Business

Negotiations
Day 3: Distributive negotiations: Power & persuasion
“Simple” Two Party Negotiations

Andrew (Andy) Zur

[email protected]

https://www.linkedin.com/in/andrewzur/
“You cannot negotiate with people who say what’s
mine is mine and what’s yours is negotiable.”

–John F. Kennedy, American politician

 Lecture structure
Distributive
Introduction to The psychology of
negotiations: Power &
Business Negotiations negotiations
persuasion

Integrative
Distributive Investigative
negotiations: managing
negotiations: Fairness & negotiations & team
mindsets & active
closing a deal process
listening

Problems with agents International & cross-

Resolving disputes Multi-party negotiations
& agency cultural negotiations
 We looked at
decision making,
your perceptions,
& biases
Previously on...
 We look at
“Simple” two
party negotiations
and power &
persuasion
Today…
Distributive negotiations
• Used when the parties are trying to divide/distribute
something up

• One party gains only if the other party loses something >
win-lose situation

• Used to distributive xed resources such as money,

resources, assets. etc. between both the parties

• Goal: for your side to win as much as it can (rather than to

assure both side win), i.e. the other side loses by getting
less than it had wanted
fi
 Distributive negotiations
(cont.)
• Focuses on positions rather than interests

• The parties assume that there is not enough to go around

and they cannot “expand the pie”

• So the more one side gets, the less the other side gets

• Zero-sum game: a situation in which one person or

group can win something only by causing another
person or group to lose it

• It’s about claiming value rather than creating value

Fixed pie
 Distributive negotiations
(cont.)
• Parties can work together to make the pie bigger, so there
is enough for both parties to have as much as they want
(integrative bargaining), or they can focus on cutting the
pie up, trying to get as much as they can for themselves
(distributive bargaining)

• Integrative bargaining is more cooperative

• Distributive bargaining is more competitive

• “Negotiator’s dilemma” > which one do you use?

 Distributive negotiations
(cont.)
• Common tactics include:

• Trying to gain an advantage by insisting on negotiating one one’s

home ground

• Having more negotiators than the other side

• Using tricks and deception to try and get the other side to
concede more than you concede

• Making threats or issuing ultimatums

• Trying to force the other side to give in by overpowering them or

outsmarting them, not by discussing the problem as an equal
 Distributive negotiations
(cont.)

• When would you use distributive bargaining?

• Where the negotiator wants to maximise the value

obtained in a single deal and when the relationship with
the other party is not important

• But you need to know what your walk-away point is!

 Walk-away value

• The minimum or maximum

one can accept before
“walking away” from the deal

• You need to know your walk-

away point as well as your
opponent’s walk-away point

• Try to negotiate an outcome

that is closer to your goals
than theirs
 Reservation price
• Reservation price = ‘walk away’ point

• The reservation price is the least favourable point at

which one will accept a negotiated agreement

• For example, for a seller this means the least amount

(minimum) or a bottom line they would be prepared to
accept, while for a buyer it would mean the most
(maximum) or a bottom line that they would be
prepared to pay
 Walk-away value
• You should always be prepared to walk away

• There is always another option — so don’t sign that

contract if the deal is below your walk-away point!

• Plan, plan, plan

• Before entering any negotiation, do your research to

understand the possible outcomes!

• Do your best to guard your information carefully and

also try to get information out of your opponent
 ZOPA

• Zone of possible agreement

(ZOPA)

• Each party in a negotiation

has a desired outcome and a
worst-case scenario

• The ZOPA exists between

each party’s worst case
scenario, not their desired
price
Zone of possible agreement
(ZOPA)
• If you don’t know your
worst case, you’ll risk
giving up too much

• IF you’re not prepared, then

you should walk away

• When you’re prepared to

walk away, you’ll have an
established Best Alternative
to a Negotiated Agreement
(BATNA) > your nal o er
fi
ff
 BATNA example
• When purchasing a car, your
BATNA is to simply go to another
dealership if the negotiation
doesn’t go in your favour

• You have other options!

 Best Alternative to a
Negotiated Agreement (BATNA)

• Make sure that you don’t reveal your BATNA too early in
the negotiations!

• Doing so diminishes the power of having this

alternative…and you could wind up losing your last
bargaining chip
 Best Alternative to a
Negotiated Agreement (BATNA)
• Establishing a BATNA is an
e ective way to establish the
reservation price

• By establishing a realistic
reservation price based on a
BATNA prior to a negotiation,
not only can it increase the
likelihood of a successful deal,
but also improve one’s
con dence and bargaining
power!
ff
fi
 Be classy when you walk
away NO
• Even if you do need to walk away, do it
in a civil and courteous manner. It is a
powerful statement that displays
con dence, courage, and integrity

• You don’t want to sever all ties with the

other party! Think about preserving
relationships

• Smile, thank the other party for their

time, shake their hand, and walk away

• In fact, walking away many convince

the other person to call you back with a
NO
better deal *hint hint*
fi
Best Alternative to a Negotiated
Agreement (BATNA) (cont.)
1. Determine your acceptable range: although you want
the highest possible price as a buyer (or lowest possible
price as a seller), focusing only on that one point leaves
you at a weakness, as you’ll be unable to tell how far
you’ve veered from it

• Calculate the range of values you’ll accept > it’ll give

you ‘wiggle room’

• e.g. rather than looking for a $15,000 car, shop around

for cars in the $10,000-$15,000 range.
Best Alternative to a Negotiated
Agreement (BATNA) (cont.)

2. Estimate their acceptable acceptable range: to

properly gauge the strength of your BATNA, you need to
know the other’s party’s acceptable range as well

• Even though the car may be listed at $15,000, the

dealership is able to negotiate
 Best Alternative to a Negotiated
Agreement (BATNA) (cont.)
3. De ne your absolute deal breakers: outlining
unacceptable conditions for yourself beforehand stops
you from wasting time in negotiations

• If a deal breaker is presented, it’s time to walk away

• Price is not the only important

factor when it comes to buying
a car
fi
 Making the rst offer…

• Should it be you? Or should

you wait to hear what others
have to say?

• By receiving the opening

o er, will you gain valuable
information about your
opponent’s bargaining
position or clues about
acceptable agreements?
ff
fi
 Making the rst offer…
(cont.)

• Substantial research shows that negotiators who make

rst o ers come out ahead!

• There is a powerful e ect that rst o ers have on the way

people think about the negotiation process

• How we perceive a particular o er’s value is highly

in uenced by an relevant number that enters the
negotiation environment
fi
fl
ff
ff
fi
fi
ff
ff
 The anchoring effect

• Because they pull judgments

towards themselves, these
numerical values are known as
anchors

• In situations of great ambiguity

and uncertainty, rst o ers
have a strong anchoring e ect
— they exert a strong pull
throughout the rest of the
negotiation
fi
ff
ff
 The anchoring effect (cont.)

• Even when people know that a particular anchor should

not in uence their judgments, they are often incapable of
resisting its in uence

• As a result, they insu ciently adjust their valuations away

from the anchor

• Every item under negotiation has both positive and

negative qualities — qualities that suggest a higher price
and qualities that suggest a lower price
fl
fl
ffi
The anchoring effect (cont.)

• High anchors selectively direct our attention toward an

item’s positive attributes

• e.g. a high list price of a house directs our attention to

the house’s positive features (such as spacious rooms
or a new roof)

• Low anchors direct our attention to its aws

• e.g. no backyard or parking space

fl
 The anchoring effect (cont.)

• By making the rst o er in a negotiation, you will anchor

the negotiation in your favour > bargaining advantage

• Research shows that when a seller makes the rst o er,

the nal settlement price tends to be higher than when
the buyer makes the rst o er

• The probability of making a rst o er is related to your

con dence and sense of control (power) at the bargaining
table
fi
fi
fi
ff
fi
ff
fi
ff
fi
ff
 The anchoring effect (cont.)

• Power and con dence result

in better outcomes because
they lead negotiators to make
the rst o er

• The amount of the rst o er

a ects the outcome, with
more aggressive or extreme
rst o ers leading to a better
outcome fo the person who
made the o er
fi
ff
fi
ff
ff
ff
fi
fi
ff
 Aggressive rst offers

• Your rst o er should be quite

aggressive but not absurdly so

• Most rst o er are not

aggressive enough

• More extreme rst o ers lead

to higher nal settlements
fi
fi
fi
ff
ff
fi
ff
fi
 Making aggressive rst
offers: Setting targets
• Your BATNA tells you when to walk away

• The better your BATNA, the more power you have and
therefore the less you need to concede

• Their BATNA tells you what target you should set and how
aggressive to be

• The worse their BATNA, the higher a target you should

set

fi
Focus on your target price
• When constructing an aggressive rst o er:

1. Consider your alternatives to agreement and create a

reservation price — the speci c value at which
you’d prefer to walk away rather than reach a deal

• Accept any agreement that exceeds this price and

reject any value that falls below it

2. Determine your ideal outcome, i.e. target price —

the agreements or values that would ful l all of your
negotiation hopes and desires
fi
fi
fi
ff
 Ideal outcomes

• Negotiators who focus too much on their ideal outcomes

sometimes end up rejecting pro table agreements that
surpass their alternatives

• Focus instead on your target price and make an

aggressive rst o er, but be willing to concede so you
avoid rejecting favourable agreements
fi
ff
fi
When should you not make
the rst offer?

• When the other side has much more

information than you do about the
item to be negotiated or about the
relevant market or industry

• Here you should attempt to level the

playing eld by gathering more
information (which will help you feel
more con dent about the negotiation)
fi
fi
fi
 What happens if the other
person makes the rst offer?

• Your aggressive countero er should be based upon the

same information you would use to construct a rst o er:
your ideal outcome and your opponent’s alternatives and
probable reservation price

• Make a joke to lighten the mood — and potentially

discount the impact of the other side’s anchor!
ff
fi
fi
ff
 What happens if the other person
makes the rst offer…and you like it?

• Demand concessions!

• You’ll not only achieve a more advantageous outcome for

yourself, but you’ll also increase your opponent’s
satisfaction
fi
 Concession
making strategies

Interpersonal
in uence strategies
Strategies to claim value
fl
 Concessions
• Parties must make
concessions to bring the
bargaining range within the
ZOPA with goal of ultimately
arriving at a settlement point
— it draws both sides closer
and moves things along

• Don’t give a concession away

for free or too early in a
negotiation as the other party
will feel that they didn’t have
to work too hard to get it!
 Concessions (cont.)
1. Label your concessions: otherwise the other party may
avoid the social obligation to reciprocate

• Let it be known that what you have given up (or

stopped demanding) is costly to you (i.e. that a
concession was indeed made)

• Emphasise the bene ts to the other side

• Don’t give up on your original demands too hastily.

Power comes from your counterpart viewing your initial
demands as serious and reasonable
fi
 Concessions (cont.)

2. Demand and de ne
reciprocity: labelling helps
but explicitly (but
diplomatically) demanding
and de ning reciprocity is
better.
fi
fi
 Concessions (cont.)
3. Make contingent concessions: a concession is contingent
when you state that you can make it only if the other party
agrees to make a speci ed concession in return

• They allow you to signal to the other party that while you have
room to make concessions, it may be impossible for you to
budge if reciprocity is not guaranteed

• An over-reliance can interfere with building trust

• If you demand immediate compensation every time you make

a concession, your behaviour will be seen as self-serving
rather than oriented toward achieving mutual satisfaction
fi
 Concessions (cont.)
4. Make concessions in instalments: the same concession will be more
positively received if it is broken into instalments

• Most negotiators expect that they will trade o ers back and forth several
times, with each side making multiple concessions before the deal is
done. If you give away everything in your rst o er, the other party may
think that you’re holding back even though you’ve been as generous as
you can be

• Instalments may also lead you to discover that you don’t have to make
as large a concession as you thought. When you give away a little at a
time, you might get everything you want in return before using up your
entire concession-making capacity — and the left over is yours to keep!

• Each time you make a concession, you have the opportunity to label it
and extract goodwill in return
fi
ff
ff
Psychology of persuasion
1. Reciprocity: we want to repay, in kind, what another person has
provided us

2. Consistency: desire to be (and to appear) consistent with what we

have already done

3. Social proof: to determine what is correct and nd out what other

people think is correct

4. Authority: deep seated sense of duty to authority

5. Likeability: we say yes to someone we like

6. Scarcity: limitation enhances desirability

fi
 Reciprocity

• Door-in-the-face technique

• Start with an in ated request (that the respondent will

most likely turn down — much like a metaphorical
slamming of a door in the persuader’s face) and then
retreat to a smaller, more reasonable request that
appears to be a concession. The respondent is more
likely to agree to this second request than if that same
request is made in isolation
fl
 Reciprocity (cont.)
• That’s-not-all technique

• Begin with an in ated request but then adds something

extra (e.g. bonus, discount) to make the o er look
better before the target person can make a decision

• Perceptual contrast technique

• Presents the undesirable option rst and later options

appear more desirable, thereby propelling from the
negative to the positive
fl
fi
ff
 Consistency
• Public declaration technique

• Public, active, e ortful commitments tend to be lasting

commitments

• Foot-in-the-door technique

• Get a large favour by rst getting a small one

• Small commitments begin to shape a person’s self-

image and position them for large commitments
ff
fi
 Consistency (cont.)

• Low ball technique

• Getting a commitment from a person and then raising

the cost (revealing the hidden costs) of that
commitment
 Social proof
• Similar others technique

• Provide information that people similar to the client are doing

the same activity

• Multiple sources technique

• Provide consistent information coming from di erent sources

• Straight from the source technique

• Provide information by people who have been or are

currently in the same situation

ff
 Liking
• Similarity technique

• Find common interests and values

• Repetition technique

• Increased familiarity increases comfort and attractiveness

• Positive association technique

• Associated goal or person with other liked people or

things
 Scarcity

• Limited time technique

• Put an arti cial time limit on something

• Use it or lose it technique

• Emphasise the loss that will occur from not engaging in

a behaviour rather than the what they will gain
fi
 Negotiator toolbox:
takeaway points
• Know your BATNA

• De ne your reservation price

• De ne your target price

• Research the other party’s BATNA and reservation price

• Make aggressive rst o ers whenever possible

• Watch how you are making concessions

• Make sure that concessions are reciprocated

fi
fi
fi
ff
 Lecture summary

• Fundamentals of negotiation
(BATNAs, reservation prices,
ZOPAs, targets, anchors,
concessions)

• Persuasion (reciprocity,
consistency, social proof,
authority, likeability, scarcity)
Dog-of-the-day photo: Day 3
Distributive negotiations: Fairness &
closing a deal
Next time…