Negotiation – a dialogue between two or more people or groups to reach a desired outcome on an issue — is an important part of doing business, from figuring out the finer points of financial contracts with vendors, to setting salaries and job descriptions for employees. The goal of negotiating is to arrive at a beneficial deal that, ideally, improves your circumstances or the bottom line of your business.
The negotiation process is both an art and a skill. “I see it as a really rich and interesting decision problem where we have interests that are [the same]. We both want a deal…But we also have some competing interests where, for example, I want a higher price and you want a lower price,” said Maurice Schweitzer, a Wharton School professor of operations, information and decisions. “We have this interesting mix of congruent and competing interests that makes the decision process pretty complicated.”
During the Wharton Global Youth cross-program speaker series, Schweitzer, an expert in negotiation, spoke to high school students in our on-campus summer programs about planning the negotiation process – and arriving at a better outcome.
Here are 10 of Dr. Schweitzer’s success strategies:
1️⃣ When you’re preparing to negotiate a deal, figure out your alternatives. The acronym BATNA or Best Alternative to Negotiated Agreement, represents the best option for one party in a negotiation if the talks fail. If you fail to reach an agreement, you can activate your BATNA with little disruption. One alternative, for example, might be to accept an outside offer for a different job if your negotiation for a new position or better salary fails. Outside offers can work in your favor because you can use them as leverage in a negotiation, said Schweitzer. “The most important thing you can do for negotiation to improve your position is to develop a good outside offer,” he noted.
2️⃣ You are not the only one sitting at the negotiation table. Therefore, you need to gain perspective and think about your counterpart’s alternatives. “Getting outside of our own head is hard for negotiations, but it’s imperative,” said Schweitzer, who has also done extensive research on emotional intelligence. “We’ve got to figure out what other people are experiencing and how they are seeing the world and to recognize that it might be quite different from how we see things.”
3️⃣ Information-gathering is essential; negotiation starts with an exchange of information, then moves into bargaining. Start the process by asking questions, said Schweitzer. If you are a seller negotiating the price of a painting, for example, ask the buyer: do you own other paintings by this artist? What do you know about this artist? Have you shopped this gallery before? This information will help you better understand the buyer’s motivations and how much they might be willing to pay. Gather information up front.
4️⃣ Don’t just ask the questions, anticipate them as well. “Sometimes if you’re not ready to respond, somebody surprises you by asking a difficult, sensitive question,” noted Schweitzer. “Like, how much money did you make in your last job? Or, do you have other offers? Think about answers to some difficult questions.”
5️⃣ If you’re not ready for the tough questions, then you might lie or reveal too much. Lying tends to creep into the process. “Deception turns out to be a huge challenge in negotiations,” said Schweitzer. “When you’re conversing with your counterparts, you have to be careful to listen to what people are saying, how they’re saying it, and what they’re not saying.”
6️⃣ As you enter the negotiation phase, make sure you understand your zone of indeterminacy. “This is the uncertainty about what something is worth,” said Schweitzer. “Imagine you’re going out for a job. How much should you get paid? We’re not exactly sure what the right price is. We’ll have a range, but there isn’t one definitive exact price. There’s a zone of indeterminacy and that’s when negotiations matter. You are at an advantage when this zone is large,” with more room to negotiate.
7️⃣ You should also determine your zone of agreement as you head into the bargaining phase of negotiations. This is the range in a negotiation where you and your counterpart can find common ground (think between $2,000 and $10,000). Gathering information up front will help you determine this zone. “A lot of novice negotiators jump right into price. The problem is that you could be way off base. You could be saying numbers that are way too high or way too low and you lose credibility,” observed Schweitzer. “You blow up the whole negotiation by starting off with something too extreme. You want to be careful about offering numbers too early before getting a sense of what the zone of agreement looks like.”
8️⃣ Knowledge is power. If you have done your homework and determine a solid zone of agreement, you should be the first person to put an offer on the table. “You will be at an advantage, because the first price anchors the negotiation,” said Schweitzer.
9️⃣ Opening price matters quite a lot. “Where you start drives where you end,” noted Schweitzer. “We want to be very mindful of the opening offers we make because they guide where you end up. Starting high is likely to lead you to end high and starting low is likely to lead you to end low. We know, for example, people who list their home prices at high values take longer to sell, but end up selling at a higher price.”
🔟 As with any business-related pursuit, it all comes down to the people in the room. “Build rapport before you start negotiating,” urged Schweitzer. “Ask them: How are you doing? How is your family? How was your trip? The two key pillars of negotiation are relationships and information.”
What is negotiation and why is it important to business? Can you think of some examples of negotiation in your own life?
What is the difference between the zone of indeterminacy and the zone of agreement?
Professor Maurice Schweitzer says, “The two key pillars of negotiation are relationships and information.” What does he mean by this?