Week 9 - Negotiation

Question 1

What is negotiation?

Answer 1

Is a process by which two or more people come to agreement on how to allocate scarce resources

Question 2

Characteristics of people involved in negotiation (3)

Answer 2

• Parties are interdependent
• Neither party has complete power to choose
• The process is a decision, not a contest of wills

Question 3

Negotiation definition according to Lysons and Farrington (2006)

Answer 3

An occasion where one or more representatives of two or more parties interact in an explicit attempt to reach a jointly acceptable position on one or more divisive issues about which they would like to agree

Question 4

Negotiation definition according to Paprzcki et al (2004)

Answer 4

As a process in which two or more parties with different criteria, constraints and preferences jointly reach an agreement on the terms of a transaction

Question 5

4 principles of the Harvard model of negotiation

Answer 5

• Separate the person from the issue
• Negotiate interest orientated
• Develop good criteria that a solution must fulfill
• Develop several options

Question 6

Common problems in negotiation (4)

Answer 6

• Leaving money on the table (lose-lose negotiation)
• Settling for too little (winner’s curse or lose - win)
• Walking away from the table (hubris)
• Settling for terms that are worse than your current situation (agreement bias, also lose-win)

Question 7

Characteristics of effective negotiation (5)

Answer 7

• A wise agreement that is satisfactory for both sides
• It was efficient - no more time consuming or costly than necessary
• It was harmonious - fosters positive relationships
• The solution will survive the short term and the long term
• Trust has been engendered on both sides

Question 8

What could make people ineffective negotiators? (3)

Answer 8

• Absence of relevant and diagnostic feedback:
- Search for confirming information
- Egocentrism
• Sacrificing:
- versus optimising
• Self-reinforcement:
- fear of change and experimentation

Question 9

What can make a purchaser’s negotiation position strong? (7)

Answer 9

• Demand is not urgent
• Suppliers are keen for the business
• Buyer is in a monopolistic position
• Demand can be met by alternatives/substitutes
• Make and buy options are available
• Buyer has a reputation for a fair dealing
• Buyer has excellent supply market intelligence

Question 10

Name some pre-negotiation considerations (7)

Answer 10

• Who is to negotiate?
• The venue
• Intelligence gathering
• Negotiation objectives
• Strategy
• Tactics
• Conducting dummy runs

Question 11

Stages of negotiation (5)

Answer 11

• Introduction, agenda agreement and rules of procedure
• Ascertaining the negotiation range
• Agreement of common goals
• Identification and removal of barriers
• Agreement and closure

Question 12

Key negotiation principles (5)

Answer 12

• Creating value and claiming value (interactive bargaining)
• Best Alternative To a Negotiated Agreement (BATNA)
• Reservation price
• Bargaining zone & Zone of Possible Agreement (ZOPA)
• Anchoring

Question 13

What is meant by ‘creating value & claiming value’ (interactive bargaining) - key negotiation principles? (3)

Answer 13

• Is the process of the increasing the value of the negotiation subject through trade or reframing
• Claiming the value means the attempt to get as much as possible of this value
• The tension between creating and claiming value is a central challenge for almost any negotiation

Question 14

What is meant by ‘Best Alternative To a Negotiated Agreement (BATNA)?

Answer 14

It is the alternative action that will be taken should your proposed agreement with another party result in an unsatisfactory agreement or when an agreement fails to materialise

Question 15

Why should you not reveal your reservation price during negotiation?

Answer 15

If it becomes know to one party, the negotiator can push for a resolution that is only marginally acceptable to the other party

Question 16

When should you reveal your BATNA? (3)

Answer 16

• When nearing an impasse (deadlock)
• When you have a strong BATNA
• You make an agreement in the current negotiation

Question 17

What is the Zone of Possible Agreement?

Answer 17

Is the area between two parties walk away points (reservation points)

Question 18

What is the bargaining zone?

Answer 18

Is the space between buyer’s reservation price (Br) and the seller’s reservation price (Sr)

Question 19

What is anchoring?
- When is it beneficial?
- What to if other party does it first?

Answer 19

• Is the first offer in a negotiation
• Anchoring first is beneficial when you have a good sense of the ZOPA
• If the other party does it first then use your BATNA and estimated ZOPA to try to move the anchor in negotiation

Question 20

Name 3 distributive bargaining tactics

Answer 20

• Using anchoring effectively
• Concessions
• Persuasion

Question 21

How extreme should the first offer be when using anchoring according to Fisher & Urey, 1991

Answer 21

“As high as you can go without embarrassing yourself in front of a respected 3rd party”

Question 22

When should you let the other party make the first offer when anchoring? (2)

Answer 22

• When you have no information
• When it is inappropriate to do so such as in job negotiations

Question 23

What is the best use of concessions & persuasion? (3)

Answer 23

• Make bi-lateral and not uni-lateral concessions
• Make your concessions smaller as you approach your goal
• Use objective rationale to support your argument

Question 24

What are the negotiation strategy guidelines? (7)

Answer 24

• Know your BATNA (strengthen whenever possible)
• Know your reservation price (should not be revealed)
• Research the other party’s BATNA/reservation price
• Define your aspirational level (optimistic goal) and focus on that
• Make first offer (Anchoring) whenever possible (if they make the first offer, immediately re-anchor)
• Watch how you are making concessions
• Prepare objective rationale for your arguments