Types of Negotiations and Some Notes to Keep in Mind

October 3, 2014

According to most theories, there are two types of negotiations: 

 

  • distributive negotiations (also known as fixed-pie negotiations), and

  • integrative negotiations 

 

In distributive negotiations, there is a fixed value that should be distributed between the parties and there is no possibility for value creation ot the parts are not considering such value creation as an option. Any gain by one of the parties is a loss on behalf of the other party. For example, if you are negotiating the price of an apartment, it is likely that you will never see the seller again and all you care about is purchasing the property at the lowest possible value. The value is fixed (the apartment), and any gain by the other party (the seller) is a loss for you (because any dollar that he/she gets more comes out of your pocket). 

 

In contrast, in integrative netotiations the parties cooporate with each other to achieve maximum benefit, following their interests and keeping the other party's interest because they are interested in preserving the long-term relationship between each other. In most cases, you have value creation in the process of negotiation. Such an example would be if you have a wedding agency and you negotiate terms with fabric suppliers. On the one hand, you want to have the supplies at the lowest possible cost (speaking of a particular commodity and its quality) but on the other hand, you shouldn't push too much because your supplier should not feel ripped off (otherwise your supplier can stop supplying other commodities because he/she would know that deals with you are not payed enough for the stress and the deadlines). What can you do in this case? First, you create value by learning more about what the other side values in the bargain. You may be interested more in the colors of the fabrics, whereas the other side may be interested in whether they will have the possibility to deliver on time. In this case, the supplier can lower the price and you can increase the delivery period so that you both trade something of less value for something with a greater value. 

 

Most negotiations, however, are mixtures of the two. Therefore, it is better to thing about them as the ends of a spectrum and to position every debating situation along the spectrum. What are the best practices in negotiations then? 

 

In disruptive negotiations keep in mind the following guidelines: 

  • The first price serves as a psychological anchor and studies have shown that the outcomes from negotiations correlates with the first price so be realistic about it. However, don't overstate it too much because the other party may walk out of the negotiation if it is far above its accepetable range.

  • Don't disclose any information about what gives the value to the bargain! The less the other side knows about how much you value the good or service the better. 

  • Don't reveal your circumstances! If you don't have any other options to get such good or service, you are in a bad bargaining position. Don't overstate your bargaining position either because the other side may feel that you are not a serious buyer for you will choose another supplier! 

  • Try to get information about the other party's circumstances! If you are the only one interested in this commodity, it would be good to know and you will be in a stronger bargaining position. 

 

In intergrative negotiations the situation is a little bit different so the rules are a bit different: 

  • Provide enough information about your circumstances and what gives the value of the bargain to you! Explain why you want to make the deal and what you care the most!

  • Explain your business constraints! If you expect to have difficulties with any side of the contracting conditions, say it! 

  • State all additional capabilities you have to see if there are of any value to the other side and create value in the bargain. 

 

Therefore, when bargaining, first, try to realize where on the spectrum is the particular situation and try to select the applicable guidelines that will give you the best results! Soon we will write more on the topic! 

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