Shell-Chap-9 - Summary Bargaining for Advantage PDF

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Shell-Chapter 9 Opening and Making Concessions Tactical bargaining questions:  Good tactics depend on the situation  Of course, the other person’s style can trump any situational analysis.  If you are up against a competitive negotiator, you may need to become temporarily competitive yourself.  Strategy and tactics should be determined by three elements: situation (transaction, relationship or balanced concerns), your leverage (who has the most to lose?) and your own and your counterpart’s style. Question 1. Should I be the first to open?  Bargaining formally begins when negotiators on one side open with a concrete and plausible offer (at least in their minds).  There will be inevitably come a time when you will have to decide who is going to make the first concrete offer on allocation issues such as price, power or control.  Many experts say you should never open and let the other negotiator name his price. You can always correct him if he is outside the “fair and reasonable” range.  But this is not always a good advice.  How can you do better?  Depends on how much information you have and the experience you have on the type of business you are negotiating in.  If you don’t know the market value  you should let the other side do the talking  If you are well informed about the bargaining range, you can gain important advantage from opening.  Being the first to open lets you fix the bargaining range: a) You have a chance to set the zone of realistic expectations for the deal. b) You can apply the “anchor and adjustment” effect: human tendency to be affected by “first impression” numbers thrown  People who hear high or low numbers as initial starting points are often affected by these numbers and unconsciously adjust their expectations.  BUT a totally outlandish number may trigger a strong negative reaction.  Conclusion: Open if you think your information about market value is as good as or better than your counterpart’s.  The best protection against making a mistake at the opening is negotiating with someone who cares about his relationship with you. Question 2. Should I open optimistically or reasonably?  If you are in a Relationship situation, then a fair or accommodating opening is the right move.  In transactional bargaining: - Assuming that you have some leverage, you should open optimistically. Open high and concede slow is the best approach especially if direct communication between parties is limited. - Optimistic opening: highest (or lowest) number for which there is a supporting argument enabling you to make a presentable case.  Outrageous opening has no justification whatever to support it. An optimistic opening, in contrast, is a highly favourable interpretation of some standard or reference point.  In South America, the Middle East an Africa, anything other than an optimistic opening is a serious social mistake. Why do optimistic openings work in transactional bargaining?  Optimistic openings take advantage of two psychological tendencies: 1. Contrast principle: - An optimistic opening sets the other party up to feel both relief and satisfaction and thus he is more willing to say “yes”. - It is used successfully every day. - Ex: car dealerships have special sales force to sell you things right after you buy a new car such as extended warranties and service plans. - These add-on sales look inexpensive in comparison to the big money you just paid, but they are usually expensive in comparison to the alternatives you can find on your own. 2. Norm of reciprocity: - Psychologists have found this procedure works for all kinds of requests. - Asking for a big favour first, getting rejection, then presenting the smaller, apparently more reasonable request.

When do optimistic openings don’t work? 1. When you lack of leverage - Don’t open optimistically if you lack leverage and the other party knows it. 2. When the other side won’t bargain - When you negotiate in special markets where there is no expectation of bargaining. - This happens on management consulting businesses. 3. When it’s more than just a transaction - When moving from Transaction towards Balanced Concerns situations where relationships take more importance, highly optimistic openings do not work well. - It is important to know as much or more about the value of the firm you are buying (selling) as the sellers (buyers) do. - A highball or lowball opening is usually a bad idea in a Balanced Concern situation (it will be explained later) since you could insult your counterpart’s pride. - Try to find a favourable proposal supported by good, solid arguments that still leaves you room to negotiate. Question 3. What sort of concession strategy works best?  Even if your are inclined to be reasonable in your opening, it pays to leave yourself bargaining room to make concessions during the course of negotiations.  Research confirms that people receiving concessions often feel better about the bargaining process than people who get the single “fair” price.  Best concession strategy: start high and then gradually concede to the moderate point.  Negotiators made more money  People who faced negotiators reported higher levels of satisfaction.  Concessions are the language of cooperation Concession making in different situations  The best way to do concessions depends on the situation.  The Situational Matrix (below) shows 4 different negotiation situations, which depend on the importance of stakes and the relationship in a negotiation, and their best strategies to apply.

Tacit coordination (IV)  The best practice is avoiding needless disputes and accommodating when conflict cannot be avoided.

Relationships (II)  The best concession strategy is accommodation.  It is important to find out what the other party wants and give it to him with interest.  If accommodation is impractical, propose a simple and self-sacrificing compromise to make the other party feel appreciated.  Although it sounds very simple, super competitive people have no instinct for accommodation. They need people skills.  Those negotiating with competitive people need to keep their sense of humour, accommodate and consider whether you want to continue. Transactions (III)  The rule for price-only negotiations is classic haggling (regateo)  Cooperative people may not be very good at the haggling game, but learn it to play in competitive situations.  Haggler’s concessions initially converge on their expectation levels (not on their absolute bottom lines) because the declining size of haggler’s concessions sends a powerful signal that they are getting close to a resistance point.  Haggler’s will usually stop you before you leave the store and make a further concession. At that point you should chose whether to keep bargaining or close the sale.  Very important: in high-stake deals you should start slowly because big moves made early in bargaining can confuse the other side.  When making large concessions early in high-stakes transactional bargaining, you send the following set of messages to the other party: a) I really want this deal b) The issues I conceded were not important to me  “Concession devaluation”  If you give up something without even a comment, the other side’s estimate of the value of your concession actually goes down. Issues trading vs. haggling in transactions: integrative bargaining  If many issues are on the table, concessions making in high-stake negotiations takes the form of “issue trading” and “package bargaining”.  Haggling strategies (negotiating issues one by one) carries a higher risk.  There may be some issues on which the other party cannot compromise at all.  Haggling procedure ignores the likelihood that different issues will be worth more to one party than the other.  How to engage in integrative bargaining? - By identifying the issues, fears and risks that are most important to each side and then “logrolling”.  The rule for integrative bargaining is to make big moves on your “little” (less important) issues and little moves on your “big” (most important) issues.  Never give up anything (even little issues) without a demonstration that the concession is meaningful to you.  Mostly, parties show more flexibility on the issues that have less urgency  This communicates important information about their priorities and gives a guideline on how integrative concession making should proceed.  By dealing with entire packages and agreeing that no issue is closed until all issues have been decided, both parties retain a high degree of flexibility. If, later, they find themselves at an impasse over a vital issue (price), they have the option of going back.  The “if… then” formula ensures that you never make a concession without asking for reciprocity Ex: “If you give us A and B, then we might consider concessions on issues X and Y”  Parties may eventually need to haggle over some issues that both think are important, but they have “issuetraded” on the ones that each can concede at a relatively low cost.  Integrative bargaining is more skilful than haggling, but its no less competitive.

Balanced concerns (I)  In this situation, a variety of different bargaining and problem-solving procedures work.

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Goal: address as many priorities as possible and make sure that each side gets its “fair share” to maintain a good working relationship. All trades should be reciprocal. More imaginative kinds of bargaining tactics are both possible and desirable. Aggressive, hardball moves and transparent gambits do not work well Each party needs to probe more deeply into the real needs underlying the other side’s demands and seek imaginative solutions. How can the approach change? a) Buyer (or seller) will want to avoid a bruising tug-of-war over price that might ruin the prospects for good working relationship. b) He will also be more interested in developing or maintain trust. This means giving more (not complete) information on their priorities and needs. c) Proposing several different packages at the same time to your counterpart at the same time and asking him to identify the one that he prefers. d) Moving “outside the box” with creative solutions.  With this, parties have the chance to “make the pie bigger” both within the context of transaction and the larger framework of the parties’ on-going relationship. If the parties have a high degree of trust in each other, they spend much of their time dreaming up new ideas that might meet everyone’s needs. A clash between two people with well-considered high expectations can motivate creative thinking.

Brief note on “good guy/bad guy” routine  Competitive negotiators use this routine in high-stake deals.  The good guy opens the negotiation with friendly rapport-building chatter about shared interests and goals. The bad guy then takes over and opens at an outrageous level. Just about, the good guy steps in and insists that the bad guy makes a concession.  You start looking at the good guy as the champion of reasonableness.  The good guy (who might appear demanding if viewed alone) looks reasonable when sitting next to the bad guy  same as the contrast principle.  Way to encounter the good guy/ bad guy routine: - Name the tactic publicly - Demand a clarification on the issue of authority - Insist on trading directly with the decision maker....