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5 Tips for Effective Negotiation
Whether you’re discussing a salary or closing a million-dollar real estate transaction, negotiation is a core leadership competency that’s central to almost every aspect of business. However, most negotiators are not as effective as they could be.
According to Dr. Alison Fragale, even seasoned negotiators at the top ranks of their professions, such as corporate executives and CEOs, leave value on the table during a negotiation. Fragale is the Mary Farley Ames Lee Scholar and Associate Professor of Organizational Behavior at MBA@UNC, an innovative online MBA program offered by UNC Kenan-Flager Business School. She teaches courses on effective leadership and negotiation to graduate students and executives.
As Fragale explained, a distributive approach to negotiating focuses on individual gains and offers a win/lose scenario where one person gets what they want and the other loses. This approach is like slicing a pie and knowing that one person will get a bigger slice. An integrative approach, on the other hand, creates a win-win scenario where both parties get some of what they want and find solutions that actually grow the pie before slicing it. Here are Fragale’s negotiating tips for creating outcomes that benefit both parties.
For a win-win negotiation, both parties need to trust each other to share selective information about their preferences and priorities. “Revealing information creates feelings of vulnerability,” Fragale said. “Can I trust you? Will you use my disclosures against me?” Still, reciprocal information sharing will help both of you grow the pie and achieve results you want, whether that means an employment agreement with extra vacation days or a real estate contract without contingencies.
Understanding your counterpart’s underlying interests will help you create value for both sides. Their stated position may not reveal what they’re truly after, so dig deeper by listening to their point of view and asking “why” questions. “‘Why’ questions elicit important information pertaining to the other party’s interests,” Fragale said. If you are buying someone’s used computer, they may tell you they want to get the most money possible (and you naturally want to pay as little as possible). But in talking to them, you may discover that they prioritize a quick transaction over a high selling price because they need the money ASAP to cover the mortgage.
Create value for both sides.
A distributive negotiation might focus on price, but an integrative negotiation would incorporate other issues like the speed of the transaction, forms of payment and other non-monetary issues. In the example above, you could come to a mutually satisfying solution by agreeing to a lower purchase price if you pay in cash and pick up the computer that weekend. This is a win-win because both parties get some of what they want.
Offer package deals.
Rather than making a single-issue offer and letting your counterpart take it or leave it, give him or her a package deal that incorporates multiple offers of equivalent value to you at the same time. Maybe instead of lowering the price, they could offer to throw in some software you want and keep the price the same. You get more value for the same amount of money, and they get the money they need. “This illusion of choice signals your willingness to compromise,” Fragale said. “It’s also a way to extract preferences from negotiators who won’t share information.”
Make the first offer.
Putting the first offer on the table is advantageous to you because it has an “anchoring” effect, setting expectations for the rest of the negotiation. However, if your first offer skews too far in your favor, your counterpart may be offended and walk away. If it’s too reasonable, you may wind up leaving money on the table. That’s why it’s so important to listen to the other party’s priorities and tailor your offer based on that information. Fragale also suggests making a precise offer instead of using nice round numbers (for instance, $5,012 or $4,988 rather than $5,000). “Precise numbers prime us to think about nickels and dimes rather than dollars,” Fragale said. “Precise numbers may also signal that the asker puts more thought into the offer and is closer to his or her bottom line.”
Effective negotiation skills are necessary for collaboration and serve as an asset to any organization. Successful negotiators know how to listen to their counterpart and suggest creative solutions where both parties leave the negotiation table happy.
Alison R. Fragale has taught or consulted on leadership and negotiation for executives in numerous organizations, including ExxonMobil, Bayer CropScience, Eastman, the National Multi-Housing Council, AvalonBay, Post Properties, the U.S. Air Force and U.S. Navy. Her research has appeared in the Academy of Management Review, Journal of Applied Psychology, Journal of Personality and Social Psychology, Organizational Behavior and Human Decision Processes and Personality and Social Psychology Bulletin. Dr. Fragale worked as a management consultant for McKinsey & Company, Inc. She received her Ph.D. in organizational behavior from the Stanford University Graduate School of Business and her B.A. in mathematics and economics from Dartmouth.