“Negotiation Analysis: an Introduction”

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Before going into a negotiation there are several aspects to be considered:

1. BATNAs (Best Alternative to a Negotiated Agreement):

What will both parties do if they don’t come to an agreement? That is, when they are not able to reach a solution that makes them better off than they would be by walking away.

It is necessary to evaluate all the alternatives to an agreement and that sometimes means thinking outside the box. The solution might involve more aspects than just the money involved.

For example, in the Salt Harbor negotiation we were asked to focus only on the amount the land parcel was worth. But it might have been more beneficial for Brims to not sell and go to court, because a chain of stores usually has enough resources to go through a legal battle. Therefore keeping the land parcel would be Brims BATNA. And if Easterly refused to pay over $165,000, then Brims might have ended the negotiation without coming to an agreement because it would be cheaper for him to go to court than to sell at a loss.

It is essential to consider tangible and intangible interests when searching for alternatives and fixing our BATNAs.

The bottom line should not be rigid: if it is, it can become a “self-fulfilling prophecy” that is you end up only getting the least you could hope for, or it can prevent you from finding creative solutions.

It is hard to correctly evaluate our BATNAs as well as our opponent’s. It takes “science and art”. Most people are too optimistic.

When it comes to the ZOPA (zone of possible agreement) any figure within that range is a good agreement. But if both parties knew each others walkaway price than they just might split the difference fairly. To me this the best solution for both of them, because no one leaves feeling cheated. However, we rarely know what the ZOPA is, but some factors might help us figure it out: market conditions, the other person’s behavior, their interests and the pattern of offers and concessions.

2. Parties

Who are the real parties in the negotiation? Are there “influential players” who are not on the bargaining table?

For example, when buying a car, the salesperson is not the person you should talk to. Ask for the manager, because in the end every offer or agreement you reach with the salesman he will have to check it with his manager anyway, so just take a short cut. Although, some car dealerships might not allow you to do this or just give you some sort of excuse. After all, salespeople need their jobs.

You should also look for partners on your side that might balance the scales of power in your favor. This is particularly the case in strikes: the more employees take part in the strike the more power the collective has to negotiate with the company.

In our Salt Harbor role play the parties were simple to figure out. From what I gathered from the instructions there were no other “invisible” parties, the negotiation was between  the regional manager for Brims and the owner of Easterly Inn. Nonetheless, I could have the support of Brims CEO or whoever my superior is: he could either tell me to get a much bigger sum of money or to not even bother and go to court. Or he could tell me to avoid going to court at all cost because that would tarnish the brand’s image.

3. Interests

What are both parties’ needs and priorities? It is crucial to define them and rank them.

They might just want a certain amount of money. But they also might need other things so we need to carefully consider every option and be open to value creation.

Will tax obligations help seal the deal? Should the amount be over or under a certain amount so it can be deductible by the company? Does the person selling the good want to get rid of it as fast as possible because they are leaving the city or because they have a debt to pay and desperately need the money? Is time a constraint? Is the other a risk-taker or not?

Usually the goal with any transaction-related negotiation is maximizing economic value. And this could be achieved by many means, even unconventional ones. Interests can and should evolve because this might open the door to value creation.

For example, in the Salt Harbor case my interest was to sell the parcel of land I had bought in order to avoid a court dispute and be able to buy another parcel somewhere else. Also, it was in my interest to not delay or prolong the negotiations for too long because there is a time and a place to open up a business. I didn’t fully know my opponent’s interests but I could at least figure out the most important: he was worried my coffee shop would block his Inn’s view. Of course this would entail a drop in market value for his property that would be reflected in the price he would be forced to charge his guests. However, I considered there was a slight chance that he could benefit from the case going to court because this would make the market value of the land decrease and he would then be able to buy it for a cheaper price. This, however, was not the case.

4. Value

How can value be created? In the example given in the book, the parties swapped places in order to reach a solution: the buyer became the seller and vice-versa. This is one way to do it, but it doesn’t apply to every negotiation.

There are usually more issues at stake than price. Tax savings, job security for employees, bonuses are just some of the possibilities. They vary according to each situation and specific negotiation.

Value creation “requires revealing information and brainstorming”, so both parties should be open to this discussion. However, one party might take advantage of the other and use the information that arises from this willingness to create value for their own gain.

This discussion should ideally end when we arrive at a “Pareto optimal” point, that is “a point where one party’s well-being cannot be further improved without hurting the other’s”.

For example, in Salt Harbor if I really wanted to keep that plot of land I could have told the Easterly Inn’s owner that I could offer his guests free breakfast every day. Or I could modify the architecture plans to make it so the coffee shop wouldn’t block the view from the rooms.

5. Barriers

Several obstacles mine the way to an agreement.

→ Strategic behavior: saying no to an offer that reaches our best possible outcome just so we can squeeze a bit more out of our opponent might end up completely ruin the chance for an agreement. But conceding too soon will mean that you won’t get the best you could hope for.

→ Psychological/interpersonal: lack of trust, trouble in communicating, social stereotypes and bias.

→ Emotions: power, status, regarding the other as an opponent and giving in to defensiveness or hostility. Feelings can cloud our judgment and make us forget about our goals.

→ Institutional: sometimes the agreement both parties reached might not be feasible due to the law or technicalities. Overcoming this type of barrier might pave the way for a change in policy and traditions.

6. Power

Bargaining power has several definitions. Some say it is related to the strength or weakness of the BATNA. However, a good BATNA only “insures you against having to accept to little”. You might also be very powerful if you have nothing to lose.

Power can change according to the person you are negotiating with and the circumstances. Time is also a factor: for example, employers might offer you a job and give you little time to consider it, preventing you from comparing that offer to other companies’ offers.

Another way to gain power is to attack the other party’s BATNA: try to worsen the consequences of not taking your offer. This tactic usually escalates.

It is also a matter of perception. If the other party thinks you are ready to walk away from the deal because your BATNA is very good then they might cave in. Or you can do the opposite: make sure they know you will wait for as long as it takes to come to a solution (this is the tactic used in strikes for example).

This requires skill: strategic vision, creativity, persuasiveness and self-confidence are essential.

7. Ethics

Finally, what is the right thing to do? Should we lie to get what we want? Should we just omit certain aspects?

And if we are honest, is it 100% certain the other will also be?

Is the agreement fair for both parties? No one should get richer at other people’s expense; unfortunately this line of thinking is hardly ever respected.

Should we make use of force? Certainly physical force is out of question. But what about economic pressure? Airline companies are well-known for increasing prices during important holidays or only giving you the illusion they have a good promotion when in fact the only flights that are cheap are the ones no one wants.

What about bystanders? Should we take into account the people the agreement will affect even if they do not have a seat at the table? Some businessman do but others don’t give it a second thought. This explains the existence of so many NGOs and associations who fight for people’s rights.

In the Salt Harbor case I lied when I said the market price was $165,000 when in fact was $125,000. But I still ended up not reaching my opponent’s reservation price so it was a fair deal. If I wanted to go to court and eventually build my coffee shop there I would have to think of the people Easterly Inn’s owner would probably have to fire because his revenue had gone down. On the other hand, my coffee shop would create jobs.