Updated: Sep 24, 2022
Some people believe negotiation is an innate talent. Even if this was true, there is something you can do to become a better negotiator. Preparation is the key to obtaining a good outcome. The more information you have about yourself and the counterparty, the more likely you will get a desired outcome.
This quote from the Art of War by Sun Tzu is a bit cliché but true nonetheless:
“If you know the enemy and you know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle”
In business, I don’t suggest you view the counterparty as an enemy literally because there are two mindsets you should maintain at the same time: Win-Win and Win-Lose. Win-Win is the more important endeavor in my opinion. This is about creating value from the deal that would not have been possible by either party alone (expanding the pie). Win-Lose is to ensure that you get a fair share of the value created (splitting the pie).
Not all negotiations should result in a deal. One concept to establish before negotiations begin is called BATNA (Best Alternative To a Negotiated Agreement). As shown in the diagram below, BATNA is the baseline or walk-away price for each party. While you should know your own BATNA, be sure to have an estimate of the counterparty’s BATNA as well. The ZOPA shown in the diagram below is the Zone of Possible Agreement. Be aware that the BATNA can be fluid through different actions (this will change the dynamics of the negotiation).
You can expand ZOPA by thinking outside the box and not getting stuck on one specific goal like price. Even a simple purchase has a multitude of factors that can offset each other and/or be valued differently by the counterparty. You can negotiate on volume discounts, lead time, payment terms, freight terms, quality, risk, and features. The list is literally endless. Ask lots of questions and you may uncover value you can provide the counterparty or vice versa that you did not know before.
Besides the business aspects of a potential deal, you will need to consider the counterparty’s behaviour. Behaviour might be influenced by culture, circumstances (ex. financial situation), position (ex. market power), and negotiator’s personality among other things. This part of the negotiation is more art than science, I suggest you look into research on emotional intelligence and cognitive psychology to help improve your understanding of human behaviour. This should improve your ability to navigate through different negotiation scenarios when they occur.