Sales involves negotiations between two parties
Important terms to consider for negotiations
Chapter 3
BATNA - Best alternative to a negotiated agreement
Reservation Point
Target Point
Negotiation dance - Process of making offer and then reaching mutually agreeable settlement
Bargaining Zone (ZOPA)- Region between each party’s reservation point
Suboptimal - Negotiators are worse off by not reaching an agreement
Negative bargaining zone - Offers no positive overlap between parties’ reservation points
Bargaining surplus - amount of overlap between reservation points. Measures bargaining zone
Negotiator’s surplus - positive difference between reservation point and settlement outcome
Mixed motive - motivated to cooperate to ensure settlement reached in positive bargaining zone. Motivated to compete to obtain as much bargaining surplus as possible.
Pattern of concessions
Quid pro quo - Back and forth concession between parties
Unilateral - One way
Bilateral - Both ways
Set high aspirations (Be realistic, but optimistic)
Anchor point - High initial offers (aspiration) that sway negotiation in one party’s favor
Winner’s curse - First offer is immediately accepted by other side b/c too generous
Boulwarism - Making your first offer, the final offerPie Slicing Strategies
Silence
GRIT model (Gradual Reduction in Tension) - Based on reciprocity
Concession made by first party is significant, but not so much that if the other party does not reciprocate, you’re not at a big disadvantage
Black Hat (BH) - Tough stance
White Hat (WH) - Softer stance
Timing of Concessions
Immediate, gradual or delayed
Gradual concessions = Hi buyer satisfaction b/c they felt they earned the deal
8. Use an objective-appearing rationale to support
Gets other to buy into reasoning
Use diction “fair” and “compromise”
9. Appeal to Norms of Fairness
Fairness is hot button b/c most negotiator’s want to be fair
10. Don’t’ fall for even split ploy
B/c based on arbitrarily arrived at values
Chapter 11
Explicit negotiations - people seek to reach a mutual agreement in terms of a binding contract
Tacit negotiation - Without contracts and explicit negotiations. Fate determined by the action they take, and the action taken by others.
2 main type of negotiation situations
Cooperative
Contract explicit
Mutual understanding
Negotiate via proposals and counter proposals
People usually come to the table voluntarily
Noncooperative
Contract is tacit
People often do not know what others will do
Negotiate through their behaviors and actions
People pulled into negotiations without wanting to be
tunnel vision
Escalation of Commitment
Escalation of commitment - tendency of negotiators to persist in losing course of action
Personal escalation dilemmas - involves only one person, eg gambling
Interpersonal escalation dilemmas - involve two or more people in competitive relationship
eg union strikes
Avoiding Escalation of Commitment
Set limits, stick to to BATNA
Avoid - get several perspectives on situation
Recognize sunk costs
Diversify responsibility and authority
Redefine situation
Chapter 2 - Preparation before a negotiaion
Self-Assessment
What do I want?
Reactive devaluation - “grass is greener”, not wanting what the other party is giving
Focal Point - Arbitrary reservation point, fake, made up during negotiation
Create equivalent packages of offers
Give impression that you’re not a positional negotiator.
Strategic Risk - Riskiness of tactics used at the bargaining table.
BATNA Risk - Maybe BATNA is a job you haven’t interviewed for yet
Contractual risk - willingness of other party to honor its terms
Endowment Effects - Someone who possesses an object may have a reference point that reflects their endowment, or that they own the object
Counterfactual thinking - Thinking about what might have been
Sure thing principle - If X is preferred to Y no matter whether A happens or not, pick X
Often violated because people don’t look ahead to outcome of each possible
Overconfidence - Believing 3rd party negotiator will find in one’s own favor.
Party – person who acts in accord with their preferences
Hidden Table – Party that is part of negotiation, but not at negotiation party
Monolithic – Whether parties on the same side of table are in agreement
Consensus Conflict – One person’s beliefs are incompatible with anothers
Scarce Resource Competition – People vie for limited resources
Dispute resolution – claim made by one party and rejected by another party
Linkage Effects – Some negotiations effect other negotiations
Ratification – needing contract approved by another body or group
Shortest final deadline counts for both sides
Rate of concessions increase as deadline approaches
Set a final deadline to avoid time related costs
Time Horizon – time between end of negotiation and realization of negotiated elements
Better to hold negotiations at your place if possible
Both sides must have power for a negotiation to take place
Precedent is important
Chapter 5
Adjucation – Disputants present evidence and arguments to a neutral 3rd party who has power to hand down binding decision.
2 Types of power approaches
Threats
Contests – parties take action to determine who will prevail
Expect your style to be reciprocated
To move opponent towards interest based negotiations
- Do not reciprocate their style
- Provide opportunities to meet in person
- Stay focused on the issues, don’t attack other person’s character
- Reward interest based behavior with concessions
- Reciprocate, but combine with interest based questions or proposals
- Agree to talk
- Cooling off periods
- parphrasing
- Label the Rights or Power strategy the opponent is using
- Structural strategies
Multisetp negotiation process – When dispute not resolved one level, it moves up chain in org
Wise Counselor – senior eexecutive
Loop Back procedures
Looping back from rights
Information procedures
Minitrials – have unbiased lawyers present each side to neutral judge/advisor
Advisory procedures
Loop back from power
Crisis procedures
3rd party intervention
Med-arb – mediator serves as arbitrator
Arb med – arbitrator makes decision and puts in sealed envelope on table to motivate
Notification and consultation – prevent disputes
Forum – institutionalizing consultaitonand post dispute analysis
Rights and Power can be appropriate approaches
Other party refuses to come to table
Negotiations are at an impasse
Social Dilemma - People engage in behaviors that maximize self-interest but lead to collective disaster such as a bidding war or negative campaign
Differences from prisoner’s dilemma
Multiple people.
Costs of defection are spread out upon multiple parties
Greater risk and more uncertainty –> People behave more greedily
Provide anonymity - people feel less accountable
People have less control over the situation
Tragedy of the commons
Doing something is good for you and doesn’t harm environment noticably, but if everyone follows suit, then harms environment big time
Types of Social Dilemmas
Resource conservation (collective traps) - eg environment
Public goods dilemmas (collective fences) - eg Not pay taxes, join union etc.
Kinds of Social Dilemmas
Intraorganizational - Taking resources and budget fixing, giving committe work and recognition
Extra “ - Taking price/brand competition, overharvesting, pollution
- contributing - paying taxes, public television
Competitive advertising
Building Cooperation in Social Dilemmas
Structural strategies
Align incentives that promote cooperation
Monitor behavior
Regulation - Govt. intervention
Privatization - Govt handing land to private individuals
Tradable permits - Total allowable fish to be \
Psychological strategies
Psychological contract
Norm of commitment - people feel psychologically committed to word
Superordinate Goals - Set appropriate behavior & people more likely to follo
Communication - If people communicate before making decision, then people make better decisions
Personalize others - people will defect against dehumanized bureaucracy
Social sanctions - let people know your intentions
Focus on benefits fo cooperation
Encouraging Cooperation when its illegal to cooperate
Keep your strategy simple so competitors can predict your behavior
Signal competitors via your actions
Do not be the first to defect
Focus on your payoffs, not your payoffs relative to others
Be sensitive to egocentric bias - people see own actions as more cooperative vs others
Volunteer dilemma - 1 person sacrifices interests for good of group. E.g. designate dtree
Ultimatum Dilemma - $100 bill splitting
Subgame perfect equilibrium - rational within each period of the game
Prisoner’s Dilemma - 2 person
One shot
Dominance detection- Both sides pick confession
Equilibrium outcome - outcome determined by the decisions of both sides
Defection!
Repeated interaction
Backward induction - person decides what to do by looking backward from last stage of game
Defection! remains the dominant course of action
Infinite interaction
cooperate
Common myths about interdependent decision making
You can outsmart opponent
Play tough - Bad, will escalate conflict
It’s a game of chance anyways
Ways to recover from a defection
Make situational attributions - accept some blame for situation
Make small steps toward cooperation GRIT
Let other party get even or catch up
Make decisions at same time as opponent - helps induce cooperation