Great Negotiators Do This Every Day
Negotiation means creating value.
When two parties come together to negotiate, they believe that together they may be able to do more than each on its own. Otherwise, why bother?
This magic window of opportunity for creating value is what great negotiators seek every day and each time they negotiate. And to open this window, one must be able to change the game from zero-sum to value-creating trade-off mode.
Here's how.
Zero-Sum Mode
The name of the game is derived from how it's played -- I can only win if you lose, AND I win exactly as much as you lose.
A perfect example of zero-sum is one-issue bargaining. Say, you're bargaining the price of your car. Your asking price is $20,000, a potential buyer counters at $15,000, and so you start the dance of concessions: you go down to $19,500, she comes up to $16,000, and so forth until you reach middle ground - say, $17,500.
Yes, you eventually reach agreement, but no new value is created: every dollar you concede against your asking price is a loss for you and a gain for her. As you go down from $20,000 to $17,500, exactly $2,500 comes out of your pocket and goes into (or remains in) hers. Your loss = Her gain.
$2,500 + (-$2,500) = 0
Hence, the name, Zero-Sum.
Value-Creating Trade-Offs
This is where you want to get to each time you negotiate. Whenever you feel yourself being pulled into a zero-sum game, try adding new issues to the mix, especially ones for which you and the other side have different priorities. That way, your concessions on one issue may be balanced out with your gains on the second issue, with positive-sum outcomes. To elaborate:
Say, along with the price of your car, you're also negotiating a warranty term in the sales contract: the period of time during which, if a material defect is found in the car through no fault of the buyer, the buyer can demand a full refund.
This warranty term is very important for the buyer. Say, given talk on the street about the unreliability of used cars, she's willing to pay a premium for an extra warranty term.
On the flip-side, you're not worried about the actual warranty term, having maintained your car in perfect condition. Instead, you're strapped for cash and extra money wouldn't hurt.
Assuming you agree to selling the car for $20,000, with a 5-year warranty:
- You're gaining $2,500, since you're selling your car for $20,000 instead of $17,500, as in the first scenario;
- She gains at least as much in value, $2,500 (if not, she would have bargained the purchase price), since she's getting what she really wants.
As a result, through a smart trade-off, taken together the parties are $5,000 better off than before transacting. That extra $5,000 is their created value.
$2,500 + $2,500 = $5,000
Trade-Offs Really Work
The rules are very simple:
- Instead of locking yourself into a one-issue negotiation, add new issues for which you and the other party hold different priorities.
- Through questions and trust-building, try to decipher what's important for them, and let them know what's important for you.
- After this, make concessions on the issue(s) which don't mean much for you (and mean a lot for them) in return for their concessions on issues which don't mean much for them (but mean a lot for you).
When both parties give up cheap items in return for valuable ones, they're instantly creating value. This way, both parties are better off working together than each doing its own thing, which is the bedrock of long-term collaboration and mutually beneficial relationship.
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For real-life examples on value creation, check out these two case studies:
Never Make Unilateral Concessions
How We Saved Our Client $250,000
For more on value-creating trade-offs, see the seminal book by David Lax and James Sebenius, "3-D Negotiation".
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Stepan Khzrtian is co-founder and Managing Partner of LegalLab Law Boutique (www.legallab.co) and co-founder of the Center for Excellence in Negotiation: Yerevan (www.cen.am). For nearly 10 years, he has been engaged in training and consulting on negotiation, working with clients to successfully close deals with Fortune 500 companies and empowering officials and officers to best serve constituencies.
He writes on law, negotiation, and strategy.