Negotiation Strategy

April 22’ 2023

Negotiation
• Negotiation is a process of two or more parties working together to arrive at mutually
acceptable resolution of one or more issues
• It deals with the conflicting situation of two or more conflicting parties to settle down the issue
• Negotiation refers to a process of seeking to influence others
• It is a 'give-and-take' bargaining process
• Negotiation occurs everyday.

Negotiating as a “back-and-forth communication designed to reach an agreement when you

and the other side have some interests that are shared and others that are opposed.”
Negotiation
In our daily life, we come across various instances of negotiations. A prospective employee may
negotiate with his employer over his salary, a consumer may negotiate the price of the product with
the salesman, and the management may negotiate with the workers union over work-related issues.
It is through negotiation that parties decide what each of them finally get and give in their
relationship.
Before delving into the various aspects of negotiation, it is important to understand conflict. Conflict
and negotiation go hand in hand.
• Conflict means ‘serious disagreement or argument about something important’ or ‘a state of mind
in which one finds it difficult to make a decision or a choice’. Conflicts are an inherent part of all
business organizations.
According to K.K. Sinha, the essential ingredients of conflict include the following:
• Disagreement
• Argument
• Clash of goals, interests, and perceptions
• Difficulty in making a decision
• Inadequate or poor communication
• Incompatible personalities
Negotiation
Resolving conflicts is important and there are various approaches to it. But the best approach to
conflict resolution is a negotiation.
Thus, negotiation can be defined as ‘a process by which two parties interact to resolve
conflict’. Negotiation is a process by which two or more individuals or groups having both
common and conflicting goals state and discuss proposals for the specific terms of a possible
agreement.
J.l. Graham has defined negotiation as ‘a face to face decision-making process between
parties concerning a specific product’.
A negotiation is, thus, an interactive communication process that may take place whenever we
want something from someone else or another person who wants something from us.
Factors That Influence Negotiation
1.Position of Power: To be a good negotiator, it helps to be in a powerful position. Just recollect
the experience of you as a child or student when our parents and teachers negotiated better
with us using their position of power. However, they never abused it. So it is important to find
ways that can put you in a position that has an upper hand. Even before you begin the
process of negotiation or during the process. In most cases, the people in a more powerful
position end up with a better outcome. The balance use position (of power) brings a win-win
outcome for all involved parties. The abuse of power brings out a Win-lose outcome.
2.Credibility: Parties having trust in each other certainly has a great impact on the overall
negotiation process. If parties are negotiating for the first time with each other, it is highly
recommended that they spend some time to develop rapport and build trust. This requires as
much transparency and ethical behavior as possible.
3.Information: Negotiation often proceeds on the basis of facts, figures, past data, future trends
and outlook, studies, empirical data and calculations. Information, to repeat a cliché, is
power. Adequate and reliable information about the various issues involved is essential for
ensuring the success of a negotiation exercise.
4.Clarity: I always say this in my workshops on “Art of Negotiation” - More the clarity better the
reality. Yes, this is such a profound fact. People develop skepticism in the absence of clarity
and this harms the negotiation process. Negotiation often proceeds on the basis of facts,
figures, past data, future trends and outlooks, studies, empirical data, and calculations.
Information, to repeat a cliché, is power. Adequate and reliable information about the various
issues involved is essential for ensuring the success of a negotiation exercise.
Factors That Influence Negotiation
5. Steady and forward Progress: This is a natural need for people involved in the negotiation
process. It is important that both parties make efforts in a single direction, limit the
divergence, and address the issues one after another. This is so very important in critical and
complex negotiation situations.
6. Emotional quotient: It is okay to have emotions but using them in the right proportions at the
right place makes a negotiator a lead negotiator. It is anyway very difficult to just depend
on fact, logic and rationality at all times during the negotiation process so using emotions
helps to lubricate the conversation.
7. Time: The time frame within which the negotiation should be completed is another
important factor affecting the process of negotiation. One of the parties may have a
certain urgency as a result of which they may be in a hurry to conclude the negotiation.It is
due to time constraints that negotiations cannot go on endlessly and both the parties
should agree on a time frame within which the process has to be completed.At the same
time, the very process of negotiation is such that the other party cannot be hurried too
much. Both the parties need to have adequate patience. Putting the other party under
undue pressure is certainly not desirable.
Factors That Influence Negotiation

8. Subjective Factors : Often the outcome of the discussion does not depend wholly on the
objective factors of logic and the facts of matter under consideration. The final outcome of the
negotiation is also determined by the subjective factors of influence and persuasion.
Personal relationship: The conduct of negotiation is influenced not only by the real situation of
the matter but also by the relationship between the two persons or parties involved in the
process of discussion.
Fear: Often our bargaining power is conditioned by our fear of the other party’s authority,
power, higher connections and the capacity to harm.
Mutual Obligation: The memories of well done in the past by the other party also act as an
influence on us.
Future Considerations: When personal relationships are at stake we may not wish to win the
argument, especially when good relations between the two parties are likely to be affected.
Practical Wisdom: Fear of losing good opportunities in the future is a strong factor in our
bargaining and negotiation positions and power.
Factors That Influence Negotiation
9. Communication Skills:
As we have already noted, negotiation is an intense process involving exchange of messages.
These messages are not necessarily bits and pieces of information. What needs to be shared
with others during the process of negotiation would be a complex mix of ideas, attitudes and
even emotions. The negotiator needs to state, articulate, explain, reason out, appeal, concede,
persuade, persevere and even remain silent depending upon the situation. Good negotiators
use silence effectively.
They know when to remain silent. Effective negotiation calls for not only saying the right thing at
the right time, but also leaving unsaid what need not be said. A good negotiator needs to have
a good command over language.The process of negotiation is not always conducted in a
serious manner. There maybe instances of inter-cultural group negotiations, where it would be
inappropriate to use jokes, humour and light-hearted comments since they are likely to be
misunderstood.In other situations where the relationship between the negotiating teams is not
too formal, relevant humour and lighter moments may help in building rapport and easing
tension.Besides using the right words and tone, effective negotiators supplement their
arguments with stories, metaphors and analogies to make their positions come alive.Given the
importance of communication skills in the negotiation process, parties concerned choose
people who have good interpersonal skills as members of the negotiating teams.
Seven Elements Of Negotiation
1. Interests. Interests are “the fundamental drivers of negotiation,” according to Patton—our basic needs,
wants, and motivations. Often hidden and unspoken, our interests nonetheless guide what we do and
say. Experienced negotiators probe their counterparts’ stated positions to better understand their
underlying interests.
2. Legitimacy. The quest for a legitimate, or fair, deal drives many of our decisions in negotiations. If you
feel the other party is taking advantage of you, you are likely to reject their offer, even if it would leave
you objectively better off. To succeed in negotiation, we need to put forth proposals that others will view
as legitimate and fair.
3. Relationships. Whether you have an ongoing connection with a counterpart or don’t think you’ll ever
see her again, you need to effectively manage your relationship as your negotiation unfolds.
Relationship dynamics become all the more important when you have an ongoing connection: future
business, your reputation, and your relationships with others may hang in the balance. You can
strengthen the relationship by taking time to build rapport and by meeting your own high ethical
standards throughout the process.
4. Alternatives and BATNA. Even as we take part in negotiations, we are aware of our alternatives away
from the table—what we will do if the current deal doesn’t pan out. Negotiation preparation should
include an analysis of your BATNA, or best alternative to a negotiated agreement, according to Getting
to Yes. For example, a job candidate may determine that she will start applying to grad schools if a
particular job negotiation falls apart.
Seven Elements Of Negotiation
5. Options. In negotiations, options refer to any available choices parties might consider to satisfy their
interests, including conditions, contingencies, and trades. Because options tend to capitalize on
parties’ similarities and differences, they can create value in negotiation and improve parties’
satisfaction, according to Patton.
6. Commitments. In negotiations, a commitment can be defined as an agreement, demand, offer, or
promise made by one or more party. A commitment can range from an agreement to meet at a
particular time and place to a formal proposal to a signed contract.
7. Communication. Whether you are negotiating online, via phone, or in person, you will take part in a
communication process with the other party or parties. The success of your negotiation can hinge on
your communication choices, such as whether you threaten or acquiesce, brainstorm jointly or make
firm demands, make silent assumptions about interests or ask questions to probe them more deeply.
Negotiators strategically manage timing and sequencing:
What changes in the external marketplace might increase or decrease the value or importance
of the deal for each party?
To what extent can we use additional time to strengthen our walkaway alternatives?
To what extent can the other side use additional time to strengthen its walkaway alternatives?
How might deals negotiated with other parties affect the scope of the negotiation or create
precedents that influence the way we resolve key issues?
What events or changes in the external marketplace might adversely affect the strength of our
walkaway alternatives—and the other side’s—or create mutually beneficial opportunities?
BATNA -Best Alternative To a Negotiated Agreement
• BATNA is an acronym that stands for Best Alternative To a Negotiated Agreement. It is defined
as the most advantageous alternative that a negotiating party can take if negotiations fail
and an agreement cannot be made. In other words, a party’s BATNA is what a party’s
alternative is if negotiations are unsuccessful. The term BATNA was originally used by Roger
Fisher and William Ury in their 1981 book entitled “Getting to Yes: Negotiating Without Giving
In.”
• BATNA analysis—the process of carefully comparing your best alternative to a negotiated
agreement to the deal on the table—should be an important part of negotiation. But in their
rush to get to yes, negotiators often overlook this critical step.
Importance of BATNA
BATNA is often used in negotiation tactics and should always be considered before a
negotiation takes place. It is never wise to enter into a serious negotiation without knowing
your BATNA. The value of knowing your best alternative to a negotiated agreement is that:
1.It provides an alternative if negotiations fall through.
2.It provides negotiating power.
3.It determines your reservation point (the worst price you are willing to accept).
Illustration of BATNA
Where:
• ZOPA stands for “Zone Of Potential Agreement.” It is the
overlap between the seller’s and buyer’s settlement range.
• Seller’s settlement range is a biddable range acceptable
to the seller.
• Buyer’s settlement range is a biddable range acceptable
to the buyer.
• Buyer’s/Seller’s worst case is the reservation point of the
respective parties.
If:
• Buyer offers a price that is lower than the seller’s worst case,
then the seller is better off going with an alternative.
• Seller offers a price that is higher than the buyer’s worst
case, then the buyer is better off going with an alternative.
Example of BATNA
Colin needs a car and is negotiating with Tom to purchase his car. Tom offers to sell his car to
Colin for $10,000. Colin scours through Craigslist and finds a similar car to which he assigns a
dollar value of $7,500. Colin’s BATNA is $7,500 – if Tom does not offer a price lower than $7,500,
Colin will consider his best alternative to a negotiated agreement. Colin is willing to pay up to
$7,500 for the car but would ideally want to pay $5,000 only. The relevant information is illustrated
below:

In the diagram above, if Tom demands a price higher than $7,500, Colin will take his business
elsewhere. In the example, we are not provided with Tom’s BATNA. If we assume that Tom can
sell his car to someone else for $8,000, then $8,000 is Tom’s BATNA. In such a scenario, an
agreement will not be made, as Tom is only willing to sell for a minimum of $8,000, while Colin is
only willing to purchase at a maximum of $7,500.
Example of BATNA
If Tom’s best alternative to the deal is selling the car to a dealership, which would offer him
$6,000, then both parties can come to an agreement because Tom’s reservation point would
be $6,000. In the situation described, the diagram would look as follows:

In this case, there is a zone of potential agreement – $6,000 to $7,500. Somewhere within this
range, the two parties should be able to come to an agreement.
Identifying Your BATNA
• As illustrated in the example above, having a best alternative to a negotiated agreement
before entering into negotiations is important. Had Colin not had a BATNA, Tom would have
had more bargaining power. Knowing Colin’s BATNA is at $7,500, the highest price that Tom
would be able to sell his car to Colin for is $7,500.
Tips for Improving Your Negotiation Skills
1. Recognize the power of thorough preparation.
We all know we’re supposed to prepare thoroughly to negotiate, but we often fail to follow through on our best intentions.
That’s a significant problem: Research overwhelmingly shows that underprepared negotiators make unnecessary concessions,
overlook sources of value, and walk away from beneficial agreements. In all likelihood, the single most valuable step you could
take to improve your negotiation skills is to prepare thoroughly for important talks. That might mean setting aside a set number
of hours every day to do your research and homework, creating a negotiation checklist of tasks to complete, enlisting a
negotiation coach to help you (see point 5 below), and role-playing the negotiation with a trusted friend, family member, or
colleague. As part of your negotiation research, determine your best alternative to a negotiated agreement, or BATNA (what
you will do if the current negotiation falls through), and do your best to determine your counterpart’s BATNA, as well.
2. Take a proactive approach to negotiation training.
If you opt to try improving your negotiation skills through a formal training program, avoid the pitfall of passively recording the
key points made by your instructor. Beyond note taking, think about how these concepts relate to your own negotiations. How
do the theories presented apply to your practice? If you’re not following the real-world implications of an idea, ask for
clarification or a concrete example. In addition, Harvard Business School professor Max H. Bazerman advises negotiation
trainees to listen carefully for repetition of concepts across the entire program. We learn better when we have the opportunity
to abstract similar lessons from two or more experiences, researchers have found. For this reason, proactive students perk up
when concepts are presented more than once—and are more likely than others to retain this information over time.
3. Be ready to make mistakes.
Negotiation training can be a humbling enterprise. Instructors often have their students participate in role-play simulations that
have been designed at least in part to expose flaws in their thinking, such as the tendency to be overconfident. Students often
feel threatened and defensive when they recognize that they have been making decisions based on faulty intuition,
according to Bazerman. Yet such behavior does not reflect a personal shortcoming. Feeling uncomfortable with elements of
our behavior is a necessary step on the journey to improving your negotiation skills, according to psychologist Kurt Lewin, who
developed an influential model of change. When you can accept that virtually all of us are susceptible to judgment biases
that color our decisions in negotiation, you will be in a good position to adopt better patterns of thinking that you can apply to
your own negotiations, says Bazerman.
Reference Guide
4. Practice, practice, practice.
Developing new ideas into strategies that become intuitive requires practice and time, writes Bazerman in the Negotiation
Briefings newsletter. Negotiation training and study allows us to practice concepts, but the process of change is not complete
when the training ends. As you prepare to transfer newly acquired negotiation skills to the workplace, you need to maintain a
sense of vigilance. Reflect on what you have learned. Think about which concepts you would like to apply most assiduously to
your negotiations and actively practice them, both at work and at home. Try out new negotiation skills and strategies with
friends and family, who are likely to be forgiving of your mistakes. “If you consciously use your new strategies in multiple
applications, they will slowly become second nature, taking the place of old patterns,” according to Bazerman.
5. Find a good negotiation coach.
When you’re facing an important negotiation, chances are, there’s someone in your organization who you can turn to for top-
notch advice. Rather than simply telling you what to do in a particular situation, effective negotiation coaches focus on
improving your negotiation skills. Such top negotiators are well versed in an explicit theory of negotiation (such as the mutual-
gains approach taught at the Program on Negotiation at Harvard Law School) that allows them to explain and predict what
will and won’t work, according to Massachusetts Institute of Technology professor Lawrence Susskind. Look for a negotiation
coach who can help you set goals, figure out what techniques to try, and understand what happened after the fact.
According to Susskind, a good negotiation coach (1) offers advice that’s consistent with their own negotiation behavior, (2)
stresses the importance of preparation, (3) rehearses new negotiation skills, and (4) debriefs the final results.
Reference Guide
• As illustrated in the example above, having a best alternative to a negotiated agreement before
entering into negotiations is important. Had Colin not had a BATNA, Tom would have had
more bargaining power. Knowing Colin’s BATNA is at $7,500, the highest price that Tom would be
able to sell his car to Colin for is $7,500.

Reference Read :
• Bargaining Power of Suppliers
• Communication
• Interpersonal Skills
• Listening Skills
• https://hbr.org/2020/07/whats-your-negotiation-strategy
Chapter - 2
Date May 14’ 2023
 Business Negotiation Strategy
• For most routine negotiations, a reactive approach is sufficient. When the stakes are low, skilled
negotiators can pivot with relative ease from one tactic to another as the opposite side makes moves,
and often that’s enough to ensure that the final deal fully captures value for them. But from time to
time dealmakers find themselves in complex negotiations with higher stakes. In those situations they
require a much more robust approach.
Key Strategic Principles Of Negotiation Strategy

Rethink Counterparts – Focus on our ecosystem surrounding the negotiation: our competitors, suppliers,
and customers—and their competitors, suppliers, and customers.
To devise one, negotiators should answer the following questions:
• What business outcomes do we seek through this negotiation?
• Who cares about those outcomes?
• Who can do something to bring about those outcomes?
• How can we engage, directly or indirectly, with parties that share some of our interest in achieving
those outcomes?
Key Strategic Principles Of Negotiation Strategy

Analyze Counterparts’ Constituencies - While viewing counterparts as if they were one monolithic entity
is convenient, that attitude regularly leads to analytical and strategic missteps
For example, a customer might perceive itself to be at a disadvantage in a negotiation with an
important supplier because it represents only a small piece of that supplier’s overall business. A closer
look, however, might reveal that it accounts for a fairly large percentage of the business at one of that
supplier’s plants or in a specific geographic market for a particular unit. Though the supplier’s corporate
leaders might view the customer as insignificant, the plant manager or unit head who depends on it
would see it as critical.

Rethink the Deal’s Scope

• There are often opportunities to change a deal’s scope and achieve better results. They may consider
a limited set of choices—for instance, shorter- versus longer-term deals
Example - Take the financial services firm that was seeking to renew a contract with a company that
owned proprietary data assets and was demanding a hefty price increase. An analysis of the annual
report and earnings calls of the data company showed that it was focused on increasing revenue
from other products and services—ones the financial services firm was purchasing from several other
suppliers. While some of those current suppliers were highly valued partners, and it didn’t make sense
to contemplate shifting business away from them, in other cases the financial firm could give the
data provider an increase in business in the areas it wanted to build. The firm’s negotiating team
offered to do that—but only if the provider agreed to more-reasonable terms on the data it enjoyed
a de facto monopoly on.
It’s worth noting how counterintuitive this approach is. When confronted with opposing parties who
seem to have more leverage, the natural tendency is to look for ways to weaken that leverage—to
find walkaway alternatives and issue threats. Such attempts often come up short or undermine deal
success. The lesson here is to offer the other side new opportunities instead of focusing just on the
needs that only it can meet for you.
Rethink the Nature of Leverage
• All too often dealmakers conflate negotiation power with a strong BATNA and the
concomitant ability to hurt the other party. Essentially, the message they send is: We don’t
need a deal with you, and you need a deal with us, so we get to dictate the terms. Such a
mindset leads to pressure tactics. It also makes negotiators who lack attractive walkaway
alternatives conclude that they have no power, which in turn causes miscalculations and
unwarranted concessions. Moreover, their sense of powerlessness can breed fear and
resentment—negative emotions that hamper creative thinking about potential avenues to
an optimal outcome.
• The solution is think beyond walkaway alternatives and consider multiple sources of not only
coercive leverage but also positive leverage. By positive leverage, we mean things
negotiators can uniquely offer to make the other side desire a deal rather than fear the
absence of one.
Thinking in binary terms is almost always counterproductive.
Look for Links Across Negotiations
• A strategic approach requires considering success beyond the current deal and, in particular,
how the precedents it sets will create anchors and shape dynamics in future negotiations. After
all, except with pure sales and purchases of assets, most high-stakes business negotiations are
repeat transactions undertaken in the context of long-term relationships.

Consider the Impact of Timing and Sequencing

• Many people seek to speed up or slow down negotiations to put pressure on the other side and
extract concessions. But pressure tactics often backfire. Careful consideration of how the other
side is likely to respond should guide when to accelerate, slow down, or pause a negotiation.
Be Creative About the Process and Framing
• Let’s look at a global health care company that depended on a single supplier to make one of
its biggest revenue-generating products. The supplier held numerous patents essential to the
manufacturing process, so switching to a different one would have taken years and major
investments in redesign. But for many years the supplier had been unwilling to collaborate on
improving quality and manufacturing efficiency. As the contract with it neared expiration, the
health care company pondered how to open the negotiation for a renewal. Should it demand
big price reductions and other improvements? Or should it begin with more-reasonable terms
and hope that the supplier responded in kind?
• After much debate about the trade-offs, the health care company developed a third
approach. Rather than beginning by sending an initial term sheet, it invited the supplier to a pre-
negotiation summit—a joint discussion of what had worked well, and what hadn’t, for each side
under the prior contract and of how the market and each side’s business objectives had
changed. This was deemed a low-risk move. The supplier might well decline the offer, but so
what? The health care company’s negotiation team would then simply revert to sending an
opening term sheet.
• To the surprise of some on the team, the supplier accepted the invitation. During the summit the
health care company’s team shared an analysis of the economics and evolving market position of
the company’s product. It showed that unless the product’s price fell significantly, new competitive
offerings would take substantial market share away from it. That would reduce not only the health
care company’s revenue but also the supplier’s. The analysis triggered an animated discussion
focused not on bargaining but on joint problem-solving. That in turn led to thinking about how to
creatively restructure the way the companies worked together and to a set of principles for
negotiating commercial terms in the new contract, including a framework for sharing risks and
rewards. The ultimate deal saved the manufacturer tens of millions of dollars but was viewed by the
supplier as more favorable than the earlier contract. Both sides agreed that a traditional “offer-
counteroffer” negotiation process would at best have yielded a significantly less valuable deal for
both—and could easily have resulted in no
Summary
• High-stakes negotiations tend to produce a lot of anxiety. This leads dealmakers to focus on
(perceived) threats rather than identify all possible forms of leverage and think expansively
about options. When that happens, negotiators are more likely to make poor tactical
choices, either giving in to pressure from the other side or inadvertently causing their own
worst fears to come to pass.
• A strategic negotiation approach involves more than choosing a cooperative or
competitive posture, and thinking in such binary terms is almost always counterproductive.
Assessing connections between one negotiation and others with the same party over time
(and even with other parties), taking a hard look at whether they’re negotiating about the
right things, and focusing on when and how to most effectively engage with the other side
will unlock far more value for dealmakers.
END
References & Bibliography

• Fisher, R., Ury, W. L., & Patton, B. (2011). Getting to yes: Negotiating agreement without giving in: Penguin.
• Lax, D., & Sebenius, J. (1992). The manager as negotiator: The negotiator’s dilemma: Creating and claiming
value. Dispute resolution, 2, 49-62.
• Muthoo, A. (2000). A non-technical introduction to bargaining theory. WORLD ECONOMICS-HENLEY ON THAMES-, 1(2),
145-166.
• Neale, M. A. (2004). Are You Giving Away the Store? Strategies for savvy negotiation. Stanford SOCIAL INNOVATION
Review(Winter 2004).
• Spangler, B. (2003). Integrative or interest-based bargaining. Beyond Intractability.
• Stahl, I. (1972). Bargaining Theory (Economic Research Institute, Stockholm School of Economics, Stockholm). Google
Scholar.
• Watkins, M., & Rosegrant, S. (2002). Breakthrough International Negotiation: How Great Negotiators Transformed the
World's Toughest Post-Cold War Conflicts. International Journal of Conflict Management, 13(1), 95-104.
• Distributive Bargaining. (2018). Conflict Research Consortium, University of Colorado, USA Colorado.edu. Retrieved 16
February 2018, from https://www.colorado.edu/conflict/peace/treatment/distbarg.htm
• https://hbr.org/2020/07/whats-your-negotiation-strategy
• To learn more about the difference between distributive negotiation and integrative negotiation, read the below article:
• https://www.pon.harvard.edu/daily/negotiation-skills-daily/negotiation-skills-expanding-the-pie-integrative-bargaining-
versus-distributive-bargaining/