The art and science of negotiations
Negotiation is an art. But there’s also a lot of scientific research, particularly psychology, that explains why some negotiation approaches work better than others. I’ve been exploring the psychology of negotiations for an innovative new training workshop I’m running called The Art & Science of Negotiations.
The basic premise of negotiations
My approach to negotiations is based on the concept of interest-based negotiations where you try to look beyond the position someone is taking, e.g. the price they’re quoting, and attempt to understand their deeper needs. By understanding their range of needs, their “interests,” it gives you more flexibility to trade concessions and find a win-win solution.
And whilst there are some instances where you will never see the other party again, the majority of negotiations happen within pre-existing long term relationships – whether that be business or personal. So, a focus on win-win allows for longer term benefits to accrue.
Interest-based negotiation example: commercial office space
If you were negotiating to rent a space for your office, you may find yourself negotiating with a landlord whose interests are different to what you might expect. Specifically, the valuation of a landlord’s property is based on its “headline monthly rent”, not its annual actual rent. Therefore it can be in their interests to close a deal with the occupier where the first 3 or even 6 months’ rent is free and then an above-market rent applies for the remaining period. Alternatively, if their cash flow is positive, they may fund installation and renovation costs up front in return for a higher headline rent. By understanding their interests, you can negotiate a deal which suits your interests and theirs better.
The psychology of negotiations: emotions
The kinds of negotiations we see in the media, for example in TV shows & films, are often win-lose negotiations where people take opposite positions and dig in. These kinds of negotiations can get incredibly influenced by a range of emotions for example:-
- Ego: People dig their heels in due to their own psychological need to win.
- Incorrect attribution: We may demonise the other party and attribute to them negative qualities and spurious reasons for their behaviour.
- Ownership bias: We may get overly attached to the idea of owning something, and then negotiate from a position of weakness where we don’t have a plan B if we don’t get it.
- Sunk costs: We may be subject to the sunk costs bias, i.e. I’ve already spent so much time or money on this negotiation that there’s no point in stopping now.
Each of these are well documented factors which bias the way we perceive situations and make decisions. Each of them is something you want to be aware of and try to avoid.
The psychology of negotiations: framing effects
Beyond the way our emotions influence our behaviour within negotiations, there are other psychological challenges around how you frame a negotiation.
The anchoring effect is where we put way too much emphasis on the price that is first put on the table in a negotiation, and we use this as a starting point to negotiate from. The person who sets this starting point, or anchor, usually has a significant advantage. This is the single biggest negotiation bias to look out for and it leads to an important principle of negotiations: it’s nearly always best to be the proactive one, not the reactive one.
If you wait and see what they offer, and how they tackle the negotiation, you are ceding control, and you are allowing them to set the frame. As humans, we believe we can effectively react to what’s put in front of us and use our superior intellect to come out on top. But in fact just like in chess, it’s almost always better to make the first move and get on the front foot. The specific case where you don’t want to move first is if you don’t yet have any information at all to make an offer from, and you’re worried your first offer might actually be too generous.
The confirmation bias is also an important effect, this is where we only look for data which backs up our pre-existing point of view, and we fail to look for (or we discount) any information which undermines our position. Whilst it’s important in negotiation to selectively share information that supports you, if you aren’t aware of important disconfirming information then it makes it much harder for you to reach a deal as you don’t have a realistic view of the situation.
The implication of negotiation psychology
There’s a pretty clear implication here. While some people advise you to concentrate on manipulating the other party, in fact you may be better off trying to reduce your own susceptibility to biases in your decision-making.
The triangle approach to negotiations
A concept I learnt in a negotiations training course 15 years ago that has stayed with me to this day is one I call the triangle approach. This is to treat the negotiation not as a “tug of war” where you and the other party are digging your heels in and trying to pull things in your direction – but as a triangle where the issue to be negotiated is actually the third point of a triangle i.e. it’s separate from the two parties. The two parties might see the situation from slightly different angles, but can work together to understand the other’s view, establish commonalities and solve the issues as partners. This is a highly effective way to depersonalise the issues and adopt a collaborative, problem-solving approach to negotiations.
Applying decision-making approaches to negotiations
When making any decision, X or Y’s unique approach has 3 steps. Each has clear & useful implications for the negotiation process which are outline below.
First step: Open
This step is about opening your eyes, taking a wide perspective and making sure you’ve got a broad view of the problem, your key criteria, and making sure you generate multiple options.
This step avoids the kind of negotiation problems we see when people don’t know what they want, and don’t have a plan b. In negotiations processes, this is often referred to as the planning phase.
The planning phase may additionally involve open-minded gathering of information which both supports and questions your existing views.
Second step: Filter
The Filter step is about removing any biased views from the situation, for example – question your assumptions; try to understand your emotions and remove them from the situation (for example using the “what would you advise a friend?” technique); and make sure if it’s a team negotiation, that you encourage and listen to different perspectives from your team.
Here we also want to keep control of the “frame” of the negotiation by being the party to lay dopwn the first offer (the anchor) and by leading discussion of the negotiation process itself – it helps to agree what will happen when, as long as the other party agrees and sees the benefits.
Third step: Close
The Close step is about drawing a line in the sand when the negotiation needs to be done by. And it’s about aligning the two parties by focusing on the things you agree on, not just the areas you differ. You should find creative solutions to the problem areas of the negotiation. And you can “plan to fail”, i.e. think about the risks using the pre-mortem process.
Lastly, be clear how you communicate the results of the negotiation to key stakeholders, and to people who have to implement it. And of course, it helps to let the other party feel like they won.
Turning negotiated outcomes into results
Surprisingly often, we will see a negotiated deal that is not implemented correctly – so some or all of the negotiated value is lost. After all the hard yards of the negotiation, the execution can be woeful. Here are some examples:
- “Added value” extras or concessions, fought for long and hard, are not actually used in the end
- The people executing the negotiation aren’t even told about it. This happens in my former profession of media buying where an agency and media owner might negotiate an annual volume deal on say $1m of outdoor posters at a good rate. But then the people buying client’s media space week to week are not told about it, and so the deal falls short.
- Negotiated price can be less important than effective price. We had a scenario where we negotiated a price for TV spots on Channel 9. But to buy airtime for a client targeting women, you need to buy the right shows which reach women. We had a particular buyer who just wasn’t buying the right shows. So that buyer’s effective costs, the cost to reach each 1,000 women, was 50% more than a second buyer, even though they were operating from the same negotiated price position.
X or Y’s Top negotiation tips
Based on my work with the psychology of negotiations and decision-making, here are my top 6 tips which will create a better negotiation outcome, and experience, for you.
- Always be looking beyond the other party’s stated position to work out what their needs and interests are; try to create a win-win solution for both parties’ underlying interests.
- Depersonalise the negotiation by thinking of it as a triangle with you and the other party trying to solve the issues together.
- It’s nearly always best to be on the front foot to set the frame and the “anchor” for the negotiation.
- Be aware of how the psychology of decision-making affects your negotiations and get the team to call out any biases they see in each other’s thinking.
- When trying to close the negotiation, focus on the areas you agree on and try and creatively problem-solve the areas you don’t agree. You’ll often be surprised how much common ground there is.
- Above all, many negotiations don’t unlock the promised value as they don’t translate into actions. So, ensure that whatever you negotiated is turned into an actionable plan by communicating clearly to all stakeholders.
Written by Rob Pyne.