The Art of Negotiation: Know-How for Winning Deals and Building Relationships (Part 2)

The ‘WHAT’s of Negotiation

In the previous article, we shared why negotiation is a highly beneficial skill for individuals to have as it bolsters one’s critical thinking + active listening skills, one’s public speaking proficiency, and the ability to handle rejections and lead with influence.

It will be helpful and beneficial to expose ourselves with the lingos of negotiation such as (also a brief introduction to the fundamental terms in negotiation and what they mean):

BATNA (Best Alternative to a Negotiated Agreement) – The best alternative that a party may pursue in the event that discussions are unsuccessful is known as BATNA. It acts as a yardstick by which to judge if an agreement is worthwhile or if it would be preferable to walk away. If a negotiating side has ZERO BATNA, his negotiating power is greatly reduced. For instance, for someone in search of a fast food meal, if there are multiple options like KFC, Popeyes, Jollibee, he is not beholden to accepting Texas Chicken. He has alternatives. Otherwise, whatever Texas Chicken has to offer, he will have to take it.

Reservation Price – The reservation price is the lowest/ highest amount that a negotiator will accept before leaving the table; from a seller’s perspective, the lowest he can go or he walks away, and vice versa for a buyer which is the highest amount that he is willing to accept or he walks. The negotiator should turn down an offer if it exceeds this threshold.

Target Price – The ideal or most advantageous result a negotiator seeks to get is the target price, also known as the aspiration price. It acts as a target that directs the course of negotiations. While maintaining realism, successful negotiators set bold goals so as to eventually settle for compromise that is higher than the reservation price.

First Offer (i.e. Anchor Price) – The first ‘ask’ or offer or proposal made during a negotiation is known as the first offer (also known that the act of anchoring). It acts as an anchor, affecting the course of the negotiation (in other words, “it moves from that point”, hence an anchor). According to studies, the initial offer maker frequently has an edge because it establishes the “movability” for subsequent counteroffers. A confident and bold initial offer is desirable but must be reasonable and realistic.

ZOPA (Zone of Possible Agreement) – Simply put, the range within which two parties can come to an agreement is known as ZOPA. An agreement is unlikely if the parties’ accepted terms do not overlap. Where is the range? From the reservation price to the target price. If there is an overlap, a deal is possible. For instance:

Seller – $300,000 (lowest/ reservation) to $400,000 (target/ as high as possible)

Buyer – $370,000 (highest/ reservation) to $310,000 (target/ as low as possible)

*overlap exists

Integrative Negotiation – Often referred to as “win-win negotiation,” this strategy emphasizes reaching agreements that benefit both parties. Instead of merely allocating resources, both sides work together to identify solutions that meet their needs. Integrative negotiating is frequently used in partnerships, long-term business ties, and teamwork.

Distributive Negotiation – This strategy, sometimes known as “win-lose negotiation” or “zero-sum negotiation,” is predicated on the idea that the success of one party is the failure of the other. It is competitive and frequently applied in one-time sales, price haggling, and resource-constrained circumstances. Sometimes at the expense of the other, each side seeks to maximize their own result.

…and more.

Stay tune for part 3 where we share some negotiation techniques on crafting formulating constructive offers and counteroffers to progress towards win-win outcomes!