NEGOTIATION GUIDE
People do not realize it but we negotiate every day in multiple situations. Whenever a decision
must be made, it’s an exercise in negotiation. Which movie do we go see? What restaurant do we
choose? However, negotiating the purchase of a car is distinct from going to the grocery store.
When shopping for groceries, we take an item off the shelf, put it in our basket, and pay the
sticker price at the cash register. There is no negotiation involved. Buying a stereo or TV,
however, could involve negotiating the price or what is included (e.g., the warranty, delivery,
installation). Similarly, getting a job and determining salary and employment conditions often
involves negotiation. These situations do not have the same ramifications of a negotiation to buy
a multi-million dollar business or property. The higher the stakes of the negotiation, the more
thought and preparation that should be invested into the negotiation process.
BASIC NEGOTIATING CONCEPTS
Positions – Positions are “what” the negotiators say they want. They are really solutions that
have been proposed by the negotiators. Positions are based upon the interests of the parties;
interests are usually not disclosed, at least not in competitive negotiations. In most negotiations
people take and then give up a series of positions. Behind every position lie many interests.
Interests – Interests are “why” the negotiators take the positions they do. Interests lie behind the
positions of the negotiators. Interests represent the basic needs to be met. Money and price are
not interests in themselves. Money represents purchasing power, the ability to satisfy other
needs, status, or power itself. Understanding interests is the key to understanding “win-win”
negotiating. In many negotiations, the interests are never explicitly discussed. In fact, interests
are usually kept secret. Successful “win-win” negotiation requires finding a way to disclose
interests without being taken advantage of.
Best Alternative to a Negotiated Agreement (BATNA) – BATNA is an acronym that
represents the best result that a negotiator can get somewhere else if an agreement cannot be reached
with the other party. In other words, a BATNA is the alternative that the party will select if they must
walk away from the negotiation. If the negotiation involves finalizing a deal, the BATNA is to walk
away to another party who can offer you a better deal. If, however, the negotiation involves a lawsuit,
the BATNA is to go to court.
Bottom Line – The bottom line or reservation price is the position at which the negotiator will
walk away from the negotiation. Relative to a purchaser, it is the highest price a purchaser is
willing to pay for goods or services. Relative to a seller, it is the lowest price at which a seller is
willing to sell the goods or services. The bottom line is also known as the “reservation price.” If
the negotiator cannot get at least their bottom line in the negotiation, they will vote with their feet
and walk away from the deal.
Zone of Agreement – The zone of agreement represents the difference between the bottom lines
of the parties. If there is no overlap in the bottom lines of the parties, no agreement is possible.
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TYPES OF NEGOTIATION: DISTRIBUTIVE OR INTEGRATIVE NEGOTIATION
Type 1: Distributive Negotiation
Distributive negotiation is also sometimes called positional or hard-bargaining negotiation. It
tends to approach negotiation based on the model of haggling in a market. In a distributive
negotiation, each side often adopts an extreme position, knowing that it will not be accepted, and
then employs a combination of trickery, bluffing, and brinksmanship in order to give in as little
as possible before reaching a deal. This is a “zero sum” negotiation where the negotiator claims
as much of the ‘pie’ as possible. Usually there is just one issue for negotiation and more for one
party means less for the other. Although the goals of the parties are in direct conflict, a negotiator
can adopt either a competitive or cooperative negotiation style in a distributive bargaining
situation.
Distributive Negotiation works best when:
A distributive negotiation strategy is generally appropriate where:
Parties do not know each other very well
Parties are unlikely to work together in the future
Negotiation is over a limited number of things or issues (e.g., price only)
Negotiation Tactics and Techniques:
Early Anchoring: Anchoring is fixing or establishing the focus of discussion around a certain
point, whether it is a figure, a range, or an issue, simply by asserting it. Early anchoring involves
being the first party to make an offer that is beyond or at the fair margin of the range of credible
or reasonable offers. This tactic has the effect of fixing the apparent bargaining range around this
point, which is typically favourable to the person who anchors early.
Feinting: Misleading the other party as to your true interests or objectives by stressing goals or
interests that are in fact unimportant to you and then giving them up for concessions from the
other side that are important to you. Such feints help to disguise your true bottom line and
interests.
Misleading Concession Pattern: It is common to make smaller and smaller concessions as
negotiations converge on a negotiator’s bottom line. Knowing this, negotiators can mislead the
other side by using a concession pattern that converges at a point above the actual bottom line.
The other side, reading the concession pattern, may mistakenly conclude the conceder has
reached his/her bottom line and therefore settle in order to save the deal.
Splitting the Difference: When the parties are stuck at different positions, one solution is to
each compromise half the difference. For example, with offers at $600 and $1000, the
compromise would be $800. This technique gives the “appearance” of fairness.
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Ultimatum (i.e. Take It or Leave It): This occurs where a party claims to be submitting their
final offer. The other side must take the offer or the negotiation is over. In reality, nothing
prevents any party from making another offer at a later time.
Walkaway: This is a classic tactic in bazaars and markets. If you cannot get the price you want,
walk away from the deal and maybe the other party will follow you. This tactic is a bluff. To
work effectively, you have to be able to truly walk away from the deal and exercise your
BATNA.
You Will Have To Do Better Than That (YWHTDBTT): If the other side is told “you will
have to do better than that,” often, they will make you a better offer. Some people claim not to
even consider the first offer. They just ask for a better offer, no matter what the first offer was.
They assume that the person who made the offer made an excessive demand. This is a
particularly useful technique when the other side anchors first, forcing them to re-anchor
negotiations around a point closer to your own desired result.
Type 2: Integrative Negotiation
Integrative negotiation is also sometimes called interest-based or principled negotiation. It is a
set of techniques that attempts to improve the quality and likelihood of “win-win” agreements
with parties working together to increase the amount of resources to maximize mutual gain.
While distributive negotiation assumes there is a fixed amount of value (i.e., a “fixed pie”) to be
divided between the parties, integrative negotiation often attempts to create value in the course of
the negotiation (i.e., “expand the pie”). Integrative bargaining often requires two or more issues
so that trades can be made. The theory is that parties often have different underlying interests
that can be integrated or reconciled to create joint gains that improve the situation of both parties.
A negotiator can adopt either a competitive or cooperative negotiation style in an integrative
bargaining situation.
Integrative Negotiation works best when:
An investigative negotiation strategy is appropriate where:
Parties know each other
Parties are likely to have further interactions in the future
Negotiation Tactics and Techniques
Focus on Interests not Positions: “Positions” are “what” negotiators say they want; “interests”
are “why” they take the positions. The interests of the opposing party are discovered by asking
questions and putting yourself in the other’s shoes. This creates an opportunity to devise
solutions that address these underlying interests. Although problem-solving negotiators may be
willing to disclose their interests, be aware that competitive negotiators will try to learn your
interests without revealing their own in order to gain an advantage.
Expanding the Pie (i.e. Create Value): Sometimes it is possible to brainstorm and increase the
resources to be bargained for. If the resources can be increased then perhaps both sides can get
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what they want, or at least find a sufficiently satisfying alternative. For instance, a cell phone
retailer may not decrease the price but might be willing to throw in voicemail and call display
into a plan package for the same cost.
Open Information Exchange: This involves freely and honestly disclosing information to help
the other side understand your underlying interests, objectives, and priorities. Sometimes
something critical to one side is a minor concession to the other, and vice versa.
Log Rolling: If two or more issues are in dispute, the negotiators may be able to do a series of
trade-offs. One side gets their top priority on the first issue and the other side gets their top
priority on the second issue.
Objective Criteria: Instead of allowing the negotiation to be determined by a contest of power
or to become a battle of wills, negotiators can select one or more objective criteria which can be
used as standards for a ‘fair’ settlement (e.g., market price).
NEGOTIATING STYLES: COMPETITIVE OR COOPERATIVE
A negotiator can adopt either a competitive or cooperative negotiation style in both distributive
and integrative bargaining situations.
1. Competitive Negotiation Style:
Competitive negotiators want to “beat” their opponents. They use high demands, threats, and
make few concessions. They generally try to undermine their opponent’s confidence and seek the
maximum for themselves.
2. Cooperative Negotiation Style
Cooperative negotiators want to shift the nature of negotiations and “work with” their
counterparts to make it more collaborative. Instead of moving from position to counter-position
to compromise, negotiators try to identify their interests prior to the development of solutions.
They use reasonable opening offers, show good faith, and initiate the exchange of mutual
concessions. Once interests are identified, the negotiators then jointly develop a wide-ranging set
of alternatives, and then choose the best alternative. Cooperative negotiators seek a fair and just
settlement.
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NEGOTIATING SCENARIOS
Test your negotiating tactic knowledge - For each of the following scenarios, identify what
would be the most appropriate negotiation strategy (i.e., distributive or integrative) and style
(i.e., competitive or cooperative), and identify two possible negotiation tactics that could be used
in each scenario. Some scenarios may justify using either a distributive or integrative approach.
Provide a short rationale for your choices in each column.
SCENARIO NEGOTIATION NEGOTIATION NEGOTIATION
TYPE STYLE TACTICS
1. Purchasing a souvenir
from a street vendor
while on vacation
2. Couple deciding on
which movie to watch
at the theatre: one
wants an action flick,
the other a romantic
comedy
3. Consumer visits car
dealership to buy a
new car
4. A married couple
tries to decide where
to spend their two-
week vacation: one
wants to go to the
mountains, the other
wants to go to the
seashore
5. Owner of rental car
agency visits
dealership to buy new
cars
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SCENARIO NEGOTIATION NEGOTIATION NEGOTIATION
TYPE STYLE TACTICS
6. Two rural
communities in
discussions about
using the only local
water well
7. Company needs to
downsize and lay-off
workers, but is
uncertain about how
many to lay-off from
each of the different
departments
8. Renting a new
apartment
9. New parents deciding
on who will wake up
to feed the baby in the
middle of the night
10. Canadian rug seller
wants to buy rugs
from supplier in
Turkey
FOR MORE INFORMATION
If you have any questions arising from this guide or concerns which have not been addressed,
please contact a lawyer in your area for consultation. You can locate a lawyer who deals with
these matters by doing an internet search or by going to lsrs.lsuc.on.ca/lsrs/ or www.titleplus.ca.
