Strategy in Negotiation {Lecture Notes}

Strategy versus TacticsStrategy versus Tactics
 What is the difference between strategy andWhat is the difference between strategy and
tactics?tactics?
 Some use the terms interchangeablySome use the terms interchangeably
 Strategy defined = overall approach to a bargainingStrategy defined = overall approach to a bargaining
situationsituation
 Tactics defined = techniques used during theTactics defined = techniques used during the
processprocess
 Charlene Barshefsky, U.S. trade representative:Charlene Barshefsky, U.S. trade representative:
““Strategy comes first – objectives determine aStrategy comes first – objectives determine a
broad negotiation strategy which is setbroad negotiation strategy which is set awayaway fromfrom
thethe tabletable, tactics are techniques used, tactics are techniques used atat thethe
tabletable””
6-2

Negotiation SkillsNegotiation Skills
 Skill 6.1: Identify three keys –Skill 6.1: Identify three keys – timetime
(deadlines), information, power(deadlines), information, power
 Skill 6.2: Develop anSkill 6.2: Develop an increments ofincrements of
concessionsconcessions strategystrategy
 Skill 6.3: Consider using aSkill 6.3: Consider using a principledprincipled
negotiation strategynegotiation strategy (focus on interests, not(focus on interests, not
positions)positions)
 Skill 6.4: With multiple issues consider aSkill 6.4: With multiple issues consider a MESOMESO
oror Economic MatrixEconomic Matrix strategystrategy
 Skill 6.5: Consider applying aSkill 6.5: Consider applying a 3-D Negotiation3-D Negotiation
approachapproach
6-3

Chapter Case:Chapter Case:
West Coast Music Inc.West Coast Music Inc.
 Kevin Carter, president of West Coast Music,Kevin Carter, president of West Coast Music,
a chain of 12 family-owned music stores,a chain of 12 family-owned music stores,
negotiates leased space in mallsnegotiates leased space in malls
 Five lease issues are critical:Five lease issues are critical:
 1. rent1. rent
 2. monthly maintenance charge2. monthly maintenance charge
 3. store allowance for carpeting, fixtures3. store allowance for carpeting, fixtures
 4. length of contract4. length of contract
 5. mall location (a. high traffic, b. main floor,5. mall location (a. high traffic, b. main floor,
c. second floor)c. second floor)
6-4

KeyKey Strategy ElementsStrategy Elements
 Overall a negotiation strategy should consider threeOverall a negotiation strategy should consider three
critical situational elements:critical situational elements:
 TimeTime
 ““80/20” rule80/20” rule
 Deadline strategies:Deadline strategies:
 Conceal your deadlineConceal your deadline
 Declare an earlier deadlineDeclare an earlier deadline
 Find the other side’s deadlineFind the other side’s deadline
 InformationInformation
 ““The heart of negotiations” – shapes strategy, realityThe heart of negotiations” – shapes strategy, reality
 Preparation is key - side with more info. has edgePreparation is key - side with more info. has edge
 BATNA is the most importantBATNA is the most important
 PowerPower
 Whole process is about power, ego, leverageWhole process is about power, ego, leverage
 Balance between parties is a key factorBalance between parties is a key factor
6-5

Five Strategies for Various Situations

Tactics for Success:Tactics for Success:
Use Time to Your AdvantageUse Time to Your Advantage
1.1. Have patience: Remember “80/20” ruleHave patience: Remember “80/20” rule
2.2. Be persistent: Reframe – seek new information orBe persistent: Reframe – seek new information or
real interests; wait for better timingreal interests; wait for better timing
3.3. Move quickly when possible: Opportunity for a quickMove quickly when possible: Opportunity for a quick
resolution on an issue may passresolution on an issue may pass
4.4. Deadlines: Don’t panic – often can be moved,Deadlines: Don’t panic – often can be moved,
eliminatedeliminated
5.5. Know counterparts timelines: Easier to gainKnow counterparts timelines: Easier to gain
concessions as it nearsconcessions as it nears
6.6. Make time work for you: Move slowly withMake time work for you: Move slowly with
perseveranceperseverance
6-7

Traps to Avoid:Traps to Avoid:
Protect Your BATNAProtect Your BATNA
1.1. BeforeBefore negotiating set anegotiating set a specificspecific BATNABATNA
– and stick to it– and stick to it
2.2. Write it downWrite it down on paper and refer to iton paper and refer to it
when receiving an offerwhen receiving an offer
3.3. Never revealNever reveal your BATNA but you canyour BATNA but you can
increase theincrease the perception of your powerperception of your power toto
gain leveragegain leverage
6-8

Strategy 1: Increments ofStrategy 1: Increments of
ConcessionConcession
 Focus on “The Number” – distributive process ofFocus on “The Number” – distributive process of
finding a settlement pointfinding a settlement point
 Increments of concessions defined = pattern ofIncrements of concessions defined = pattern of
concessions that leads the other party to guessconcessions that leads the other party to guess
your BATNA, and thus a settlement pointyour BATNA, and thus a settlement point
 Possible concession patterns:Possible concession patterns:
 Split the differenceSplit the difference = even division between the last two= even division between the last two
offersoffers
 Equal incrementsEqual increments = equivalent concessions= equivalent concessions
 Decreasing incrementsDecreasing increments = smaller concessions, appear to= smaller concessions, appear to
be closing in on a value = “the number”be closing in on a value = “the number”
6-9

Increments of Concessions:Increments of Concessions:
Split the DifferenceSplit the Difference
 Seller’s listed price = $390,000 (and does notSeller’s listed price = $390,000 (and does not
make any counteroffers)make any counteroffers)
 Pattern A: Split the difference (50/50)Pattern A: Split the difference (50/50)
 Buyer’s 1Buyer’s 1stst
offer = $310,000 (range = $310,000offer = $310,000 (range = $310,000
-390,000)-390,000)
 22ndnd
offer = $350,000 (range = $350,000 – 390,000)offer = $350,000 (range = $350,000 – 390,000)
 33rdrd
offer = $370,000 (range = $370,000 – 390,000)offer = $370,000 (range = $370,000 – 390,000)
 44thth
offer = $380,000offer = $380,000
 What is the buyer’s BATNA?What is the buyer’s BATNA?
6-10

Equal IncrementsEqual Increments
 Pattern B: Equal increments of $20,000Pattern B: Equal increments of $20,000
– 390,000)– 390,000)
 22ndnd
offer = $330,000 (range = $330,000 –offer = $330,000 (range = $330,000 –
390,000)390,000)
 33rdrd
offer = $350,000 (range = $350,000 –offer = $350,000 (range = $350,000 –
390,000)390,000)
 44thth
offer = $370,000offer = $370,000
6-11

Decreasing IncrementsDecreasing Increments
 Pattern C: Decreasing incrementsPattern C: Decreasing increments
($20,000; $10,000; $5,000)($20,000; $10,000; $5,000)
- $390,000)- $390,000)
 22ndnd
offer = $330,000 (range = $330,000 -offer = $330,000 (range = $330,000 -
$390,000)$390,000)
 33rdrd
offer = $340,000 (range = $340,000 -offer = $340,000 (range = $340,000 -
$390,000)$390,000)
 44thth
offer = $345,000offer = $345,000
6-12

Strategy 2: PrincipledStrategy 2: Principled
NegotiationsNegotiations
 FromFrom Getting to YesGetting to Yes, key elements:, key elements:
 Focus on interests, not positionsFocus on interests, not positions::
 Interests = needs, desires, concerns, fears that lead toInterests = needs, desires, concerns, fears that lead to
“why”“why”
 Positions = specific demandPositions = specific demand
 Separate people from positionsSeparate people from positions
 People negotiate – are affected by egos, feelings, angerPeople negotiate – are affected by egos, feelings, anger
 ““Step into their shoes” to discover their reasoningStep into their shoes” to discover their reasoning
 Focus on objective criteriaFocus on objective criteria
 Facts, principles, standards can be used to frame an offerFacts, principles, standards can be used to frame an offer
 Develop mutual-gains optionsDevelop mutual-gains options
 A settlement must be superior to no agreement for bothA settlement must be superior to no agreement for both
partiesparties
 Propose options with gains for both partiesPropose options with gains for both parties
6-13

The Positions versus Interests of Smith
and Jones

Strategy 3: MultipleStrategy 3: Multiple
EquivalentEquivalent SimultaneousSimultaneous
OffersOffers (MESOs)(MESOs)
 MESO steps:MESO steps:
 Identify and prioritize issues, estimate theirIdentify and prioritize issues, estimate their
weights (relative value) to both partiesweights (relative value) to both parties
 Identify different likely outcomes for eachIdentify different likely outcomes for each
issue, set one as the standard = 100 points,issue, set one as the standard = 100 points,
then set relative value of othersthen set relative value of others
 Create at least three equivalent offersCreate at least three equivalent offers
(approximately equal point values)(approximately equal point values)
6-15

Why Is the MESOWhy Is the MESO
Strategy Appealing toStrategy Appealing to
Others ?Others ?
 People prefer to be givenPeople prefer to be given choiceschoices – many options,– many options,
rather than a single offerrather than a single offer
 One MESO option is likely to be aOne MESO option is likely to be a greater valuegreater value toto
them – can lead to further discussion, settlementthem – can lead to further discussion, settlement
 It gives themIt gives them inputinput – they can discuss the values,– they can discuss the values,
weights, etc.weights, etc.
 But…consider…But…consider…
 MESO strategy requires multiple issues withMESO strategy requires multiple issues with realisticrealistic
alternative outcomesalternative outcomes
 MESO can be aMESO can be a complex processcomplex process
 MESO requires a party toMESO requires a party to revealreveal some of its ownsome of its own
interestsinterests
6-16

Strategy 4: The EconomicStrategy 4: The Economic
MatrixMatrix
 Similar to MESO strategy (avoids weights)Similar to MESO strategy (avoids weights)
 May be more useful than MESO if allMay be more useful than MESO if all
issues can be given estimated dollarissues can be given estimated dollar
valuesvalues
 Core elements:Core elements:
 Brings several economic issues into oneBrings several economic issues into one
proposalproposal
 Limits the total value of all issues (increase inLimits the total value of all issues (increase in
one must be offset by a decrease in another)one must be offset by a decrease in another)
 Provides options of equal value to the otherProvides options of equal value to the other
6-18

Matrix AdvantagesMatrix Advantages
 Focus is on the total value of all issues,Focus is on the total value of all issues,
not distribution of each issuenot distribution of each issue
 Positive response by other party which isPositive response by other party which is
given choices – and may prefer one optiongiven choices – and may prefer one option
 Matrix presents valuable data, allowsMatrix presents valuable data, allows
discussion and input on valuesdiscussion and input on values
6-19

Strategy 5:Strategy 5:
3-D Negotiation3-D Negotiation
 Useful if negotiations stall, reach impasse, orUseful if negotiations stall, reach impasse, or
power is imbalancedpower is imbalanced
 Lax and Sebenius view negotiation in “3-D”:Lax and Sebenius view negotiation in “3-D”:
 11stst
dimension – tactics used at the tabledimension – tactics used at the table
 22ndnd
dimension – deal design (including specifics)dimension – deal design (including specifics)
 33rdrd
dimension – the setup of the whole negotiationdimension – the setup of the whole negotiation
 Setup includes: parties, issues, BATNAs, timing,Setup includes: parties, issues, BATNAs, timing,
informationinformation
 Thus, 3-D strategy = review all the elements of theThus, 3-D strategy = review all the elements of the
setup, change one to influence the outcomesetup, change one to influence the outcome
 Examples: Bring a new third party into the negotiation;Examples: Bring a new third party into the negotiation;
improve your BATNA; shift the priorities of the issues;improve your BATNA; shift the priorities of the issues;
seek offers from other partiesseek offers from other parties
6-20

The Three Dimensions of
Negotiations

Summary of StrategiesSummary of Strategies
and Likely Use Situationsand Likely Use Situations
StrategyStrategy Negotiation SituationNegotiation Situation
Strategy 1: Increments ofStrategy 1: Increments of
ConcessionsConcessions
Distributive bargaining (oneDistributive bargaining (one
issue/usually price)issue/usually price)
Strategy 2: PrincipledStrategy 2: Principled
NegotiationsNegotiations
Integrative bargainingIntegrative bargaining
Strategy 3: Multiple EquivalentStrategy 3: Multiple Equivalent
Simultaneous Offers (MESOs)Simultaneous Offers (MESOs)
Multiple issues each withMultiple issues each with
multiple outcomesmultiple outcomes
MatrixMatrix
Multiple issues each withMultiple issues each with
multiple outcomes – all can bemultiple outcomes – all can be
given estimated dollar valuegiven estimated dollar value
Strategy 5: “3-D” NegotiationsStrategy 5: “3-D” Negotiations Negotiations stall, reach anNegotiations stall, reach an
impasse, or power isimpasse, or power is
6-22

Strategy in Negotiation {Lecture Notes}

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Strategy in Negotiation {Lecture Notes}