Negotiations skills

Negotiation as, “a process of combining

conflicting positions into a common position, under a
decision rule of unanimity” (Henry Kissinger , 1969).
Negotiations

 Negotiation: “A process by which two or more people

come to agreement on how to allocate scarce resources”

 Parties are interdependent; neither has complete power to

choose
 The process is a decision, not a contest of wills
 Influences and Environment
 People have
 Strong emotions
 Perceptions
 Difficulty in clear communication
 Ego
 Deeply held values
 Different viewpoints, backgrounds
 Circle of Tolerance
Skills Required for Negotiations
 Listening skill
 Trust
 Patient to plan
 Open mindedness
 Questioning skills
 Soft on people and hard on problem
Why Negotiation is Difficult
 Cognitive Hard Wiring:
 We are programmed to simplify information.
 Our need for closure, blinds us to consideration of alternatives .
 We make faulty, simplifying assumptions.

 Need for confirmatory feedback:

 Inhibits learning optimally from experience.

 Intuition:
 Not in the general framework for effective negotiation.
Myths
 Good Negotiators are born:
 Wrong! They are self-made
 Buying a car is NOT a broad negotiation experience builder.

 Experience is a great teacher:

 Unaided experience doesn’t provide good feedback.
 We remember successes, forget failures.
Myths
 Good negotiators take risks:
 Good negotiators make threats in a disciplined and organized fashion.
 Good negotiators know how to evaluate a decision situation and
choose a best course of action.

 Good negotiators rely on intuition:

 Many do use ‘gut feeling’
 In reality, behavior is often influenced by arbitrary and irrelevant
aspects of a setting.
 Good negotiators are self-aware.
 They can articulate the rules that guide them.
Exercise
 Will and Rob are real estate partners , Will is agent for Racold ltd. Rob is a
national level agent for locating properties .

 Racold likes a property suggested by rob and will ; decides to lease out for 3 yrs
at $5 per sf.

 William the owner wanted to $4 per sf. and he was happy with $5 ..But will
and rob were not getting full fees as promised by William (on getting what we
was looking for)

 Alan Williams agent was unaware of will and robs position

Key Negotiation Principles

 Best Alternative To a Negotiated Agreement (BATNA)

 Reservation price

 Bargaining zone

 Aspiration level
BATNA Tips

 Know your BATNA

 Do not think of your BATNA in aggregate terms

 Improve your BATNA before you negotiate

 “Fall in love with three” rule

 You want your counterpart to think you have a good

BATNA
Key Negotiation Principles

 Best Alternative To a Negotiated Agreement

(BATNA)
 Reservation price

 Bargaining zone

 Aspiration level
Reservation Price
 Reservation Price is your bottom line
 The point at which you are indifferent to whether you achieve a negotiated
agreement or walk away. Beyond the reservation price, you prefer no agreement.

 Reservation Price is equal to your BATNA +/- other issues that make
you want to do the deal
 e.g., opportunity costs, switching costs, ego, miscellaneous preferences

 Define your reservation price before negotiating

 Learn your opponents’ reservation price, if possible

Should You Reveal your BATNA and Reservation
Price?

 Do not reveal your reservation price!!!

 One of the critical pieces of information in a negotiation is the
other party’s reservation point. If it becomes known to one
party, the negotiator can push for a resolution that is only
marginally acceptable to the other party.

 Do not state ranges

 Reveal your BATNA only when:

 You are nearing an impasse
 You have a strong BATNA
 You want to make an agreement in the current negotiation
Key Negotiation Principles

 Best Alternative To a Negotiated Agreement

(BATNA)
 Reservation price

 Bargaining zone

 Aspiration level
 The Negotiation Bargaining Zone

Buyer’s Reservation Price (BR)

Buyer’s Target Price (e.g., $25M)
($15 M)

Seller’s Reservation Price (SR) Seller’s Target

(e.g., $17M) ($35 M )

• The bargaining zone is the space between the buyer’s reservation price (BR) and the
seller’s reservation price (SR) – that is, the zone of possible agreement.
• If BR > SR, then a Positive Bargaining Zone exists. The zone of agreement is from SR
to BR (e.g., $8M).
 A Negative Bargaining Zone

Seller’s Reservation Price (SR)

(e.g., $25M)

Buyer’s Reservation Price (BR)

(e.g., $17M)

If BR < SR, then there is no zone of possible agreement.

 Key Negotiation Principles
 Best Alternative To a Negotiated Agreement (BATNA)

 Reservation price

 Bargaining zone

 Aspiration level
 Aspiration Level

Final Price (in millions)

$23.5
$23.0
$22.5 Buyer focused on
BATNA
$22.0
Buyer focused on
$21.5 aspiration level
$21.0
$20.5
 Example : Distributive bargaining
 MATT: I paint yachts for $1,200.00.

 SUE: $1,200.00! That's a small fortune. Why should I pay you that kind of money? This
is a harbor town with plenty of people painting yachts for a living. By the way, I heard
that you painted Professor Dunlip's boat.

 MATT: He's a great guy-I had him for Constitutional Law. I have to charge $1,200.00. I
have certain obligations to my family.

 SUE: We have something in common. I had Professor Dunlip for Constitutional Law,
too. But I really cannot afford that price.
Example : Distributive bargaining
 MATT: Listen, I'm worth the money because I take out all of the glass and
painstakingly paint each crevice.You've got yourself a beautiful vessel. Maybe
we can work something out since we are both former students of Professor
Dunlip.

 SUE: All I know is that I am losing a lot of money this summer. I cannot
supplement my income by fishing in Nantucket.

 MATT: Oh really, why can't you fish this summer? Listen, I cannot afford to
lower my price this time. I'm saving money to take my family on a summer
vacation to Nantucket. We have not had one in two years. Look, in determining
my price, I have spoken to numerous people at the docks, and they charge
double and do not even remove the glass.
 Example : Distributive bargaining
 SUE: Well, I use the boat for two weeks in June to catch and sell lobster to pay for my law books. I
cannot fish this year as I have to study for the bar exam so I am losing money [almost $300.00].
Nantucket is a great place for family vacation plans.

 MATT: We have no plans right now. This job would have given me enough money to rent a boat
and sail away.

 SUE: I really need you to paint my boat because the bottom will rot out once I put it in the
seawater.

 MATT: I really need this job. My wife is bothering me about taking a vacation.

 SUE: [Hmm] We seem to have similar problems in a way.

Example : Distributive bargaining
 MATT: Listen, I can paint your boat for $600.00 if you sign an agreement that
allows me to use the boat (for two weeks in June to sail to Nantucket with my wife
and kids). I'll pay for my own gas and bring the boat back on a full tank.

 SUE: How about three weeks in June and you paint the boat for nothing [before you
set sail]

 MATT: Give me four weeks and I'll paint the boat for free [tomorrow], and
pay you $300.00. Either one of us can draw up the contract since we're both
lawyers.

 SUE:You've got a deal. You draw up the contract since I'm not licensed
[yet] and contract language is construed against the drafter in court
[laughing].
Criteria for Negotiations
a. Should produce wise agreement if agreement is possible;

b. Should be efficient;

c. Should improve or at least not damage the relationship

b.
Exercise: Factors Affecting Environment
 A agent who is in land dealing who has been asked by his
hired company to give them an undisputed land of 200 acres
of land in Mehsana.
 Facts
 50 farmers occupy this land
 30 acres is on the main road and there is only one owner named
Mansukhbhai
 Agent has to ensure the land is undisputed and check all relevant papers
 It’s a agriculture land
 The farmers also have their agent who want to negotiate on their behalf
 Discuss the challenges faced by the agent and how to over come
them
Negotiation Elements
 Interests
 Options _ BATNA (Best Option to negotiated agreement)
 Communication skills
 Relationship
 Commitment
Negotiation Elements: BATNA
 Steps to BATNA

1. Decide your BATNA

A. Invent a list of actions possible if no agreement.
B. Improve some of ideas from list, create practical
alternatives.
C. Select the alternatives that seem best.
D. Calculate Reservation Price
Example: Reservation price/BATNA
 Steven and Jim were together running a company .
 Facts
 Valuation of company $20 Million
 Jim own 49% of shares (he values at $10 million)
 Steve offers $8.5 Millions

 Litigation charges $500,000

 Chances of winning 70%
 On losing Jim gets $ 3 million
Negotiations Elements : BATNA
 Steps to BATNA
1. Decide you BATNA
d. Calculate your reservation price :
 Lowest valued deal price you are willing to accept .
Negotiation Elements :BATNA
 Steps to BATNA

2. Take your BATNA to next level

 Translate your BATNA to current options/market options
 Assess other party’s BATNA carefully
 Think through two level BATNA
Mistakes we do
 Underestimating your own authority, ability and
strengths.
 Assuming you know what the opposition wants.
 Overestimating your opponent’s knowledge of your
weaknesses.
 Becoming intimidated by your opponent’s prestige,
rank, title or educational accomplishments.
 Being overly influenced by traditions, precedents,
statistics, forecasts, or cultural icons and taboos.
Summary
 Skills we have and what we need–Influences and environment
 Myths
 Concepts:
 Interest , Issues and position
 Distributive bargaining
 Integrative bargaining or principled bargaining
 Batna
 Reservation price
 Negotiation zone(Zopa _Zone of possible agreement)
 Negotiation surplus
 Prisoners Dilemma
Strategies
 Going to the balcony _third perspective
 Building relationships for trust building
 Knowing other persons BATNA
 Controlling your emotions after knowing BATNA
 Empower yourself by getting lot of information
 Know your negotiator
 Distributive versus Integrative
Negotiation
Characteristics Distributive Integrative

Outcome Win-lose Win-win

Motivation Individual gain Joint gain

Interests Opposed Different but always positive

Relationship Short term Long term

Issues Involved Single Multiple

Ability to make trade offs Non flexible Flexible

Solution Non Creative Creative

Principled Negotiation

people interests

options criteria
Skill up
 Talk along .
 Being Assertive during the process
 Acknowledging is not accepting
 Think long term but don’t miss BATNA
 Give away non valuable
 Writing it down each and every agreement
 Ask and you will get it.
Negotiation Elements: BATNA
3. Track Batna in Multiparty negotiations

 Fluctuating nature of Batna :

4. Anticipate hidden hazards of BATNA research _cost,

time etc
When you decided to forgo options that you invested time and
money in creating, you may feel as though you wasted resources
–you start making the payoff by expecting the outcome in your
favour
Influencing
 Robert Cialdini (1993) argues that formal authority is fragile
establishing credibility, “common ground,” and emotional
connections can shift the balance of power
Principles of Influences
1. Reciprocation:
2. Social Proof : “Laugh tracks on comedy shows exist for this very
reason,” Cialdini says.
3. Commitment and Consistency : People strive for consistency in
their commitments. They also prefer to follow pre-existing
attitudes, values and actions.
4. Liking :
5. Authority :
6. Scarcity :
Interpersonal Skills
1. Being able to express strong feelings appropriately.
2. Remaining rational in the face of strong feelings.
3. Being assertive within a negotiation without damaging the
relationship.
4. Improving a relationship without damage to a particular
negotiation.
5. Speaking clearly in ways that promote listening.
6. Inquiring and listening effectively (active listening).