1. Chapter 6 Strategy Strategy

2. Strategy versus Tactics What is the difference between strategy and tactics? What is the difference between strategy and tactics? Some use the terms interchangeably Some use the terms interchangeably Strategy defined = overall approach to a bargaining situation Strategy defined = overall approach to a bargaining situation Tactics defined = techniques used during the process Tactics defined = techniques used during the process Charlene Barshefsky, U.S. trade representative: Charlene Barshefsky, U.S. trade representative: “Strategy comes first – objectives determine a broad negotiation strategy which is set away from the table, tactics are techniques used at the table” 6-2

3. Negotiation Skills Skill 6.1: Identify three keys – time (deadlines), information, power Skill 6.1: Identify three keys – time (deadlines), information, power Skill 6.2: Develop an increments of concessions strategy Skill 6.2: Develop an increments of concessions strategy Skill 6.3: Consider using a principled negotiation strategy (focus on interests, not positions) Skill 6.3: Consider using a principled negotiation strategy (focus on interests, not positions) Skill 6.4: With multiple issues consider a MESO or Economic Matrix strategy Skill 6.4: With multiple issues consider a MESO or Economic Matrix strategy Skill 6.5: Consider applying a 3-D Negotiation approach Skill 6.5: Consider applying a 3-D Negotiation approach 6-3

4. Chapter Case: West Coast Music Inc. Kevin Carter, president of West Coast Music, a chain of 12 family-owned music stores, negotiates leased space in malls Kevin Carter, president of West Coast Music, a chain of 12 family-owned music stores, negotiates leased space in malls Five lease issues are critical: Five lease issues are critical: 1. rent 1. rent 2. monthly maintenance charge 2. monthly maintenance charge 3. store allowance for carpeting, fixtures 3. store allowance for carpeting, fixtures 4. length of contract 4. length of contract 5. mall location (a. high traffic, b. main floor, 5. mall location (a. high traffic, b. main floor, c. second floor) 6-4

5. Key Strategy Elements Overall a negotiation strategy should consider three critical situational elements: Overall a negotiation strategy should consider three critical situational elements: Time Time “80/20” rule “80/20” rule Deadline strategies: Deadline strategies: Conceal your deadline Conceal your deadline Declare an earlier deadline Declare an earlier deadline Find the other side’s deadline Find the other side’s deadline Information Information “The heart of negotiations” – shapes strategy, reality “The heart of negotiations” – shapes strategy, reality Preparation is key - side with more info. has edge Preparation is key - side with more info. has edge BATNA is the most important BATNA is the most important Power Power Whole process is about power, ego, leverage Whole process is about power, ego, leverage Balance between parties is a key factor Balance between parties is a key factor 6-5

6. Five Strategies for Various Situations

7. Tactics for Success: Use Time to Your Advantage 1.Have patience: Remember “80/20” rule 2.Be persistent: Reframe – seek new information or real interests; wait for better timing 3.Move quickly when possible: Opportunity for a quick resolution on an issue may pass 4.Deadlines: Don’t panic – often can be moved, eliminated 5.Know counterparts timelines: Easier to gain concessions as it nears 6.Make time work for you: Move slowly with perseverance 6-7

8. Traps to Avoid: Protect Your BATNA 1.Before negotiating set a specific BATNA – and stick to it 2.Write it down on paper and refer to it when receiving an offer 3.Never reveal your BATNA but you can increase the perception of your power to gain leverage 6-8

9. Strategy 1: Increments of Concession Focus on “The Number” – distributive process of finding a settlement point Focus on “The Number” – distributive process of finding a settlement point Increments of concessions defined = pattern of concessions that leads the other party to guess your BATNA, and thus a settlement point Increments of concessions defined = pattern of concessions that leads the other party to guess your BATNA, and thus a settlement point Possible concession patterns: Possible concession patterns: Split the difference = even division between the last two offers Split the difference = even division between the last two offers Equal increments = equivalent concessions Equal increments = equivalent concessions Decreasing increments = smaller concessions, appear to be closing in on a value = “the number” Decreasing increments = smaller concessions, appear to be closing in on a value = “the number” 6-9

10. Increments of Concessions: Split the Difference Seller’s listed price = $390,000 (and does not make any counteroffers) Seller’s listed price = $390,000 (and does not make any counteroffers) Pattern A: Split the difference (50/50) Pattern A: Split the difference (50/50) Buyer’s 1 st offer = $310,000 (range = $310,000 - 390,000) Buyer’s 1 st offer = $310,000 (range = $310,000 - 390,000) 2 nd offer = $350,000 (range = $350,000 – 390,000) 2 nd offer = $350,000 (range = $350,000 – 390,000) 3 rd offer = $370,000 (range = $370,000 – 390,000) 3 rd offer = $370,000 (range = $370,000 – 390,000) 4 th offer = $380,000 4 th offer = $380,000 What is the buyer’s BATNA? What is the buyer’s BATNA? 6-10

11. Increments of Concessions: Equal Increments Pattern B: Equal increments of $20,000 Pattern B: Equal increments of $20,000 Buyer’s 1 st offer = $310,000 (range = $310,000 – 390,000) Buyer’s 1 st offer = $310,000 (range = $310,000 – 390,000) 2 nd offer = $330,000 (range = $330,000 – 390,000) 2 nd offer = $330,000 (range = $330,000 – 390,000) 3 rd offer = $350,000 (range = $350,000 – 390,000) 3 rd offer = $350,000 (range = $350,000 – 390,000) 4 th offer = $370,000 4 th offer = $370,000 What is the buyer’s BATNA? What is the buyer’s BATNA? 6-11

12. Increments of Concessions: Decreasing Increments Pattern C: Decreasing increments ($20,000; $10,000; $5,000) Pattern C: Decreasing increments ($20,000; $10,000; $5,000) Buyer’s 1 st offer = $310,000 (range = $310,000 - $390,000) Buyer’s 1 st offer = $310,000 (range = $310,000 - $390,000) 2 nd offer = $330,000 (range = $330,000 - $390,000) 2 nd offer = $330,000 (range = $330,000 - $390,000) 3 rd offer = $340,000 (range = $340,000 - $390,000) 3 rd offer = $340,000 (range = $340,000 - $390,000) 4 th offer = $345,000 4 th offer = $345,000 What is the buyer’s BATNA? What is the buyer’s BATNA? 6-12

13. Strategy 2: Principled Negotiations From Getting to Yes, key elements: From Getting to Yes, key elements: Focus on interests, not positions : Focus on interests, not positions : Interests = needs, desires, concerns, fears that lead to “why” Interests = needs, desires, concerns, fears that lead to “why” Positions = specific demand Positions = specific demand Separate people from positions Separate people from positions People negotiate – are affected by egos, feelings, anger People negotiate – are affected by egos, feelings, anger “Step into their shoes” to discover their reasoning “Step into their shoes” to discover their reasoning Focus on objective criteria Focus on objective criteria Facts, principles, standards can be used to frame an offer Facts, principles, standards can be used to frame an offer Develop mutual-gains options Develop mutual-gains options A settlement must be superior to no agreement for both parties A settlement must be superior to no agreement for both parties Propose options with gains for both parties Propose options with gains for both parties 6-13

14. The Positions versus Interests of Smith and Jones

15. Strategy 3: Multiple Equivalent Simultaneous Offers (MESOs) MESO steps: MESO steps: Identify and prioritize issues, estimate their weights (relative value) to both parties Identify and prioritize issues, estimate their weights (relative value) to both parties Identify different likely outcomes for each issue, set one as the standard = 100 points, then set relative value of others Identify different likely outcomes for each issue, set one as the standard = 100 points, then set relative value of others Create at least three equivalent offers (approximately equal point values) Create at least three equivalent offers (approximately equal point values) 6-15

16. Why Is the MESO Strategy Appealing to Others ? People prefer to be given choices – many options, rather than a single offer People prefer to be given choices – many options, rather than a single offer One MESO option is likely to be a greater value to them – can lead to further discussion, settlement One MESO option is likely to be a greater value to them – can lead to further discussion, settlement It gives them input – they can discuss the values, weights, etc. It gives them input – they can discuss the values, weights, etc. But…consider… But…consider… MESO strategy requires multiple issues with realistic alternative outcomes MESO strategy requires multiple issues with realistic alternative outcomes MESO can be a complex process MESO can be a complex process MESO requires a party to reveal some of its own interests MESO requires a party to reveal some of its own interests 6-16

17. Calculating MESO Options

18. Strategy 4: The Economic Matrix Similar to MESO strategy (avoids weights) Similar to MESO strategy (avoids weights) May be more useful than MESO if all issues can be given estimated dollar values May be more useful than MESO if all issues can be given estimated dollar values Core elements: Core elements: Brings several economic issues into one proposal Brings several economic issues into one proposal Limits the total value of all issues (increase in one must be offset by a decrease in another) Limits the total value of all issues (increase in one must be offset by a decrease in another) Provides options of equal value to the other party to consider Provides options of equal value to the other party to consider 6-18

19. Strategy 4: The Economic Matrix Advantages Focus is on the total value of all issues, not distribution of each issue Focus is on the total value of all issues, not distribution of each issue Positive response by other party which is given choices – and may prefer one option Positive response by other party which is given choices – and may prefer one option Matrix presents valuable data, allows discussion and input on values Matrix presents valuable data, allows discussion and input on values 6-19

20. Strategy 5: 3-D Negotiation Useful if negotiations stall, reach impasse, or power is imbalanced Useful if negotiations stall, reach impasse, or power is imbalanced Lax and Sebenius view negotiation in “3-D”: Lax and Sebenius view negotiation in “3-D”: 1 st dimension – tactics used at the table 1 st dimension – tactics used at the table 2 nd dimension – deal design (including specifics) 2 nd dimension – deal design (including specifics) 3 rd dimension – the setup of the whole negotiation 3 rd dimension – the setup of the whole negotiation Setup includes: parties, issues, BATNAs, timing, information Setup includes: parties, issues, BATNAs, timing, information Thus, 3-D strategy = review all the elements of the setup, change one to influence the outcome Thus, 3-D strategy = review all the elements of the setup, change one to influence the outcome Examples: Bring a new third party into the negotiation; improve your BATNA; shift the priorities of the issues; seek offers from other parties Examples: Bring a new third party into the negotiation; improve your BATNA; shift the priorities of the issues; seek offers from other parties 6-20

21. The Three Dimensions of Negotiations

22. Summary of Strategies and Likely Use Situations Strategy Negotiation Situation Strategy 1: Increments of Concessions Distributive bargaining (one issue/usually price) Strategy 2: Principled Negotiations Integrative bargaining Strategy 3: Multiple Equivalent Simultaneous Offers (MESOs) Multiple issues each with multiple outcomes Strategy 4: The Economic Matrix Multiple issues each with multiple outcomes – all can be given estimated dollar value Strategy 5: “3-D” Negotiations Negotiations stall, reach an impasse, or power is imbalanced 6-22