How do parties define the issues at stake in a negotiation, known as the “bargaining mix”?
Developing a negotiation strategy usually begins with an analysis of what is to be negotiated or the “bargaining mix”. Remember, a negotiation concerns situation in which the parties perceive a conflict in objectives or interests. As such, it is important to understand the nature of the interests at stake. The following are categorizations of interests:
• Substantive interests – These are interests that are the subject of the perceived conflict between the parties. If two people are arguing over who receives the largest share of a cash prize, the money at stake is the substantive interest.
• Process-based interests – These are interests related to how the negotiators behave as they negotiate. Individuals may be as concerned about how the negotiation plays as as they are about the interests at stake or the outcome. For example, a negotiator may be primarily concerned with the negotiation process being fair or allowing her to appropriately voice her concerns.
• Relationship-based interests – These interests are tied to the current or desired future relationship between the parties. Individuals are often affected greatly by their social interactions with others. Maintaining a positive relationship or securing an on-going relationship may be more important than one’s interests or the procedures followed in the negotiation.
⁃ Intrinsic relationship – This means that the parties to the relationship find value in maintaining the relationship as well as the relationship itself. That is, the parties are content with the existence of the relationship and there is joy in building and keeping up the relationship.
⁃ Instrumental relationship – This means that the parties receive some tangible or substantive value from the relationship. They maintain this friendship to ascertain that the benefits of the relationship continue.
• Interests in Principle – Principle-based interests are rooted in the deeply-held beliefs of the negotiators. We often assume that a conflict is based in the logical desire to claim value or pursue an objective. Sometimes, however, the internal beliefs can drive our objectives in a negotiation.
Interests may also be influenced by the intangibles of the negotiation. This may include opinions, ideas, or cognitive processing (emotions). With an awareness of the types and complexity of potential interests. Attempt to derive complete list of the issues at stake in the following manner:
• Brainstorm one’s actual or potential interests or objectives.
• Research prior similar situations (whether personal or third party) for potential issues or interests.
• Consult with experts in this situation, context, or industry regarding potential interests at stake.
• Inquire with the other party or with third parties about their interests or objectives (whether or not directly related to the present negotiation).
As previously stated, interests are often the primary determinants of the strategy employed in a negotiation. Single-issue negotiations tend to dictate distributive negotiations because the only real negotiation issue is grabbing the value at stake. In contrast, multiple-issue negotiations lend themselves more to integrative negotiations because parties are able to package interests and make tradeoffs to improve the positions of both parties.
How does one prioritize the issues in a negotiation?
When there are more than one interest in a negotiation, those interests should be dealt with collectively. Poor negotiators generally address interests individually. It sacrifices the ability to use the issues strategically and to create greater total value. Knowledge of the interests at stake in a negotiation are imperative to prioritizing them in the negotiation. In a prior section, we discussed the various types of interests. There are, however, any number of things that are important to know when prioritizing an interest in the negotiation. Below are examples of things you should understand.
• Importance of Interests – Understand which issues are more or less important to one’s self and the other party. The importance of an interest will vary considerably depending upon the nature of the interest. In a separate section, we discuss distributive, integrative, and compatible interests. In summary, interests that are directly adverse and equally important to the negotiators are generally distributive in nature. Negotiators may attempt to trade off on these issues or split the difference in value. Interests that are identical and are compatible (i.e., the parties desire the exact same outcome – so there is only a perceived conflict) should be fully exploited to create mutual value for the parties. Adverse interests that differ considerably in importance to the parties offer the greatest opportunity and can be used to develop an integrative negotiation. One party will seek to accommodate another party’s interest if that interest is far more important or valuable to that party. In turn, the other party can be convinced to accommodate the negotiator on a separate interest that is more important or valuable to her. In this way, the total value achieved by the parties is greater.
• Relationship between Interests – Determine whether the issues are linked together or are completely separate. Often, one interest will affect another. As such, a seemingly unimportant interest can have far greater impact or importance. Understanding this will allow the negotiators to package interests together that create greater value to either party. A common tactic is known as “bundling”. If an interest is completely unrelated, it can be dealt with individually to avoid the loss of value created through bundling like interests.
Understanding the importance of individual interests to the other party is difficult. Inducing disclosure of information by the opposite party about importance and connection of interests is a primary negotiation objective. This objective must be carried out in accordance with the overall strategy. Remember, the objective is to disclose enough information to create the desired perception in the other party and to, in turn, acquire the amount and type of information necessary to effectively strategize.
How do you frame up (identify the key characteristics of) a negotiation?
A negotiation should begin by framing up the negotiation from the point of view of both parties. While a party will generally know or be able to identify key characteristics of their own position, she will have to use direct and indirect assessment methods to uncover the characteristics of the other party’s position. If she is unable to uncover these characteristics, she will generally estimate or make assumptions about these positions. Framing up a distributive negotiation should proceed as follows:
- Interests – Each party should seek to understand the extent or degree of importance that each party places on a particular interests. While the interests in a distributive negotiation are usually limited and in direct conflict, there may be an opportunity to integrate other interests into the negotiation. This would allow the negotiators to convert the negotiation in a an integrative negotiation in which interests are traded off to achieve greater value.
- Reservation Point (Resistance Point) – A negotiator’s resistance point is generally equal to her best alternative to a negotiated agreement (BATNA). This is a negotiator’s bare minimum value that she is willing to accept in a negotiation. If the terms of the negotiation cannot meet or exceed the reservation point, the negotiator may walk away from the negotiation. It is incredibly important for a party to recognize her reservation point and prevent another party from discovering it. If the reservation point is not given, negotiators generally derive the reservation point from the alternatives available to a negotiated outcome.
- Alternatives – Alternatives are the options or paths that a negotiator may choose rather than reach an agreement with the other party. Negotiators focus on the best alternative(s) to a negotiated agreement, also known as the BATNA. BATNAs are very important in both distributive and integrative processes because they define whether the terms of negotiation are better than another possibility outside of the present negotiation. To be a BATNA, these other options must meet the negotiator’s needs and be more favorable than could be otherwise negotiated.
- Target Point – The target point is a “aspiration point” for the outcome of the negotiation that meets a party’s objectives or desires. The target point is generally at a point that the negotiator believes is potentially achievable. That is, it should be a realistic objective. The target point may be very subjective depending on the negotiation and the cognitive characteristics of negotiator.
- Zone of Potential Agreement (ZOPA) – Each party’s reservation point establishes the ZOPA. In theory, any point in this zone is a potential outcome of the negotiation. Any adjustments or concessions in the negotiation will take place within this range. It is important to note that a party’s ZOPA is subject to change as the negotiation develops. The bargaining zone can be positive or negative. A positive zone gives the opportunity for reaching an agreement. A negative ZOPA does not allow for a negotiated agreement. For example, if a buyer is willing to pay up to $7 and the seller is willing to sell for as little as $5, there is a positive ZOPA. If the seller will not take less than $8 and the buyer cannot pay more than $6, there is a negative ZOPA. In a negative bargaining zone, parties should pursue other alternatives. If parties fail to reach agreement in a positive bargaining zone, the result is suboptimal.
- Bargaining Range – The bargaining range is established by the points from which the parties begin to negotiate (their “anchor points”). The bargaining range will be constricted by concessions during the bargaining process. The bargaining range may be wider than the ZOPA; however, to reach a negotiated agreement, the bargaining range must constrict within the ZOPA.
- Settlement Point – This is the negotiated outcome of a successful negotiation. The settlement point always falls within the Zone of Potential Agreement and provides a measurement point for assessing a negotiator’s success in the negotiation. The amount or extent of interests or value claimed by a negotiator beyond her reservation point is known as the “negotiator’s surplus”. Both parties to a negotiation will have a surplus; however, a comparison of negotiator surplus will indicate which party was more successful in the negotiation.
- Suboptimal Outcome – If the parties fail to reach an agreement within the ZOPA there is a suboptimal outcome. It may result from one party walking away from the negotiation or accepting a settlement point that is outside of the ZOPA. In any event, one or both parties will be in an inferior position or reap less value than was possible.
Once the negotiator develops an understanding (or makes assumptions) about the her own position and the other party’s position, she can develop a strategy. The remaining attributes of the negotiation that may affect strategy are the applicable constraints. Constraints on a negotiation are innumerable. These are generally contextual in nature and unique to the specific negotiation. Some commonly understood constraints might include: location of the negotiators, language or communication ability, cultural influences on the negotiator, medium of communication (phone, internet, teleconference, etc.), team or cohort communications, third party veto or decision-making authority, etc.
What is the significance of understanding the resistance point of both parties?
A “resistance point” is the bare minimum terms that a negotiator is willing to accept in a negotiation. One should always establish a resistance point prior to beginning a negotiation. To do so, a negotiator should seek to understand herself, the counterparty, and the negotiation situation. Understanding each party’s interests, objectives, and resistance point allows a negotiator to development a strategy and select tactics to achieve that strategy. Any factors that may provide useful information in the negotiation or influence a counterparty’s negotiation strategy are relevant. Such understanding allows a party to establish a reservation point and proceed with the negotiation process. The reservation point may affect the negotiation process, and it is strengthen by an understanding of:
• The nature and strength of each party’s interests,
• Each party’s BATNA,
• Each party’s cost of delay or non-agreement.
The BATNA is generally the guiding force in determining the resistance point. It can also be a primary source of a party’s negotiating power. Each party to the distributive negotiation is advised to guard or conceal information about themselves while trying to find out as much information as possible about the other party. The question becomes, how much should one disclose about her reservation point. Generally, parties will seek to make concessions and selectively reveal information to determine the other party’s reservation point or other useful information.
• Strategy Note: Be aware of the “goal-setting paradox”. Pursuant to this theory, a negotiator who focuses on her ideas or principles in the negotiation rather than the reservation point may feel less satisfied in an outcome than a negotiator who focuses on her own reservation point.
How do parties open the negotiation – “Target Point” and “Anchor Point”?
After negotiators have defined the issues, assembled a tentative agenda, and framed up the negotiation, the next step is to define two other key points: 1) the specific “target point” and 2) the opening bid or “anchor point”, representing the best deal one can hope to achieve.
• Setting a Target – The target point is a party’s aspirations for a negotiation outcomes. It is the terms at which one realistically expects to achieve a settlement. When setting a target – there are several principles to keep in mind:
⁃ Focus on Objectives – Setting a target requires the negotiator to be proactive in thinking about her objectives. Going into the negotiation unclear about one’s objectives will often result in a failure to grab all available value.
⁃ Specific, Achievable, and Verifiable – Targets should be specific, difficult but achievable, and verifiable. Making the target specific avoids the target wavering during the negotiation. The target should be reasonably achievable under the circumstances. Setting an unrealistic target can alienate or anger the other party. The results of the negotiation should be verifiable or able to be ascertained. If you have no way of making certain that the outcome is reached, it is difficult to hold the other party accountable to the terms of the negotiation agreement.
⁃ Bundle, Package, and Trade Off – Do not handle each issue separately in the negotiation. You should always deal with interest collectively as a package deal. As such, you should set your target point based upon these combinations. To do so, you must be able to measure the importance of the applicable interests and determine your willingness to trade one interest for another. This approach may result in multiple equally-valuable target points made up of various combinations of the interests at stake.
• Setting an Opening Bid – An opening bid or anchor point should be the best possible outcome you hope to achieve in the negotiation. Anchoring, as the name implies, also provides a firm location from which to begin a negotiation. The party who first anchors (makes the opening offer) provides either the top or bottom range for the negotiation. The other end of the bargaining range is established by a party’s response to the opening offer. As such, being the first party to make an offer is a powerful position. Remember, the opening bid is the best that a party is capable of achieving, as a party generally cannot raise an offer once it is presented. The parties will negotiate from these points in an effort to shrink the bargaining range within the zone of potential agreement (ZOPA). In practice, the opening bid should generally be a bit higher or greater than the target point, as this gives room for concessions in the negotiation. Opening a bit higher widens the bargaining zone and allows room for adjustment by both parties. The parties make concessions based upon the requests of the other party and adjust their positions accordingly. Once the bargaining range is within the ZOPA, a successful negotiation is possible. Failure by the parties to move the bargaining range within the ZOPA generally results in non-agreement and the parties walking away. When there is a positive ZOPA (I.e., there is overlap between the parties’ resistance points), failing to bring the terms of a negotiation within the ZOPA is a sub-optimal outcome in which both parties are left with their inferior alternatives to an agreement.
The risk associated with setting a target and anchoring is that an unreasonable opening offer may have a negative effect on the counterparty. For example, a unrealistic anchor point could be seen as outrageous or overly competitive. The counterparty may believe that she has misjudged the offeror’s reservation point and be discouraged from continuing in the negotiation. It could also be the case that the counterparty perceives the negotiation positions to be too far apart and walks away. For these reasons, it is important to anchor with a reasonable offer that is close to the target point.
Why is it important to plan for concessions?
The bargaining range in a negotiation is established by the parties’ initial offer and response. The parties must first seek to narrow the bargaining range to within the zone of potential agreement (ZOPA). The concession is a tactical tool that brings the parties together. One or more of the parties must make concessions to bring the bargaining range within the ZOPA. Generally, both parties will make some form of concession. Making concessions is a strong negotiation tactic. A skilled negotiator will manage the timing, frequency, and magnitude of concessions in an effort to influence the other party. For example, used effectively, concessions can create perceptions and help to reveal or uncover critical information about from the counterparty. This might include information about one’s interests, resistance point, the costs associated with the negotiation, etc. The back and forth and progression of concessions between the parties sets the tone of the negotiation and can evoke or alter perceptions and create emotions. To further illustrate, making small, frequent concessions can indicate hard-ball tactics that cause a perception of procedural unfairness that alienates the other party. Large, infrequent concessions may frustrate or anger the other party with regard to the pace of the negotiations. The appropriate tactic with regard to concessions will vary based upon the ability of a party to invoke a desired response or elicit information from the other party. The most important thing to remember is that concessions are the only method of arriving at a mutually acceptable outcome. Unless the other party is willing to adjust her reservation point, one party must continue to make concessions until the negotiation point moves beyond the other party’s reservation point. Making concessions is also a sign of procedural fairness to the other party.
• Note: There are also many tactics to avoid when making concessions. Most notably, a party should not make premature concessions. This normally involves making more than one concession in a row before the counter-party responds or counteroffers. Also, a party will have to determine the point in the negotiation to make a final offer or commit to a position without further negotiation.