A popular story about negotiation goes as follows: two sisters both wanted the same crate of oranges. But as they talked about it, they realized that one of them just wanted the peels for use in a recipe, while the other wanted the fruit to make juice. In the end, they each got what they wanted.
That’s a good negotiation.
Most people hate negotiating because they think it’s a competition: you have to get the biggest slice of the pie for yourself at the expense of others. That’s called “distributive negotiation,” and it certainly exists…particularly when you’re making a purchase from someone you don’t intend to build a long-term relationship with.
But the type of negotiation performed by the sisters in the example above is probably so common that we don’t even think of it: it’s called “integrative negotiation.” In that case, winning at any cost is likely to hurt your relationship, hurt future negotiations, and might not be the best outcome…after all, what can you do with a crate full of orange peels once you’ve used the fruit?
Regardless, you have to be careful not to fall victim to “agreement bias,” which is agreeing to something that puts you in an even worse position than the one you started from, simply to get consensus. You also have to make sure you don’t end up asking for too little, or leaving value on the table–getting into a situation where neither party gets as much out of the deal as they could.
There are three main components of a negotiation: your BATNA, your reserve value, and your target value. The target value is the number you’d like to get. The reserve value is the number at which you’d rather just walk away…it’s the absolute lowest or highest you will go.
Incidentally, the range between your reserve and target value needs to overlap at least somewhat with your partner’s range. That forms a zone of negotiation. But if you aren’t willing to accept a penny less than a million dollars and your partner isn’t willing to pay more than a thousand, you’ve got nothing to discuss. Reconsider, or walk away.
Your BATNA is, by far, the most important component: it’s your Best Alternative To a Negotiated Agreement. It’s what you can do instead of negotiating. For example, if you are starting a job in a new city on the 15th and it’s the 1st, you don’t have a lot of wiggle room; you need a place to live. Your BATNA is to live in a hotel or not take the job, neither of which puts you in a position of strength. On the other hand, if you’re buying a motorcycle for the weekends, your alternative is only that you’ll miss out on some fun rides. Your BATNA is pretty strong; you can always walk away and look for a better deal elsewhere.
The most important part of negotiation is preparation–and really thinking things through. Is the negotiation distributive or integrative? Are you going to have an ongoing relationship with the person such that it might be sensible to give up some value in the short-term for a better long-term outcome? What factors influence your perception of what is a fair price or outcome? Is it really fair? What about the other person’s price? What is the perspective of the other person? What’s your BATNA? What’s theirs? How well are you communicating? If you’re getting hung up on relinquishing 5%, is it 5% of $20, or 5% of $20 million?
Research shows that the person who makes the opening offer does what’s called “anchoring.” This means that all subsequent offers tend to go up or down from that point. If you don’t set an anchor point that benefits you, you won’t get the maximum value from the negotiation.
Finally, it’s a myth that a good negotiation leaves everybody unhappy. Keeping everybody at least somewhat satisfied increases your chances of the negotiating actually finishing. Don’t forget: if you’ve got a strong BATNA, you can always walk away.