CHAPTER 3: PERSPECTIVES, STRATEGIES AND TACTICS OF BUSINESS

NEGOTIATION
3.1. Game theory and negotiation.
3.1.1. Game theory definition
Game theory first emerged in 1944 in a book written by John von Neumann and Oskar
Mogenstern. It can best be defined as the study of a choice of strategies between intelligent,
rational decision-makers. It uses mathematical models to explain how individuals choose
between conflict and co-operation, helping to predict outcomes in certain scenarios by modelling
an individual’s best response to the strategies chosen by others.
When applied to negotiation, game theory provides a powerful approach to help
negotiators understand the way a specific negotiation is unfolding and the opportunity to change
the approach in order to achieve a more favorable outcome.
There is no right or wrong game and the most appropriate one depends upon the
circumstances. The key point is that negotiators have a choice as to what game he or she plays.
3.1.2. Prison dilemma
Here is a classic example of
Adam and Bob have robbed a bank and been arrested. They are interrogated
separately. Adam and Bob have the option to confess (move C) or to remain silent
(move S). The police have little evidence, and if both remain silent they will be
sentenced to one year on a minor charge. Therefore, the police interrogators propose a
deal: if one confesses while the other remains silent, the one confessing goes free while
the other is sentenced to three years. However, if both talk, both will still be sentenced
to two years. If each player’s payoff is 3 minus the number of years served in jail.

To solve the stated example, we draft the following matrix

S C
S 5,5 10, 0
C 0, 10 1,1

It seems obvious that both should remain silent, but that’s not likely to happen.
Each player’s move C strictly dominates move S. Furthermore, the best response to move
S is C, and the best response to move C is also move C, therefore the pair (C, C)—both
confessing forms the unique Nash equilibrium of this game. The choice C—confessing—
with payoffs of only 1 may seem counterintuitive if negotiations can take place in
advance, but their terms are non-binding and cannot be enforced. It would be useless to
agree on move S in advance, since each of the players would feel a strong urge to deviate
(cheat). Only if binding agreements are possible, would both agree on the S-S
combination, reaching a higher payoff. Thus, PRISONER’S DILEMMA gives a
paradoxical result. Players will play moves that result in lower payoffs for both than are
possible. This is in part because the rules of the game do not allow binding agreements
3.2. Business negotiation perspectives
3.2.1. Distributive thinking
Distributive negotiation or also called slicing the pie bargaining or win-lose
bargaining is based on the competing style. This type of negotiation emphasizes the
distribution or division of a negotiated thing between the parties involved in the process
of negotiation. It means that one gets, one loses, but everyone tries to protect his benefits,
and no one looks back to the other party’s interests. In the distributive type of
negotiation, there are also some proven principles and strategies. “When it comes to
slicing the pie, the most valuable information is a negotiator’s best alternative to reaching
agreement (or BATNA). Nothing can substitute for the power of a strong BATNA.
Negotiators can enhance their ability to garner a favorable slice of the pie by engaging in
the following strategies: determing their BATNA prior to negotiations; attempting to
improve upon their BATNA; researching the other party’s BATNA; setting high
aspirations; making the first offer; immediately reanchoring if the other party opens with
an “outrageous” offer; resisting the urge to state a range; making bilateral, not unilateral,
concessions; using objective-appearing rationales to support offers; and appealing to
norms of fairness.” (Thompson 2001, 60)

Notice: What is BATNA?

BATNA is an acronym that stands for Best Alternative To a Negotiated Agreement. It
is defined as the most advantageous alternative that a negotiating party can take if
negotiations fail and an agreement cannot be made. In other words, a party’s BATNA
is what a party’s alternative is if negotiations are unsuccessful. The term BATNA was
originally used by Roger Fisher and William Ury in their 1981 book entitled “Getting
to Yes: Negotiating Without Giving In.”
Example of BATNA
Colin needs a car and is negotiating with Tom to purchase his car. Tom offers to sell
his car to Colin for $10,000. Colin scours through Craigslist and finds a similar car to
which he assigns a dollar value of $7,500. Colin’s BATNA is $7,500 – if Tom does not
offer a price lower than $7,500, Colin will consider his best alternative to a negotiated
agreement. Colin is willing to pay up to $7,500 for the car but would ideally want to
pay $5,000 only
3.1.2. Integrative thinking
In contrast to distributive negotiation, integrative negotiation or also called win-
win negotiation or expanding the pie negotiation is based on the collaborating style. The
win-win bargaining maintains some cooperation to achieve the results that both parties
can benefit from. This negotiation type requires a high degree of trust and in fact also
some kind of relationship. It should end up in the outcome when everybody gets
something. In case of integrative negotiation, there are also verified strategies and
principles how the negotiation process can turn out to be successful. “The successful
creation of win-win negotiation deals involves building trust and sharing information
about priorities and preferences (not BATNAs!); asking diagnostic questions; providing
your opponent information about your priorities and preferences (not your BATNA!);
unbundling issues; making package deals (not single-issue offers); making multiple offers
simultaneously; structuring contingency contracts that capitalize on differences in
negotiators’ beliefs, expectations, and attitudes; and using the pre- and postsettlement
settlement strategy.” (Thompson 2001, 82) According to professional negotiators, this
type of negotiation is the best way to create a long term relationship to achieve mutual
gain.
In the business world, there are five negotiation styles or so-called approaches
which are used in the process of negotiating. Despite this fact, most of business
negotiators use only one or two negotiation styles. Nevertheless, a sucessfull experienced
negotiator knows all of these negotiation approaches and he can choose to apply the most
appropriate one which would comply with the type of negotiation. It is an effective skill
to adapt the style to the elements of negotiation. The most common division of
negotiation styles is: competing, accommodating, collaborating, avoiding and
compromising. (Volkema 1999, 60-69; Lum 2010, 149-153)
3.2. Business negotiation strategies
3.2.1. Competing strategy
The competing style is used when negotiators need to get quick results. This style
is based on the expected result I win – You lose. Lum (2010, 150) states that “a person
showing a competing tendency is focused on the substantive outcome of a negotiation
more than the relationship. A competitor would assert his/her own interests and offer
options that are more favorable for him/her.“ The competing style is distinguished by the
effort to deceive and persuade the other party and by the usage of power to find out and
exploit the other party’s weakness. (Volkema 1999, 61) The disadvantage of this style is
the possibility of TBU in Zlín, Faculty of humanities 13 meeting two high competing
approaches. In this case, the negotiation often ends in deadlock.
3.2.2. Acommodating strategy
The accommodating style is the opposite of competing style. It means that it is
based on the preservation of relationships between two parties or individuals. This style
presupposes the result I lose – You win. The accommodating style usually symbolizes
enduring harmonic relationships, but there are also several weak points. If the
accommodating style is used against high competing style, it will result in the domination
of the high compete negotiator who will see the other side’s generosity as a sign of
weakness. Volkema (1999, 62) points out that the accommodating style involves some
tendency to help the other party even if it means giving up your own needs and also to
focus on issues that both sides agree on rather than those of disagreement.
3.2.3. Collaborating strategy
“Collaboration involves exploring individual and mutual interests in an effort to
satisfy everyone’s needs.” (Volkema 1999, 63) This negotiation style usually results in I
win – You win. It is based on meeting of all needs and on the creation of mutual value.
The collaborating style is the basic style which should be used to achieve the goals in
business negotiation. There are also some assumptions which must be met to be an
effective collaborative negotiator. These are: an effort to build trust and to satisfy the
needs of both parties, searching for creative solutions that make both parties winners,
listening to the other person’s ideas etc. (Volkema 1999, 63) Collaboration is very often
the best choice but it should not be used with a competitive negotiator. Another
disadvantage of the style is the condition that the negotiators must be aware that they
share information at the same level. If not, one side can be exploited and the other side
can be advantageous.
3.2.4 Avoiding strategy
Volkema (1999, 63) explains that the avoiding style is avoiding not only issues or
the other party but negotiation itself. It presupposes the loss of both parties, so the result
is I lose – You lose. The avoiding is used in the situations when the issue of negotiation is
irrelevant for both sides of negotiation. It is usually applied as an effective defence
against the competing style. It is quite difficult negotiation style because the aim of this
style is to avoid conflict but more often the avoiders get themselves into conflict.
3.2.5 Compromising strategy
“Compromising is a partial-win, partial-lose proposition, where you get something
what you want but not everything, and likewise for the other party.” (Volkema 1999, 63)
According to Lum (2010, 151), the compromise is based on fairness, mutually sufficient
solutions and rationality. The compromising negotiation style is usually confused with
the definiton of negotiation but in fact, compromising is just bargaining. This style is
applied mostly in the situations when business negoatiators are dealing with someone
who they know and trust. The most important fact in the compromising is to realize that
the negotiator wins something but also loses something. It is difficult to be aware that he
lost what he intended. According to the negotiation instructors, the compromising style
requires the best quality of negotiation training
3.3. Business negotiation tactics
False concessions
It is not uncommon to offer a false concession, allowing the other party to struggle to get
something that you would give them anyway. It might also include things you have to get
rid of. If your “have to get” list includes something you must get rid of, it might be
possible to trade it for a concession, as if you wanted to keep it. False concessions are not
uncommon, so you should be aware of them. Avoid giving something for a false
concession. Make false concessions carefully. If you offer a false concession, you must
never reveal that you were planning to give it anyway!
Higher authority
Sometimes a negotiator will refuse to agree to a proposal that is entirely possible. In
order to get more concessions, the negotiator might insist on getting approval from the
boss. This negotiator may go out of the room and pretend to call the boss, hoping it will
seem like it is not possible to give a small concession. In this situation, it is best to wait.
Trading information
The other side seeks information about your business activities and plans while asking
about theirs. Allow the counterparties to lead the conversation if they want to. When
asked, you should provide information as long as it is not sensitive or secret.. What
information is too sensitive to share? That depends on your opinion. You may decide that
it is OK to reveal all details (FOTE or Full Open and Truthful Exchange) or that some
details should be kept secret, such as your reserve price (POTE or Partial Open and
Truthful Exchange).
Silence
With some individuals, and even some cultures, silence feels uncomfortable at the
negotiating table. If one side feels uncomfortable with silence, it may be possible to get a
concession simply by looking thoughtful. Example: “How about $10,000?” (no answer)
“Well, then $9,000?” In this example, the silent party does not need to give a concession
in order to get a concession. While it may be effective, it is not a helpful tactic for
building relationships and trust. Experienced negotiators will not drop their price; instead,
they will wait or ask questions in order to understand what the silent party can agree to.
Stalling
It is quite common to create a little extra time for your own thinking during a negotiation
by asking for details or explanations that might not be really necessary. This kind of
delay is called stalling. Generally negotiators understand and are comfortable with a little
bit of stalling as one party or another thinks and plans. However, it is not considered
acceptable to intentionally expend large amounts of time hoping to pressure another party
into acting unwisely at the last moment. If the counterparty stalls a lot, you should be
prepared for them to give you sudden, complex offers shortly before the deadline for
finishing the negotiation. You should be prepared to say no, to extend your negotiating
time and to use your BATNA. You can use the time in which the other side is stalling to
learn about them through questioning and other research methods. As time runs out, you
should resist the pressure to agree. Instead, it may be possible to ask to work with another
negotiator, possibly even moving up the hierarchy to work with the boss of the
negotiator. Another response is to move your schedule forward and inform the other team
that you have very little time remaining, thus putting the same pressure on them. This is a
hardball approach and not advised, just as extreme stalling is not advised. Last-minute
decisions and agreements may contain significant errors and result in agreements that are
poor for one or all parties, or that lead to expensive renegotiation or collapse.
Last-minute demands
Some negotiators will make a request for a concession very late in the process, even as
documents are prepared for signing. This tactic intends to catch the other side off guard
or off balance, with the hope of getting an easy concession. The best reaction is not to
agree immediately, but instead to make it clear that you have the time and willingness to
renegotiate the entire package and all the related linked issues. Some negotiators will ask
for a concession even after signing. The best reaction is not to agree immediately, but
instead to make it clear that you have the time and willingness to renegotiate the entire
package and all the related linked issues. You may, however, grant the extra concession.
Why? Because it could help to build a relationship. In some regions, including Japan, a
negotiation party may expect to give or expect to request “a little” in the comfortable
belief that business partners can do a little extra if they are serious about the relationship.
Ultimatums
An ultimatum is an aggressive offer usually like this one: “Accept the offer by 1 PM, or
we are finished.” An ultimatum usually damages the relationship and the negotiations in
general. Avoid making ultimatums. Avoid reacting quickly to ultimatums.
Trashing the product (buyer tactic)
Sometimes a buyer will attack the product that is at the heart of a sale. The purpose is to
show that the buyer is only barely willing to accept the product and therefore the price
must come down to their estimation. The process of trashing the product can be quite
long and thorough, particularly in negotiations with Chinese teams. An individual famous
for starting negotiations with extensive trashing of the other parties’ products was Steve
Jobs, the founder and CEO of Apple. Less experienced teams, especially from Western
cultures, have found themselves shocked, upset, bored and irritated after listening to this
process for hours or days. However, the best response to this process is to quietly listen,
learn if possible how to better satisfy the customer and not give more than a symbolic
concession. Therefore, you should have some symbolic concession prepared in advance.
The worst way to react is to get upset or lower the price significantly
3.3. Business negotiation procedure
3.3.1. Planning in business negotiation
3.3.1.1. The role of planning in business negotiation
Planning is an essential assumption for all business negotiations. If an executive
wants to succeed in the process of bargaining, he must be prepared. It is the key to be a
successful negotiator because an effective planning is the best advantage in strategic
negotiation. Specifically, planning will play these roles in the negotiation process
- Firstly, planning acts as a beacon directing participants actions and behaviour.
Negotiators can base on the plan drafted to understand their roles in the negotiation
process and from that act accrodingly. As a result, members of negotiation party will
coordinate better and improve the effectiveness of the party.
- Secondly, planning allows parties to gather information and from that deciding the
styles, strategies and approaches adopted in the negotiation process. In this process,
parties will have to gather information related to the opponent, products… and form a
general ideas of what are their goals and interest, as well as what are the opponent goals
and interest, which are the basis of what negotiation styles and approches should be
implemented with the aim of achiving that goals.
- Thirdly, planning is the basis for assessing the effectiveness of the negotiation process.
After negotiation is conclude and a agreement is reached, in order to evaluate whether the
agreement reached reflects parties’ goals and interest or not, participants should use the
plans drafted to compare with the deal achived.
3.3.1.2. Planning
a. Assessement
Before actually drafting an action plan, parties should assess information obtained
inroder to lay a solid foundation for planning decision such as what styles, approaches
should be implemented; what is the ultimate goal of the negotiation process; where the
negotiation should take place or who is the negotiator. Assessement should be considered
in 3 different aspects: seft-assessment, assessment of the other party, assessment of the
situation
- Self assessment
Thompson (2001) explains that before entering negotiations, the most important
questions a negotiator needs to ask himself are: “What do I want?” and “What are my
alternatives?” Any negotiator needs to determine what develops an ideal situation for
him. This step in the preparation is known as a target or aspiration. Another important
stage is to set a Best Alternative to a Negotiated Agreement (BATNA). “A BATNA
determines the point at which a negotiator is prepared to walk away from the negotiation
table. In practice, this means that negotiators should be willing to accept any set of terms
that is superior to their BATNA and reject outcomes that are worse than their BATNA.”
(Thompson 2001) Knowing your BATNA is the key feature for effective negotiation but
in literary sources the terms like WATNA and MLATNA also appear. WATNA is the
opposite of the Best Alternative to a Negotiated Agreement, and it can help minimize the
loss or make the best of a bad situation. Guasco and Robinson (2007) state that the
strategic negotiator must determine the benefits of an agreement not only according to the
BATNA, but also acoording to the worst-case scenario – the WATNA. MLATNA means
Most Likely Alternative to a Negotiated Agreement. This negotiated agreement is
difficult to estimate because it involves the study of market and past economic
performance, knowing the competition and other types of research. The step of self-
assessment also includes identification of the issues in the negotiation, the identification
of the alternatives for each issue, the identification of packages of offers, dealing with
uncertainty and an assurance that a negotiator has an appropriate level of confidence.
(Thompson 2001)
- Other parties assessment
Once the negotiator has gone through the step of self-assessment in the phase of
preparation, he can start to judge the other party. “A party is a person (or group of people
with common interests) who acts in accord with his or her preferences.” (Thompson
2001) The basic point for the negotiators in this assessment is to determine others’
interests and position, they need to find out the alternatives and issues preferred by the
others. As Guasco and Robinson (2007) say “before you begin negotiating, learn
everything you can about the other negotiator, including whether he or she is cooperative
or competitive.” The essential thing is also an effort to reveal the other negotiator’s
BATNAs. But this step is very often without any results. Both sides are strategic
negotiators and no one wants to expose his BATNA.
- Situation Assessment
The last assessment is an assessment of the situation. Negotiators should assess if
negotiation is short term, long term or repetitive, if negotiation was developed from
necessity or opportunity, or if negotiation must end up in an agreement. Other facts that
must be considered by a negotiator are: legality of negotiations, the type of contract
(official vs unofficial), the location of negotiations, the character of negotiation (public vs
private), the balance of the powers between parties etc. (Thompson 2001)
b. Drafting
Based on the information derived from the assessment process, negotiator should
draft a plan which normally include the following issues:
- Goals, BATNA
Parties should base on their own interest as well as information regarding other
party interest in order to decide suitable goal and BATNA. However, it is also important
to consider situation or context factors such as the importance of the deal, relationship
between two parties inorder to decide situtable goal. Furthermore, Negotiation goals
should be clear, quantifiable, suitbale with firm’s general interest and most importantly,
achievable.
- Negotiation styles and approaches
With the assist of the information analyzed in the assessment process, parties
should decide on what syles and approaches is adequate given the situation and opponent.
However, it is important to note that, during negotiation, parties can be flexible with their
sytles and sometimes go off the plan based on the given situation in order to be most
effective in negotiating
- Negotiation agenda
In order to be cost and time effective, parties should also consider about the
agenda of the negotiation process. Or in other words, decide what topics and issued will
be discussed during negotiation. Agenda can include price, quantity, quality of the
products and other topic related to business transaction
- Human resources
To assure the best out come out of business negotiation, it is also important to
decide the identity as well as the quality of negotiators. Sometimes, good negotiatiors
might be the deciding factor of a good negotiation process and also a better result and
agreement. Further more, the use of negotiator i.e: who is the negotiator and how many
negotiators are needed, might even have strategic value. Negotiator with charisma or
large number of negotiators might put pressure on the opposite party and as a result
provide a competitive edge on the table.
3.3.2. Organizing business negotiaton
After drafting a reliable plan, parties can next, take part in the actual process of
negotiating. Negotiation process is usullay sperate into different phases which have
different purpose on the process.
-
This phase aims at breaking the ice and seting up a friendly atmosphere in order to
set a foundation for a effective and advantagous enviroment for the negotiation process.
Often parties will first introduce the negotiators as well as relevant topic surrounding the
negotiation agenda such as economics, politics, culture, ….
The length and topics discuss in this phase are often depended on negotiation
parties’ culture, custom and norm which have been analyzed above.
- Information exchanging phase
In this phase, the negotiators are sitting round the table and they are engaged in a
preliminary discussion. Both of them are sharing the information which could enable
negotiation. The step of sharing information helps not only to provide the entry points
and specific demands of both sides, but the main reason for this step is to start building
the relationships between negotiators. Information sharing is crucial in the formation of
negotiators’ position and also in the strengthening of negotiation as a whole. The type of
shared information depends on the nature of negotiation. Information that is shared in
most cases include: company activities and market position, opinion on entry points,
other side’s attitude and engagement, problems, issues or risks, motivational factors etc.
- Discussing and proposing phase
Another step in bargaining is a discussion and proposing. In a discussion, a
negotiator is dealing with his counterpart in order to discuss issues within his negotiation.
In the proposing step, a negotiator summarizes his wants and claims. Both sides are
considering their entry and exit points. In both of these steps, the negotiators have to
concentrate on building relationships and trust so they should avoid insults, provocations
and threats. They should turn to building a strong relationship based on trust, to sticking
to a point of negotiation, to sharing information and to being positive and polite.
Negotiation signals are a very important factor in proposing. According to these signals, a
negotiator is capable to determine if the counterpart is willing to proceed to a
compromise and in which way. This transmission of signals has only one purpose,
namely to notify the counterpart of this type of information: “I am willing to concede in
this area if you are willing to change your stand-point to this issue.” The negotiation
signals can be sentences as: “It would be very difficult...”, “We know that we have no
choice...”, “Perhaps under certain conditions...” etc. Nonverbal expressions can be also
helpful. These expressions are: discomfiture, strained expectation, pleasure of confirming
expectations and nervousness of lying.
- Concession phase
Often time, discussion on certain terms might come to a stalemate, which requires
parties to concess on their goal in order to be resolved. In this phase, parties considered
their alternative option and make concession. It is ideal if both side make concession on
their goal as it will boost the pace of negotiation. However, if only one side concess, it’s
often that party will have to scarify their interest for the progess of negotiation
- Conclusion phase
Closing the deal is the last step in the process of negotiation. In this step, the
perfection of the preparation is revealed. After the negotiators reach an agreement, they
close the deal. The phase of closing the deal comes after both sides have achieved what
they wanted, after the documentation of the agreement and after the negotiator and his
counterpart have agreed on the details of the deal. If all these steps are met, the contract
can be signed. As Guasco and Robinson (2007, 132) point out “reaching an agreement at
the conclusion of a negotiation is where strategic negotiators shine. They know that they
must be precise and clear, making sure that both parties know and understand the terms
and conditions of the agreement. Successful negotiators also promptly follow through on
getting the written agreement drafted and signed. Delay only provides an opportunity for
the deal to be
 However, negotiation not always results in a agreement, parties might not reach
any mutual understanding during the process. If this is the case, it is important that parties
try to reserve good relationship and feeling toward each other. Parties should also bring
out suitable reasons for why an mutual agreement can not be reached and negotiation
should end.
3.3.3. Supervising and evaluating business negotiation
After each negotiation session, it is essential to evaluate the results and compare
them to the stated goal in order to analyze and realize problems and dereive experience
for future negotiation
Negotiation process can be evlaluated through this model:

Defining evaluation agenda

Create evaluation criteras

Deciding the weight of each critera

Analyze strong Analyze weak Deciding value of

point points criterias

Defining causes of problems

Derive lesson and experience