
you will be negotiating?

•Are these styles

compatible, or are they
opposites?
Tip #2A: Listening is the most powerful negotiating skill

• It begins with effective communication…understanding

your preferred method and learning the method of the
other party.
• Communicate with them in a way that will be most
effective with their style
• This helps to eliminate the possibility of
misunderstanding, as we communicate in many ways
Listening is your most powerful negotiating tool

But before you can listen, you

have to be skilled at asking
questions:

Three critical questioning skills

4. Know where your questions
are going
5. Ask for permission to ask
questions
6. State why you want to ask
questions

Purpose-Process-Payoff
Listening is your most powerful negotiating tool

If that is the case, why are we such

bad listeners?

We listen to reply, argue, rebut,

make our point, or win.

We do not typically listen to

understand.

As Covey said, “Seek first to

understand, then be understood
Tip #3: Have a game plan before beginning to negotiate

Few people plan before beginning to

negotiate

If you cannot walk away from the

negotiation at any time, you will lose.

Knowing your options outside of the

negotiation is a direct function of
preparation.

Without a plan you risk agreeing to

something worse than what you may have
done on your own.
 42

Negotiation Check List

Good Practice Avoid

 Actively listen ×Interrupting
 Question for clarification ×Attacking
 Summarising ×Blaming
 Test commitment ×Talking too much
 Seeking & giving information ×Sarcasm
 Encourage two way conversation ×Threats
 State and plan your proposal – then summarise ×Taking it personally
 Use the ‘if you ….then we’ll’ principle ×Closed body language
Questions
To be continued in the next chapter………

kurniawan_260305@yahoo.com
Communication Stumbling
Blocks (1)

Centre for Conflict Resolution, Cape Town, South Africa, 1999

Communication Stumbling
Blocks (2)

Centre for Conflict Resolution, Cape Town, South Africa, 1999

 Communication Stumbling
Blocks (3)

Centre for Conflict Resolution, Cape Town, South Africa, 1999

 Communication Stumbling
Blocks (4)

Centre for Conflict Resolution, Cape Town, South Africa, 1999