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One of the many blogs I've happened upon is by a self-describednegotiation geek who went to harvard business school and became a trained mediator. Which is really interesting, because most westerners, and geeks specifically, rather hate negotiation. But it's really interesting to see some of the basic concepts explained by someone who knows about it, but thinks about it in the sort of abstract game-theoretic way that makes sense to people like me.
One key concept is in one of his first posts: http://negotiatewithchad.blogspot.co.uk/2011/03/batna-and-zopa-quick-introduction.html
Best Alternative to Negotiated Settlement (BATNA) is what you get if you walk away now. Eg. if you're trying to buy a koala-kayak, and you walk away, the worst that happens is that you don't have a koala-kayak. Which is fine, since koala-kayaks are only useful in really, really specific circumstances, so you probably didn't need it. But if you're trying to navigate koala-phobic-shark creek, you really, really need that koala-kayak, and if he only knows, the koala-kayak saleman can ask an awful lot of money and you'll probably have to just pay it.
But if you want to reach a deal, you probably need to be aware of the salesman's BATNA too. If he gets lots of business from koala-phobic-shark creek travellers, and you're not desperate enough, he can always go bilk someone else, so he's not interested in dealing with you unless you offer a lot of money. But if you're the only person navigating koala-phobic-shark creek, he's probably as desperate as you: no-one else wants koala-kayaks at all, so if he can't sell to you, he doesn't get any money.
Thus the basics of negotiation are defined by two numbers: the absolute maximum you'd be willing to pay, and the absolute minimum she'd be willing to accept.
If the maximum you'll pay is less than the minimum she'll accept
If the maximum you'll pay is less than the minimum she'll accept then no deal is normally possible. Of course, it may take a while to figure that out if both sides (understandably) don't want to admit their maximum from the start.
But it's important to admit it to yourself. If you're going to lose millions by not taking this deal, how many millions? If they're asking £5m for it, is it still worth it? If not, the aim of the game is to figure out "will they offer a deal that's actually better for me than taking my losses? if not, walk away".
If the maximum you'll pay is a bit more than the minimum she'll accept
Then a deal is possible, and is somewhere between those figures. In fact, a lot of the time, the deal is sufficiently beneficial to both parties, we don't really care. If I have an old bike I just want to get rid of, and someone else wants a spare bike fairly cheap, it doesn't matter if I sell it for £10 or £50, we're probably both getting a good bargain, and hardball negotiating will just make us miserable for little gain.
If this happens with a high-volume transaction (eg. most things sold retail), the seller can set a fixed price, and make more money by selling 1000s a day, than they can by negotiating for each item, making sure they get the most possible per day, but only sell 10 because they spent most of the day negotiating.
If the maximum you'll pay is LOTS more than the minimum she'll accept
This is where you may get hardball negotiation. If I'm selling one big ticket item, and I absolutely have to get more than £1000, but want as much as possible, and she wants to buy it, and really needs it and would be willing to pay £1,000,000, then we can get a deal anywhere in the middle, but we both have an incentive to conceal how far we'd be willing to go, and to manipulate the other person's perception of what it's worth to us: eg. if I can imply I have several other people eager to bid on it, she'll be a lot more desperate to reach an agreement early.
This is called "value capture": we both get a positive benefit out of the deal, but in addition to that, there's £999,000 of value up for grabs in a stereotypical game-theoretic way which one of us will get and the other won't.
However...
That last case of a competitive negotiation is the one people think about when they say "negotiation". However, although some people really focus on that, the best stories are when someone unexpectedly finds a win-win solution no-one had expected, and both parties manage to find a solution that suits both of them, when they thought one of them was screwed.
Lessons
Although I've only skimmed a blog, I find having some vocabulary for recognising this sort of thing really helpful in thinking about it. Some of the lessons I've taken away:
1. Recognise how much room for negotiation there is. If someone isn't interested in negotiation, there's nothing to be gained, just take the deal offered or leave it. Eg. if you find a damaged item in Tesco's, they may have discretion to offer it to you cheaply, or they may not. But if you just pick something at random and ask if you can have it cheaper, the answer is probably just "no, I'm not allowed to, sorry". If you're buying something expensive, there probably _is_ room for negotiation.
2. Recognise what the other party can negotiate about and what they can't. Eg. they may not have the authority to offer you any money whatever you say, but they may be able to offer you lots and lots of 50% off coupons. Do you negotiate? Well, you do if you want lots of coupons. An
3. Recognise your BATNA. Are you going to buy this anyway, and just want to see if you can get it a bit cheaper? Are you going to buy it, but only if they can offer it for less than X? Most people hate working this out, but recognise that it doesn't have to be exact, and it doesn't have to be "fair" -- it's what it's worth to you.
4. If your BATNA sucks, look for a better alternative. If you phone up your utility company and ask if they can charge you less, they may just say "no". If you say "I can get £xx from $other_company" then they have an incentive to say "yes". (Although notice that the customer service man/woman doesn't actually care about your money, all they want is to make their sales targets without getting fired.)
5. Recognise the other party's BATNA. For a big corporate merger, this can be really hard, but if you're buying a car, it's worth spending a couple of hours checking prices, so you can offer a price which is fairly plausible. Again, most people hate doing this, but it's worth making an effort.
6. Recognise when it's just better to walk away.
7. Look for something the other party wanted but didn't realise they wanted so you can offer something that's valuable to them but you can supply fairly easily.
8. Don't be confrontational except in rare circumstances. Usually, even if it's not explicit, there's a big benefit to having an ongoing relationship where both parties are satisfied.
One key concept is in one of his first posts: http://negotiatewithchad.blogspot.co.uk/2011/03/batna-and-zopa-quick-introduction.html
Best Alternative to Negotiated Settlement (BATNA) is what you get if you walk away now. Eg. if you're trying to buy a koala-kayak, and you walk away, the worst that happens is that you don't have a koala-kayak. Which is fine, since koala-kayaks are only useful in really, really specific circumstances, so you probably didn't need it. But if you're trying to navigate koala-phobic-shark creek, you really, really need that koala-kayak, and if he only knows, the koala-kayak saleman can ask an awful lot of money and you'll probably have to just pay it.
But if you want to reach a deal, you probably need to be aware of the salesman's BATNA too. If he gets lots of business from koala-phobic-shark creek travellers, and you're not desperate enough, he can always go bilk someone else, so he's not interested in dealing with you unless you offer a lot of money. But if you're the only person navigating koala-phobic-shark creek, he's probably as desperate as you: no-one else wants koala-kayaks at all, so if he can't sell to you, he doesn't get any money.
Thus the basics of negotiation are defined by two numbers: the absolute maximum you'd be willing to pay, and the absolute minimum she'd be willing to accept.
If the maximum you'll pay is less than the minimum she'll accept
If the maximum you'll pay is less than the minimum she'll accept then no deal is normally possible. Of course, it may take a while to figure that out if both sides (understandably) don't want to admit their maximum from the start.
But it's important to admit it to yourself. If you're going to lose millions by not taking this deal, how many millions? If they're asking £5m for it, is it still worth it? If not, the aim of the game is to figure out "will they offer a deal that's actually better for me than taking my losses? if not, walk away".
If the maximum you'll pay is a bit more than the minimum she'll accept
Then a deal is possible, and is somewhere between those figures. In fact, a lot of the time, the deal is sufficiently beneficial to both parties, we don't really care. If I have an old bike I just want to get rid of, and someone else wants a spare bike fairly cheap, it doesn't matter if I sell it for £10 or £50, we're probably both getting a good bargain, and hardball negotiating will just make us miserable for little gain.
If this happens with a high-volume transaction (eg. most things sold retail), the seller can set a fixed price, and make more money by selling 1000s a day, than they can by negotiating for each item, making sure they get the most possible per day, but only sell 10 because they spent most of the day negotiating.
If the maximum you'll pay is LOTS more than the minimum she'll accept
This is where you may get hardball negotiation. If I'm selling one big ticket item, and I absolutely have to get more than £1000, but want as much as possible, and she wants to buy it, and really needs it and would be willing to pay £1,000,000, then we can get a deal anywhere in the middle, but we both have an incentive to conceal how far we'd be willing to go, and to manipulate the other person's perception of what it's worth to us: eg. if I can imply I have several other people eager to bid on it, she'll be a lot more desperate to reach an agreement early.
This is called "value capture": we both get a positive benefit out of the deal, but in addition to that, there's £999,000 of value up for grabs in a stereotypical game-theoretic way which one of us will get and the other won't.
However...
That last case of a competitive negotiation is the one people think about when they say "negotiation". However, although some people really focus on that, the best stories are when someone unexpectedly finds a win-win solution no-one had expected, and both parties manage to find a solution that suits both of them, when they thought one of them was screwed.
Lessons
Although I've only skimmed a blog, I find having some vocabulary for recognising this sort of thing really helpful in thinking about it. Some of the lessons I've taken away:
1. Recognise how much room for negotiation there is. If someone isn't interested in negotiation, there's nothing to be gained, just take the deal offered or leave it. Eg. if you find a damaged item in Tesco's, they may have discretion to offer it to you cheaply, or they may not. But if you just pick something at random and ask if you can have it cheaper, the answer is probably just "no, I'm not allowed to, sorry". If you're buying something expensive, there probably _is_ room for negotiation.
2. Recognise what the other party can negotiate about and what they can't. Eg. they may not have the authority to offer you any money whatever you say, but they may be able to offer you lots and lots of 50% off coupons. Do you negotiate? Well, you do if you want lots of coupons. An
3. Recognise your BATNA. Are you going to buy this anyway, and just want to see if you can get it a bit cheaper? Are you going to buy it, but only if they can offer it for less than X? Most people hate working this out, but recognise that it doesn't have to be exact, and it doesn't have to be "fair" -- it's what it's worth to you.
4. If your BATNA sucks, look for a better alternative. If you phone up your utility company and ask if they can charge you less, they may just say "no". If you say "I can get £xx from $other_company" then they have an incentive to say "yes". (Although notice that the customer service man/woman doesn't actually care about your money, all they want is to make their sales targets without getting fired.)
5. Recognise the other party's BATNA. For a big corporate merger, this can be really hard, but if you're buying a car, it's worth spending a couple of hours checking prices, so you can offer a price which is fairly plausible. Again, most people hate doing this, but it's worth making an effort.
6. Recognise when it's just better to walk away.
7. Look for something the other party wanted but didn't realise they wanted so you can offer something that's valuable to them but you can supply fairly easily.
8. Don't be confrontational except in rare circumstances. Usually, even if it's not explicit, there's a big benefit to having an ongoing relationship where both parties are satisfied.
no subject
Date: 2012-10-29 03:54 pm (UTC)no subject
Date: 2012-10-30 01:29 pm (UTC)It's a glorious example of when something is much better for most people. Not that haggling is always bad, but if you have to haggle for everything, transaction costs just eat up everyone's time. And the same thing happens now, but more for big construction projections than for day-to-day groceries.
no subject
Date: 2012-10-30 01:46 pm (UTC)