Negotiating and Closing

Preparation
1.

Assess the situation.

There are four basic bargaining situations

depending on:
The perceived importance of the ongoing
relationship
The perceived conflict over the the stakes involved
(to what degree do both sides want the same
limited resource such as money, power, terms, etc.)

The Situational Matrix

Perceived Conflict Over Stakes
High

Low

High
I. Balanced Concerns: Business
partnership, joint venture, merger

II. Relationships: Marriage, friendship,

or work team

III. Transactions: Divorce, house

sale, or stock market transaction

IV. Tacit Coordination: Highway intersection or airplane seating

Importance
of Relationship

Low

Negotiating
Tacit Coordination - Calls for tactful avoidance
of conflict, not negotiation.
Transactions Stakes, such as price, are
substantially more important than relationships.
Relationships - Treat the other party well,
generously, the stakes are secondary.
Accommodate.
Balanced Concerns - Problem solving and
compromise are vital. Stakes and relationships
equally important.

Preparation
2.

Assess negotiating styles.

Competitors
Cooperators

Match the other sides style.

If youre a cooperator, a competitor will eat
your lunch.
If youre a competitor, you will tend to gouge
a cooperator.

Preparation
3.

Identify other sides interests, needs, and

objectives.

4.

Fill out Negotiating and Closing Planner

Determine your targets.

Specific opportunity/product/event
Price
Size of order
Share of budget
Terms and conditions

Preparation
5.
6.
7.

Determine your BATNA (Best Alternative

to a Negotiated Agreement).
Determine your HLE (Highest Legitimate
Expectation).
Determine your walk-aways.

Price
Terms and conditions

Negotiating Initial Discussion

Deliver bad news (deal breakers, threats)
early in a negotiation.
Sell all the deal terms early.
Indicate where you can and cannot be flexible
(increase credibility).

Signal your expectations (HLE) and

leverage.

Signaling Leverage
Your Leverage as You See It
Strong

Weak

Firm

How
You
Want
to
Act

Flexible

Make confident demands and

credible threats.

Emphasize the uncertain future.

Display your alternatives and

leave the decision to the other
Side take it or leave it.

Bluff (act strong when you are not).

Show (and tell) the other side

youre investing in the
relationship.

Acknowledge the other sides power

and stress the potential gains from
future cooperation.

Be generous.

Appeal to the other sides sympathy.

What would they say in your position?

Opening and Making Concessions

Bargaining formally begins when one side
opens with a concrete, plausible (in their
mind) offer.
Dont respond emotionally to any offer or any
tactic.
Getting emotionally involved leads to awful
decisions

Opening Tactics: Open First?

If you are not informed about the other
sides business, interests, or demands,
dont open first.
If you are well informed, open first:
It lets you fix the range, the zone of realistic
expectations.
Sometimes forces the other side to rethink its
goals.
Most important, allows you to set the anchor.
We tend to be heavily influenced by first impressions.

Anchoring
When the other side hears a high or low number,
they adjust their expectations (unconsciously)
accordingly.
The first offer anchors the other sides
perception of your walk-away price.
First offer must be somewhat reasonable (no more than
50% higher than you will settle for).
As high as possible--as close to the other sides walk-away
as possible (thats the home run).

Outlandish numbers at the beginning can kill the deal or

destroy your credibility if you drastically reduce the offer
later.

Opening: Optimistic
or Reasonable
Depends on the situation:
Relationship Open optimistically, then be
generous
Transaction - Open optimistically (high, but not
too high) - the highest for which there is a
supporting standard or argument enabling you
to make a presentable case.
Make the highest opening you can with a straight
face.
Dont open high if you have no leverage and the
other side knows it.

Optimistic Openings
Take advantage of two psychological
tendencies: The Contrast Principle and the
Norm of Reciprocity.
The Contrast Principle: If I want you to pay me
$500,000 for my house, and I open with
$750,000 (supported by a presentable,
straight-face argument), my settlement of
$500,000 seems reasonable and gives the
perception of giving a good deal. If I had
opened for $550,000 and only come down to
$500,000, the contrast would have been small
and the deal not satisfying.

Optimistic Openings
The Norm of Reciprocity:
I make an optimistic opening ($750,000), and you
reject it.
I moderate my offer by making a significant
concession ($650,000), and you feel obligated to
accept it (reciprocity).

Big then smaller offer -- door in the face.

Second offer seems reasonable. Other side is
forced to reciprocate.
Small then bigger offer foot in the door.
Second offer seems reasonable because
theyve already said yes.

Concession Tactics
Open optimistically and have room to
make concessions.
Concessions are the language of
cooperation. They tell the other side in
concrete, believable terms that you accept
the legitimacy of their demands and
recognize the necessity to cooperate and
sacrifice to get a fair deal.

Concession Tactics
To get movement, offer a small trade -show that agreement is possible.
Give a trade or concession in your least
important area -- price to get a desired deal
term or payment, e.g.
The other sides first concession is in its least
important area of concerns.
Try not to give the first major concession (it
raises expectations and confuses people).
Put the major issues aside, agree on small,
easy issues first.

Concession Tactics
Give small concessions and give them
slowly.
The slower you give them, the more value they
have.
A fast concession makes the buyer feel awful
(Couldve gotten more) and devalues the
product.
Make them work hard for every concession, they will
appreciate it more.
Make concessions progressively smaller.

Closing and Gaining Commitment

Closing tactic -- the scarcity effect:
The scarcity tactic works even better at the end
rather than at the beginning of a negotiation:
Competition (someone else wants it)
Deadlines (buy now or elements or terms of the
deal explode)

Closing Tactics
Split the difference?
The most likely settlement point in a negotiation is
the midpoint between two opening offers.
People who prefer a cooperative style like to cut
through the bargaining process and often offer to
split the difference at the beginning.
When the relationship is important, split the
difference; its a smooth way to close.
In a transaction situation, the midpoint may be too
much in the other sides favor; dont split.
In a balanced concerns situation; problem solve
widen the options -- before splitting.

Closing
Ask for a decision.
Non-binding Letter of Intent (LOI)
Commitment to send IO
48-hour hold

What else is left?

If I can resolve these issues, do we have an
agreement?

Closing
Be careful about trying to close too
aggressively.
You can create a sense of urgency, but the
timetable has to be theirs.
Too much pressure can kill a prospective sale.
High pressure raises suspicion.
People want to buy, they dont like being soldor
closed.

Negotiation
Negotiation
Parties to a conflict try to come up with a
solution acceptable to themselves by
considering various alternative ways to allocate
resources to each other

17-32

Negotiation
Third-party negotiator
an impartial individual with expertise in
handling conflicts
helps parties in conflict reach an acceptable
solution

17-33

Third-party Negotiators
Mediators
facilitates negotiations but no authority to
impose a solution

Arbitrator
can impose what he thinks is a fair solution
to a conflict that both parties are obligated to
abide by

17-34

Distributive Negotiation
Distributive negotiation
Parties perceive that they have a fixed pie of
resources that they need to divide
Take a competitive adversarial stance
See no need to interact in the future
Do not care if their interpersonal relationship is
damaged by their competitive negotiation

17-35

Integrative Bargaining
Integrative bargaining
Parties perceive that they might be able to
increase the resource pie by trying to come up
with a creative solution to the conflict
View the conflict as a win-win situation in
which both parties can gain
Handled through collaboration or compromise

17-36