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The Philosophy of Negotiation
It is fair to say that we have been negotiating since birth. We started as children, negotiating with our parents, family and friends.
When we were given options such as ‘if then else’, we tried to improve the conditions by negotiating a better deal. Occasionally, we even negotiated with ourselves.
Our ancestors negotiated with God at the creation and later with everybody else. We have improved and expanded our negotiating skills and today they are widely applied, not only known and practised by attorneys. Negotiations are conducted in diverse arenas, each requiring different negotiation skills, but we can find commonalities among them.
We need to negotiate with terrorists, kidnappers and bank robbers, where the outcome can be deadly, and we may save lives if we succeed.
We negotiate in shops and markets, where no sale is the worst case scenario.
There are mild and aggressive negotiations. We negotiate contracts for buying and selling and ‘if then else’ is one of the basic elements in negotiation.
One-sided ultimatum negotiation is common as well, such as: ‘These are my terms’, ‘Take it or leave it’ and ‘It’s not negotiable’.
The philosophy of negotiation takes into account that the parties are interested in executing a common deal.
Each party, however, sets certain standards, conditions and limits which they will accept or agree to.
For example, A has certain goods for sale and B is interested in purchasing. Here are several scenarios:
1. The goods have a fixed price set by A, like drugs in a pharmacy or goods in certain stores. B has no negotiating options; either he agrees to the price and buys the goods, or refuses to pay the asking price and goes shopping elsewhere.
2. The goods have a fixed price set by A, but there might be a special discount. The discount may be subject to submitting previously published coupons or based on certain conditions, such as store membership or seasonal sale. In this case, the buyer is given a conditional or unconditional price discount, but without negotiating options.
3. The goods have a fixed price set by A. The price caters for a certain discount, based on the buyer’s negotiating skills. Buyer B has the option to offer a lower price and A in return may either accept or make a counter offer, until they reach agreement; otherwise there is no deal.
We will analyse a general negotiation case between seller A and buyer B.
The obvious goal of A is to sell for the highest possible price, and the opposite goal of the buyer is to pay the minimum price. The assumption is that both are willing to enter into the negotiation phase to conclude the deal.
We will try to understand the philosophy behind their thoughts and strategies for optimally achieving their goals.
The seller knows that he is entering into a negotiation arena and accordingly has embedded in the asking price a certain acceptable discount margin.
In his mind, the seller may have set a minimum price that he would accept, and below that minimum there will be no sale.
A has set his asking price at $100, but he realizes that the chance to sell at the asking price is quite slim. He has set a minimum selling price a priori at $60.
Buyer B may have similar thoughts. She knows that the asking price has a certain amount of discount, which is subject to negotiation. Therefore, she decides not to agree to the asking price of $100. In her mind, she decides to pay a maximum of $80.
Seller A encourages buyer B to make an offer. B tries a ‘fishing trip’ and provocatively offers only $50.
Hearing the ridiculous offer, A overcomes his inclination; he wants to sell, but will not accept $50 and he responds with a counter offer of $80.
B is hooked now, as she realizes that the new offer is the price she is willing to pay. Although she may have the option to end the negotiation by accepting the new offer, B as an experienced negotiator makes another attempt and offers to pay $60.
Seller A realizes that they have reached the sum he is willing to accept; he has the option to terminate the negotiation as well, but A is also an experienced negotiator so he uses the ‘meet them halfway’ system. This is a classical negotiation method, where both parties want the deal and each thinks that the middle of both offers is a fair way to close the deal. The parties agree the deal and the negotiation closes for $70.
In this case both parties are happy, the buyer who thought she would have to pay $80 got the goods for only $70, less than she expected, and at the same time the seller, who thought he would be willing to sell for $60 actually received more than he anticipated.
A good and a fair deal is when both parties end up happy with their decisions. Both parties made their optimal choices and both will leave the negotiation with a winning feeling.
Obviously, this is the ideal scenario and it has many different endings in terms of the closing price or in walking away from the deal.
In an auction sale, the final price is set by the auctioneer’s hammer and no direct negotiation is possible. The process of bidding from the starting price until the hammer comes down involves a lot of psychology, however.
Potential buyers are bidding, or more precisely fighting, among themselves, in order the get the item they desire.
Often they are carried away by their emotions and pay more than they decided a priori to pay, or even more than they can afford. The auction hall is the ground for the hunt.
Ego, usually male ego, is one of the parameters which will decide a final price many times above market value or the buyer’s real need.
‘There is a cheaper item over there’, said the potential buyer to the seller. The seller asked for $100 and the buyer said: ‘But over there, they asked only $70’. The seller replied: ‘OK, so buy it there’. The buyer said: ‘But they have sold it already’. The seller said: ‘Thanks for the info, so now my price is $120’.
Another version might be: ‘So why don’t you buy it over there?’. The buyer: ‘Unfortunately they have sold their entire inventory’. Seller: ‘OK, when my inventory runs out, I’ll sell it for only $50’.
Pricing is a science with a lot of psychology. When the price is too high, people will not buy; too low a price is not only loss of extra profit for the seller but it is not appreciated by the buyer.
Pricing is affected among others by context and location. The same item sold in a market, in a small shop or in a boutique in an affluent neighbourhood can make a significant difference in price. Price is obviously affected by the uniqueness and the rarity of the item.
A rare nineteenth-century silver and enamel object made by Fabergé may fetch a significantly higher price than a similar item made elsewhere in another period by an unknown maker.
In an open trading market environment, price is often not displayed or fixed by the seller. Experienced sellers do not label products with a price if they are willing to negotiate. They will however make an ad hoc decision, based on buyer’s image, origin, sex and other factors and set the initial asking price accordingly.
It is interesting to observe the diverse negotiation skills and methods deployed worldwide.
There is culture-oriented negotiation such as in the Middle East, where there is a significant gap between the asking and the final selling price.
Price may be affected by the gender of both the seller and the buyer, whether he or she is local or a tourist and even by appearance, smell, voice and other factors.
Don’t ever bid against yourself
If you as the seller have set an asking price, do not start to change it when you see and feel that the buyer is not interested. If the buyer is truly interested, s/he will enter into the negotiating arena. In this case, if you lower your initial asking price, you will lose the starting negotiation point. Ask the buyer to make the first counter offer to your first asking price. This case is clearly demonstrated in the example described above.
The more you seem to be eager to sell the less you’ll succeed
Do not run after buyers, play it cool. In most cases, you cannot persuade a potential buyer to buy if s/he is not interested. The buying and selling possibilities available on online trading websites such as eBay are: fix,auction,make an offer orbuy it now.
The ‘fix’ price is the situation of ‘take it or leave it’ with regard to the indicated fixed price.
The ‘auction’ option requires one buyer to bid for the starting auction price and it may increase if other bidders are interested to buy; eventually the highest bidder wins.
In the ‘make an offer’ option, the seller enables the buyer to make an offer. In this case, the seller may accept the offer or make a counter offer, until they reach an agreement.
The ‘buy it now’ option may be combined with the ‘auction’ option, whereby the buyer may bid and compete with other potential bidders, or accept the ‘buy it now’ price and win immediately.
Negotiation skills are required in conflict management, arbitration, conflict resolution and mediation. If A has a conflict with B and A is our client, the best advice to A is to bring a third partyC into the equation.
This may yield a stronger and a better result. By bringing C into the conflict, we consider future situations and relations that might evolve after the negotiation is terminated. It holds true especially in cases where A has to continue personal or business relations with B.
Negotiation is quite often seen as confrontation. Effective negotiations need not be confrontational, however. Setting the mood as aggressive and seeking to win means that there must be a loser.
The correct attitude of the opposing parties should not be to win the confrontation but to find a mutually agreeable solution.
It is necessary to control our emotions during the negotiation process. The more we lose control and become emotional, the less we will be able to achieve an efficient, desirable and mutually agreed solution.
We must make an effort to focus on the issues in hand and not on the specific and sometimes annoying personality of our counterpart. Blaming the other side is a definite distraction and an unproductive one.
One of the most important factors in efficient negotiation is to research and understand the needs of the other party.
To find a mutually agreeable solution to the problem, we need to assess the gap between our needs and any disagreements. We will be able to do so only after understanding the needs and worries of our opponent.
A typical example of how such understanding can be effective is the following scenario. Let us assume that two people have found a coconut and each is claiming it should be theirs.
You happen to be there and you are chosen to be the arbitrator. What would be your ultimate solution to this conflict?
Most of arbitrators would simply suggest splitting the coconut in half. In this case each claimant will have only 50% of what they want. Is it the best ultimate solution? Well, not really.
If you had talked first to each party to learn their needs before making your ruling, you might have found out that one of them is an artist interested only in the coconut shell for carving, whereas the other just wanted the milk and the coconut meat.
With this information you would be able to satisfy 100% of each party’s needs and reach a classical win-win situation.
Timing is everything. Negotiations, like many other things in life, are time-dependent. There are better and worse times and places to conduct negotiations. When entering into the negotiation process, we should be prepared, learn about our opponent, prepare alternative solutions, not waste time on futile arguments, never get emotional and present persuasive arguments to support our claims. Essentially, the aim of negotiation is to cause a change in our opponent’s perspective that may lead him/her to agree and come closer to our needs and desires.
A good and efficient negotiator is one who has the ability to persuade. Sometimes a negotiator needs to use his/her persuasive skills for the sole purpose of encouraging the parties to open up, to talk, to listen and to start a dialogue.
There are many persuasion techniques that are used by negotiators. Some are positive and some are negative. Among the positive techniques are basic physical touch and gestures like handshake, smile, compliments, respect and other small-talk to generate a certain atmosphere of familiarity.
The negative attitude used in the persuasion process may contain obvious or hidden threats such as ‘if then else’. Monetary threats are usually very effective tactical methods, especially in financial arguments. Failing is another negative technique, and can be considered as a major psychological punishment. Therefore, when entering into the negotiation process, we should set aside our fear of failing or losing.
One of the basic and most primitive human motivators is fear. The fear of losing property, wealth, a game or anything else puts us in a weak position in the negotiation process.
We should try to control and monitor our non-verbal signals. Our body language sends out revealing messages, especially when we are angry, frustrated or eager to accept and agree to a proposal or to a compromise.
In our daily life we face conflicts that require negotiation in order to resolve them. A typical example is conflict between employees and employers, Employees want more money and better working conditions and employers want to make more profit and minimize their labour costs.
In certain countries and in specific cases, employees are united under a local labour union responsible for the actual negotiation with the employer. Such negotiation will normally take several rounds of meetings, in which different scenarios emerge.
There are cases where the union may demand certain changes, such as salary increases. There are several negotiation styles and methods that can be used either by the union or the employees acting independently.
They may enter the negotiation arena with an ultimatum such as: ‘If then else… ‘ or alternate demands and response may take place between employees and employer.
Experienced negotiators will add to the basic minimum demands an extra demand or several demands that will be given up later, as an act of goodwill, so that not all demands will be met.
Consequently, at the end of the process, both sides may declare themselves the winner. This mutually agreed compromise is essential for the ongoing relationship between the parties as they have to continue to work together.
In summary, negotiation is a dialogue between two or a group of people.
The main intention is to reach an agreement and understanding or to resolve conflicts between the parties.
It is essential that the parties enter into the negotiation phase willingly and that they commit to accept and execute the resulting outcome. Normally, a good negotiation process is terminated by a compromise acceptable to both sides.
The definition of a good negotiating process, however, is not when one side wins but when all negotiating parties come out as winners. This can happen only when a win-win situation is achieved.
What does it take to persuade people? How does a lawyer cause an arbitrator, judge, businessperson or other lawyer to reach the desired conclusion of their own volition?
If you wish to persuade me, think my thoughts, feel my feelings and speak my words (Cicero).
This article is part of the book “Hunting for Antiques and Collectables”, the adventures of an antique collector.
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