Why do you negotiate? Three simple reasons:
- You want something from the other side and are willing to give something in return.
- The other side wants what you have to give, and is willing to give you what you want.
- Both of you want to make a deal.
1. Make sure there is a bargaining zone
What is your ideal outcome? How much do you really want to pay or get paid? This is your starting point. Several times I got exactly what I wanted, but those occasions are rare. Just as you have a starting point, so does the other side. However, you both know that you will probably have to settle for something less than that. So beyond knowing what you want to ideally get, ask yourself what is your true "walkaway" point. What is the absolute maximum that you are willing to give, or the absolute minimum that you are willing to take? Don't share this number. But you have to know what it is. And the other side does too. For you both to enter a deal, there has to be an overlap. The walkaway price you are willing to pay has to be equal to or higher than the walkaway price they are willing to take. The overlap between your ideal and walkaway points, and between their ideal and walkaway points is called the "bargaining zone." If there is no bargaining zone, don't waste your time. You could never reach a deal. How do you know what their walkaway price is? Do your homework. Figure out what drives that number.
2. Power = information + alternatives
Michael Porter has said that bargaining power is one of the strongest competitive advantages, as a buyer and as a seller. What drives that power? The knowledge you have, and the alternatives you have to buying from, or selling to, the other side. The side with fewer alternatives will get less out of the negotiation. When you are about to buy a Toyota Corolla, you have alternatives: the Honda Civic, Chevrolet Cruz, and others. However, if you want to buy a black convertible BMW M6, you don't have alternatives. That's the car you want. There is no other car. You don't have alternatives. You have less bargaining power and the deal will be much closer to the MSRP.
3. Know the objectives of the other side
My boss, the CEO of the first U.S. company I worked for, once told me: "Never go into a meeting without knowing what the outcome will be." It took me a while to understand what he meant. The more you know about the other side's interests, restrictions, boundaries, and motivations, the better you'll fare in the negotiation. In 2003, while working for Texas Instruments, I wrote a memo recommending the acquisition of a smaller company with complementary products. I researched their founders, investors, and many other details, and suggested what I believed the closing price would be. They started at a much higher price. We started at a much lower price. The acquisition closed within 3 percent of my original assessment. Besides, there may be a better deal to be had, if you knew their motivation (and if they knew yours).
4. Be willing to enter a deal, be willing to walk away, and be perceived as both
It has been said that 7 percent of communications are carried through the actual words, 38 percent through the tone of voice, and 55 percent through body language. However, all three, in one proportion or another, are needed to convey the fact that you are serious about entering the deal (as long as the terms are better than your "walkaway" point), and are seriously willing to walk away from it (if they don't). You will not get concessions from the other side if you are not perceived as willing to enter the deal, nor will you get them if you don't show that you are willing to walk away.
5. Make the time. Don't show you are in a rush
If you are in a rush the other side will take advantage of it. Make the time. Bring a calculator. Look for alternatives. When I go to buy a car, I go in the afternoon, and I clear the rest of the evening for it. I don't have to go anywhere. At some point the salesperson across from you realizes that if you don't buy that car today, they will not be selling a car today. Period. Let pressure build on their side. Not yours.
6. Give up "wants," take "needs"
Negotiations are all about reciprocity (unless you are asking for less than they are willing to give, which almost never happens). Every negotiable item has value to you and value to the other side. Those values are not equal. There are things that you really need, and there are things that you want, which would be nice to have. However, both sides may not be attributing the same value to all things. Find out what's important to you that is less important to them, and take that in return for something that is less important to you but more important to them.
7. Be on their side
Explain your restrictions and boundaries. Ask them to help you get a better deal to show your boss (or spouse, or anyone else). After all, you don't live in a vacuum. Neither do they. So tell them you want to help them look good in front of their boss (or spouse...). Take adversity out of negotiations. But don't get to the point where you negotiate with yourself just to help them. That's when you've gone too far.
8. Avoid and diffuse ego, righteousness, saving face, and rhetoric
Those bring emotion into a situation that should be emotion-free. Take your ego, your high-road rhetoric and your desire to be right or save face out of it. Keep your objectives in front of you all the time. You don't want to be right. You want to be successful. If the other side fails to do this, either convince them to take emotion out of the negotiation or walk away. You will not get a deal, or at least not one that is favorable to you, if the other side makes it emotional.
9. Nothing is ever really off the table (and never say never...)
How many times have you heard "this item is off the table" before? How often was it not? Don't assume that anything is off the table. If this is something really important to you and really important to them, and you cannot compromise, then you don't have a bargaining zone. Saying something is off the table doesn't necessarily make it so. Spend time to figure out if it is really a non-starter. In most cases, it's not. It's just rhetoric, which you should avoid and diffuse.
10. Is this an ongoing relationship?
Finally, you have to know if you are negotiating something as part of a single transaction (buying a car, remodeling a kitchen) or an ongoing relationship (employment agreement, acquiring/selling a company), where "the day after" matters. "He who fights and runs away / May live to fight another day; / But he who is in battle slain / Can never rise to fight again." (Oliver Goldsmith). Not all negotiations are a zero-sum game that ends at the moment hands are shaken. Sometimes you need to make long-term gains at the expense of short-term sacrifices, because there is a day after, in which you and those who you negotiated with must work together.