What are Negotiation Tactics?
Negotiation is a dialogue between one or more people with the aim of reaching a consensus over an issue or issues where conflict exists. Good negotiation tactics are important for negotiating parties to know in order for their side to win or create a win-win situation for both parties. The outcome of the negotiation will benefit either one of the parties, some, or all of the parties involved in the negotiation.
Usually, a negotiation takes place by putting forward a position, and the parties on either side make small concessions until a middle ground is attained. For a negotiation to be successful, the parties must trust each other to implement the negotiated solutions. They must cooperate to achieve the intended purpose of the negotiation.
Negotiations occur daily, either within organizations, governments, country to country, businesses and even in non-profit organizations. At the personal level, negotiations occur during a divorce, court proceeding, marriage, and parenting. For high-stakes negotiations such as hostages and sale of companies, professional negotiators are usually invited to increase the chances of success. For example, investment firms engage the services of leveraged buyout negotiators to ensure they get the best deal possible. The negotiators must be capable of using excellent negotiation tactics to create win-win outcomes.
Forms of Negotiation
Unlike in mediation, where a neutral party listens to both parties’ arguments and helps create an agreement, each of the negotiating parties works towards a finding winning ground for their side. Negotiations can be categorized in the following forms:
Distributive negotiation is also referred to as hard-bargaining negotiation tactics because any gains made by one party are at the expense of the other side. If one party wins, the other party must lose. It starts with one party taking an extreme position that they know the other side will not accept, and then ceding as little as possible before reaching an agreement. It often involves parties who have never had an interactive relationship before and that may not do so in the future. An example of a distributive negotiation is a negotiation for the price of a car at a car dealership. If a vehicle is priced at $100,000, the seller may quote $140,000 as the starting price, then move to $135,000, $127,000 and last agree on a final price of $125,000. Each of the parties fight for the biggest slice of the pie.
An integrative negotiation is a merit-based negotiation that attempts to improve the quality of negotiated agreements by appreciating the fact that each party values various outcomes differently. It often tries to create value in the course of the negotiation tactics that will result in a win-win situation. Integrative negotiation involves a higher degree of trust and the need to achieve mutual gains. One of the ways of achieving mutual gains is by trading one favor for another – a technique referred to as logrolling. The negotiating parties approach the negotiation as a shared problem, as opposed to a personalized battle, by focusing on the underlying interests of both parties. Negotiating parties also practice certain communication skills like active listening and speaking for the purpose of strengthening their relationship.
Integrated negotiation varies from integrative negotiation. It was first identified and labeled by Peter Johnson, an international negotiator and author of Negotiating with Giants. It maximizes value in a negotiation through linking it to other negotiations and decisions related to the party’s operating activities. It involves mapping out all related connections, conflicts, and operating decisions to bring out helpful connections and minimize any harmful connections. For example, a civil servant’s union may work toward resolving any internal wrangles when negotiating for better terms with the government. Going into a negotiation as a divided union may cost chances of a possible win or result in one wing of the union accepting a below-par deal.
Bad faith is a term in negotiations referring to a situation where parties pretend to negotiate but ultimately have no intention of compromising on their demands. Bad faith negotiations often happen in politics where a political party pretends to negotiate but has no intention to compromise or reach agreement. Ole HoIsti put forward the bad faith model to describe John Foster Dulles’ position on the Soviet Union.
Common Negotiation Tactics
Here are the most popular negotiation tactics:
Make the first offer
Most people are reluctant to go first for fear that their bid may be too low or too high. However, making the first offer may actually give you the upper hand since you quote a price that is close to your target price. The first number sets the stage, and the other party starts to negotiate around it. Also, a high price makes the other party focus on the positives, and therefore, they may readily accept a number close to that.
Mirror words selectively
The quickest way to create a rapport with the other party in a negotiation is to repeat the last three words they just said to you. This negotiation tactic makes them feel safe enough to trust you and reveal themselves to you. You get to learn what they are thinking by giving them more time to respond to you. On your part, you get more time to think about what they just put forward and prepare a well-thought-out response.
Know your target and walk-away price
The target price is the price you are hoping for, while the walkaway price is the reservation price. When going into negotiations, conduct prior research on the probable price that you will be comfortable with. If you go into the negotiation with a blank mind and let the other party start the bidding, you are placed in a disadvantaged position. By having a target and reservation price, you walk into the negotiation with confidence and clear limits.
Create the illusion of control
Creating an illusion of control for the other party gives you an advantage in the negotiations. By asking questions like “how” or “what,” you let the other side engage their mental energy to find the right answer. This forces them to go slow on the bidding and focus on responding to your query first.
Negotiation tactics and skills are critical to being a successful financial analyst. To continue learning and advancing your career in corporate finance, these additional resources will be helpful: