Post No.: 0273
Before entering into any major negotiation situation – always do some homework and preparation. Know firstly what it is that you really want – money isn’t always the only goal or the most important goal. For example, if it’s a job, is it the autonomy/creative freedom, flexibility of working hours, security of contract length or something else? It’s hard to succeed or to get the other party to give you what you want if you don’t even know what you really want yourself.
One key part of this preparation is researching and understanding your ‘best alternative to a negotiated agreement’ (BATNA). This is the best alternative option(s) a party has if it doesn’t agree to the current deal on the table. Whoever has the better best alternative usually has more power in a negotiation because this party has the least to lose if the parties fail to strike a deal together. Whoever’s most desperate to strike a deal is in the weakest position to negotiate a good deal for themselves, and vice-versa for whoever can most readily walk away from an offer (so never display desperation in negotiations, even if you truly need something and need it now).
In an exaggerated example, if there are 5 puppy pampering salons on a particular street and you are the only potential puppy pootling down that street and you want a puppy pampering, you have more plucky power to demand a better quality and a better price from any salon that isn’t the best one out there because you can go to that salon if the others don’t supply what you want, whilst they each cannot afford to turn you away. That’s basically the utility of shopping around for the best deal; and then maybe haggling by playing the vendors off each other because in most real-life situations no single vendor or product will be the best in all dimensions (e.g. you prefer the convenience of vendor A because it’s slightly closer geographically but vendor B has the better price, so you could see if vendor A will match or get closer to vendor B’s price).
The value of one’s BATNA or reservation value is usually what one could get on one’s own or what one could get elsewhere. As a seller, don’t accept any price less than this value, and as a buyer, don’t accept any price more than this value. If a deal is worse than this value then you might as well go your own way or go to that alternative place (taking into account any switching costs and other possible costs e.g. any penalties for terminating a contract early or the longer distance to travel to get to that alternative place). Your personal ‘willingness to pay’ and especially your ‘bottom line’ may also be factors because if even the value of your best option is worse than your bottom line then don’t go for it – it won’t be worth it to you. Don’t buy or do that thing at all, whether on your own or with anyone. Of course, don’t disclose your bottom line or BATNA to the other party because then they’d learn that there’s no point in offering you a better deal than that, when they might’ve otherwise been willing to better it.
To be more precise, your BATNA is what you’d choose to take if you can’t agree on a deal in the current negotiation. And your ‘reservation value’ is the price at which you don’t care whether you take the current deal or take your BATNA. Again, you should never accept a deal that’s less than your reservation value because you might as well take your BATNA. No deal is better than a bad deal. (Now if a ‘bad’ deal is better than no deal then it’s not technically a bad deal per se – it’s just not as good as you were hoping but you have no power to demand any better. And that’s been the case with Brexit negotiations. The UK and Brexit has been about reducing the size of the pie yet expecting a new trade deal with the EU that was nearly as good or as good as before.)
So from the options available or possible – work out your expected payoffs (in present value terms) and your BATNA, as well as the other party’s expected payoffs and BATNA, so that you can show what deals are good for them as well as understand what deals are good for yourself. This will also allow you to see if any options are dominated (e.g. if option A is better than/preferred over option B for everyone then option B should never be selected. Technically, an option is Pareto dominated if some other option would make at least one party better off without making any other party worse off). If you discover that there are items that are valuable to you but less valuable to the other party, and/or vice-versa, then this will help expand the pie too! And if you manage to work out the other party’s BATNA then you’ll have the advantage to know how hard you can push them in a deal. Woof!
Now in reality it’s usually difficult to ascertain the exact value of your best alternative to a negotiated agreement, and some things like ‘more family time but less work and less money’ or the value of some new invention are hard to convert into or predict in monetary terms – but you should always try to estimate it as best as you can (e.g. by researching the market values of similar products in similar geographic locations) and make this estimate before you enter the negotiation room. Don’t be sidetracked by the emotions to make any deal ‘whatever the costs’, be distracted by what other people are willing to pay/spend, or be swayed by the impassioned sales pitch from the other side – never ever go beyond your BATNA!
If an offer is worse than your reservation value then there should be no deal, hence one should logically never ever make a bad deal (without the benefit of hindsight that is – but one should never kick oneself for something one couldn’t have known at the time of making a deal. One should never beat oneself up for making the best decision based on what was knowable at the time. One should still do as much research as possible and not risk more than one is willing or able to lose, yet no one has a working crystal ball). Whether a deal is a good or great deal though depends on how much you beat your reservation value. If a deal is only a little bit better than your reservation value then it’s probably worth being more ambitious in asking for more because you won’t be risking much if they said, “No deal” but there’s potentially lots to gain if they moved or agreed.
Never say, “No” (except to unethical things) – try to get the other side to say, “No” to your (counter) offer, which will obviously be an offer you’re happy to accept/would say, “Yes” to but they might not. Rather than saying, “No” to an unfavourable deal – ask for whatever concessions it would take for you to accept it because you have nothing to lose and possibly something to gain. You could make some seemingly absurd requests but the other party might actually say, “Yes” to them! The worst thing that could happen is that they say, “No deal”, which would’ve been what would’ve happened anyway if you had said, “No deal” to them instead. Basically, always give a counter proposal. Think laterally and beyond your immediate wants or needs too (e.g. when buying a car, it’s not just the price of the car that can be a part of the negotiated deal but things like the length of the warranty, free servicing and a whole host of other possible extras).
The best time to negotiate is when your BATNA is good (when you have a good alternative option to fall back onto; multiple good options are even better) and when there is time and space to have a discussion that isn’t rushed by both parties. If you want to renegotiate your salary and your employer is stressed and busy elsewhere then their default response is highly likely going to be, “No!” Some organisations decide on their staff remunerations in advance every year so find out when they make these decisions and approach your employer well before this date – get them to expect that you’re going to ask for a raise when their next budget is planned and ask what you can do in the meantime to ensure you’ll get it. Get a commitment from your boss, then ask how you’re doing towards meeting those targets to get that raise. If you meet those targets then it’ll be very difficult or unfair for him/her to refuse that raise. Make your boss feel and look good in front of his/her own bosses and peers too.
Do your research on market rates, what your colleagues are getting and prepare specific justifications for why you think you deserve a raise i.e. see things from the other party’s perspective and understand what’s valuable to them that you can give to them – it’s not what they can do for you as much as what you can do for them. Then get into a happy and positive furry frame of mind, get dressed in a way that makes you feel confident, psyche yourself up for a good day and prime yourself with memories of past successes before you enter a negotiation. And it’s absolutely worth negotiating your salary because even just a little extra now, even if you merely put that into a savings account or other safe investment, will compound with interest over time.
The ‘zone of possible agreement’ (ZOPA) or area of agreement is the overlapping range between your BATNA and the other party’s BATNA coming in from their side i.e. it’s essentially the size of the pie. For example, if you’re willing to sell a bone for no less than $2 and the buyer is willing to buy it for no more than $4 then the ZOPA is between $2 and $4, and a deal should be struck. If no overlap exists between the parties’ lower and upper bounds of agreement then no deal should be struck because at least one side will not find it worthwhile. Create ‘win-win’ situations (who ‘wins’ in a marriage? Hopefully both people). Post No.: 0133 looked at dividing pies according to fairness.
And if both parties do close a deal then they must both be subsequently committed to it. It can be worse to agree to a deal but then later renege on it because of the negative impact on one’s reputation.
Woof! I think I deserve some puppy pampering now…