UNIT I • NEGOTIATION

UNIT – I
NEGOTIATION

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 UNIT I • NEGOTIATION

1. Introduction to Negotiation
Negotiation is a dynamic process in which two or more parties with their own objectives
communicate and adjust their positions to reach an acceptable agreement on a matter of common
interest. The supplied material emphasizes that negotiation is used both to create something new
that neither party could achieve alone and to resolve problems or disputes.
Negotiation is part of everyday life. It can occur in salary discussions, vendor contracts, project
deadlines, purchasing decisions, resource allocation, family decisions and workplace relationships.
The central idea is that parties have needs or objectives that are partly common and partly
different.
Why Do People Negotiate?
1. To create something new through cooperation when neither party can achieve the desired
outcome alone.
2. To resolve a problem, disagreement or conflict between parties.
3. To allocate scarce resources when the outcome is not already fixed by authority, law or another
mechanism.
4. To balance the substance of the deal—money, terms, time and responsibilities—with the
relationship—trust, reputation and future dealings.
Negotiation as a Decision-Making Process
The supporting notes frame negotiation as a decision-making discipline rather than merely a
collection of manipulation tactics. A negotiator should understand the situation, define objectives,
study alternatives, understand the other party and decide whether an agreement is better than
walking away.

Key Idea
Every negotiation has two dimensions: substance and relationship. A good agreement should address
both the immediate outcome and the future relationship where future interaction matters.

2. Concept of Negotiation
Simple definition: Negotiation is a dialogue or process between two or more parties aimed at
reaching a mutually acceptable or mutually beneficial agreement or resolving a conflict.
Working concept: Negotiation involves parties with both common and conflicting interests who
communicate, exchange information and offers, and attempt to reach a joint decision that is
preferable to their available alternatives.
Core Elements of Negotiation

Element Meaning Example

Employee and manager discussing

Parties At least two parties are involved.
work arrangements.

The parties have different needs, Buyer wants a lower price; seller wants
Conflict of interest
preferences or goals. a higher price.

Negotiation is a joint decision-making Two departments voluntarily discuss

Process
process and is generally voluntary. resource allocation.

Exchange Parties exchange information, offers, A supplier offers a price and delivery

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Element Meaning Example

questions and proposals. schedule.

Both parties see some value in reaching an Employer and candidate prefer an
Preference for
agreement rather than remaining at a acceptable salary agreement to ending
agreement
standoff. the discussion.

Each party controls something the other A buyer needs the product; the seller
Interdependence
needs. needs the sale.

What Negotiation Is Not

 It is not a fixed script. Real negotiations may move forward and backward between stages.
 It is not always adversarial. Many negotiations occur between people who must continue
working together.
 It is not the same as a directive. If one side has no meaningful ability to accept or reject the
outcome, the interaction may be a command rather than a negotiation.
 It is not simply compromise. Compromise may be one possible outcome, but negotiation can
also create additional value through trading across issues.

3. Stages of Negotiation
The supplied materials present the process in two closely related forms. The PPT uses five labels—
Opening, Exploration, Bargaining, Closure and Implementation—while the supporting document
groups these into four broader stages: Preparation; Opening and Exchanging Information;
Bargaining; and Closing and Implementation. Both views describe the same overall movement from
planning to agreement and follow-through.

Stage Main Activities Student Focus

Define objectives, minimum outcomes, priorities, Know what you want, what
1. Preparation limits, alternatives and BATNA; study the other you can give and when you
party. should walk away.

Start professionally and

2. Opening Set the tone, agenda and initial position. establish the purpose of the
discussion.

3. Exploration / Ask questions and listen for

Share and clarify needs, interests, positions,
Information the interest behind the
perceptions and constraints.
Exchange position.

Trade rather than give away

Exchange offers, counteroffers and concessions;
4. Bargaining value; use evidence and
search for common ground.
objective criteria.

Confirm who will do what,

Finalize terms, clarify ambiguity and record the
5. Closure when and under what
agreement.
conditions.

A good agreement must be

Put the agreement into action, monitor it and
6. Implementation practical and capable of
address unforeseen problems.
being implemented.

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Simple Process Flow

Implementatio
Preparation Opening Exploration Bargaining Closure
n

Remember
The stages are not necessarily linear. Parties may return to exploration after bargaining reveals a new
issue, or reopen discussions during implementation when an unforeseen problem arises.

4. Characteristics of a Negotiating Situation

A genuine negotiating situation exists when certain conditions are present. The supplied PPT
identifies interdependence, conflict of interest, negotiable issues, potential for agreement,
communication and alternatives. The supporting notes add willingness to reach agreement,
voluntary process, and tangible and intangible issues.

Characteristic Explanation Example

Negotiation requires at least two parties with Two departments negotiate

Two or more parties
some ability to influence the outcome. use of a common facility.

A company needs a supplier;

Each party needs something that the other can
Interdependence the supplier needs the
provide.
company's business.

The parties have different goals, preferences or Buyer wants a low price; seller
Conflict of interest
expectations. wants a high price.

Price can be exchanged for

There are issues that can be changed or traded
Negotiable issues quantity, delivery time or
across.
service.

Both sides prefer an

Potential for There is a reasonable possibility of reaching an
agreement to ending the
agreement acceptable solution.
relationship.

Asking why a deadline is

Parties need dialogue to exchange information
Communication important can reveal a hidden
and clarify misunderstandings.
constraint.

Each party has another course of action if no A buyer can approach another
Alternatives / BATNA
agreement is reached. supplier.

Willingness to reach The parties initially prefer discussion to simply Employer and candidate
agreement walking away. continue discussing terms.

Agreement should not be obtained through Two teams voluntarily discuss

Voluntary process
physical or legal compulsion. a work allocation.

Tangible and Negotiation can involve measurable terms as well Price is tangible; trust is
intangible issues as trust, reputation and precedent. intangible.

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Interests versus Positions
A position is what a person says they want. An interest is the underlying need, concern, desire or
reason behind that position. Effective negotiators explore interests because different interests may
allow creative trades.

Position Possible Underlying Interest Better Question

The person needs to record a session for “Why is that particular

“I need the conference room.”
stakeholders who cannot attend. time important?”

A manager may be reviewing the project on “What happens if delivery

“I need delivery by Friday.”
Friday. is on Monday?”

The candidate may value recognition, “Which parts of the offer

“I want a higher salary.”
flexibility or career growth. matter most to you?”

5. BATNA and ZOPA

BATNA: Best Alternative to a Negotiated Agreement. It is the best course of action available if the
current negotiation fails. BATNA strengthens the negotiator's ability to decide whether to accept or
walk away.
Reservation point / Walk-away point: The least favorable outcome the negotiator is willing to
accept. If the proposed deal falls beyond this limit, the negotiator should normally prefer the
BATNA.
Target / Aspiration point: The outcome the negotiator would ideally like to achieve.
ZOPA: Zone of Possible Agreement—the range in which the parties' acceptable outcomes overlap.
If there is no overlap, a deal is not rationally possible on that issue unless the structure or issues
change.

Term Meaning Example

Candidate's best alternative is

BATNA Best alternative if the negotiation fails.
another job offer.

Candidate will not accept below

Reservation point Lowest acceptable result.
₹8 lakh.

Target Preferred result. Candidate hopes for ₹10 lakh.

Employer can pay up to ₹9 lakh;

ZOPA Overlap between acceptable ranges. candidate accepts ₹8–10 lakh →
ZOPA is ₹8–9 lakh.

Exam Formula
If Party A's maximum acceptable value overlaps Party B's minimum acceptable value, a ZOPA may
exist. BATNA answers “What will I do if there is no deal?”; ZOPA answers “Is there a range in which
both sides can agree?”

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6. Basic Negotiation Skills

The PPT lists preparation, communication, rapport building, problem-solving, persuasion, handling
objections and closing the deal. The supporting notes add specific techniques that make these skills
practical.

Skill Explanation Practical Example

Research interests, constraints, alternatives, Before a vendor meeting,

Preparation priorities and likely expectations before the compare prices, delivery terms
meeting. and alternative suppliers.

“We need delivery by 15

State objectives clearly and avoid ambiguous
Communication September” is clearer than
language.
“We need it soon.”

“If I understand correctly,

Listen for interests behind stated positions and Friday matters because your
Active listening
paraphrase before responding. manager reviews the project
then.”

Open: “What matters most to

Use open questions to discover interests and closed
Questioning you?” Closed: “Can you deliver
questions to confirm facts.
by Friday?”

A well-researched opening
A credible first number can influence the range of
Anchoring price can shape the bargaining
subsequent discussion.
range.

“This option saves two weeks”

Framing Present an offer in terms of the other party's goals. focuses on the other party's
benefit.

Create a professional relationship that reduces Begin by establishing common

Building rapport
defensiveness and supports communication. ground and a respectful tone.

Search for different delivery

Treat differences as problems to be solved rather
Problem solving schedules instead of arguing
than personal attacks.
only about price.

Use reasons, evidence, framing and appropriate Use market data to support a
Persuasion
influence rather than threats. price proposal.

Understand the reason for an objection before Ask “What concern do you
Handling objections
responding. have about this term?”

“If we agree to the delivery

Do not give concessions away without seeking
Trading concessions date, can you improve the
something in return.
payment terms?”

Pause after an offer instead of immediately Make the proposal, then allow
Managing silence
weakening your position. the other party to respond.

Summarize price, dates,

Recognize when additional bargaining has
Closing responsibilities and follow-up
diminishing returns and record the agreement.
actions in writing.

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7. Interpersonal Skills in Negotiation

Negotiation outcomes depend not only on the deal terms but also on how people interact. The PPT
identifies problem analysis, active listening, emotional control, clear communication, teamwork and
problem solving, followed by decision making, relationship management, leadership, motivation,
empathy, ethics and reliability. The supporting notes further emphasize emotional intelligence, non-
verbal communication, persuasion, rapport, patience and self-control.

Interpersonal Skill How It Helps in Negotiation

Problem analysis Separates the actual problem from assumptions and personal reactions.

Active listening Helps identify interests, constraints and hidden concerns.

Helps the negotiator recognize and manage emotions without being

Emotional intelligence
controlled by them.

Emotional control Prevents anger, anxiety or excitement from driving poor decisions.

Clear and effective Reduces ambiguity and makes proposals, commitments and expectations
communication easier to understand.

Eye contact, posture, facial expression and tone can reinforce or contradict
Non-verbal communication
spoken words.

Teamwork / collaboration Allows negotiators to combine information and coordinate strategy.

Problem-solving ability Supports creative solutions and trade-offs.

Decision-making ability Helps compare offers against objectives, limits and alternatives.

Relationship management Maintains trust and supports future negotiations.

Leadership Provides direction, coordinates the negotiation team and maintains focus.

Motivation Helps maintain effort and commitment during difficult negotiations.

Helps understand the other party's perspective without necessarily agreeing

Empathy
with it.

Ethics and reliability Protects credibility and supports long-term trust.

Patience and self-control Prevents impulsive concessions or aggressive reactions.

Interpersonal Skills in Action

 Listen first, respond second.
 Paraphrase important statements to confirm understanding.
 Ask questions before assuming the other party's motive.
 Keep your tone controlled when the other party becomes aggressive.
 Use empathy to understand the other person's concern, not to surrender your own objective.
 Match your body language with your words.
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 UNIT I • NEGOTIATION
 Maintain professional ethics even when bargaining is competitive.

8. Theories and Approaches to Negotiation

The supplied PPT identifies Game Theory, Economic Model Bargaining, Social Psychological
Bargaining, Adversarial Bargaining Theory and Problem-Solving Theory. The supporting notes also
distinguish distributive, integrative, principled, BATNA/ZOPA and behavioral/psychological
approaches. These are presented together below without replacing the terminology in the supplied
materials.
10.1 Game Theory
Game theory uses mathematical models to analyze how decision-makers choose between conflict
and cooperation. Negotiation can be represented as a game involving players, strategies and
payoffs. Each party considers its own outcome while anticipating the decisions of the other party.

Example: Prisoner's Dilemma

Two parties may have an incentive to protect their individual interests, yet if both act only in self-
interest, both can end up worse off than if they had cooperated. The model illustrates why predicting
the other party's move matters.

10.2 Economic Model of Bargaining / Nash Bargaining

The PPT describes the economic model of bargaining, also known as the Nash bargaining model, as
a framework developed by John Nash to analyze bargaining outcomes. The supplied material
assumes two parties, utility functions representing preferences, rational and self-interested parties,
and an efficient bargaining process. The model predicts an agreement that maximizes joint utility
subject to each party receiving at least its disagreement outcome.
Applications listed in the PPT include wage negotiations, price negotiations, international trade
agreements, business contracts and labour-management negotiations.
10.3 Social-Psychological Bargaining
This approach emphasizes the human and psychological side of negotiation. The supplied notes
connect this perspective with cognitive biases and psychological effects such as anchoring, loss
aversion and framing. It helps explain why actual negotiators may not behave like perfectly rational
decision-makers.

Key Point
A negotiator can be influenced by how an offer is framed, what number is presented first, and how
gains and losses are perceived.

10.4 Adversarial Bargaining Theory

Adversarial bargaining treats the negotiation as a competitive contest in which parties attempt to
claim value for themselves. It is closely associated with distributive or zero-sum bargaining, where
one party's gain may represent the other party's loss.
 Fixed-pie or fixed-value assumption.
 Strong focus on positions and value claiming.
 Use of competitive tactics such as anchoring, concession patterns and deadlines.
 Can be useful when the issue is primarily distributive and the relationship is less important.
 Can create deadlock, damage relationships and encourage short-term thinking if overused.
10.5 Problem-Solving Theory
Problem-solving treats differences as a problem that can be analyzed and resolved. It emphasizes
understanding needs and interests, generating alternatives and searching for solutions that address
the concerns of both parties. This is closely related to integrative and principled negotiation.
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 Separate people from the problem.
 Identify interests rather than arguing only about positions.
 Generate several options before selecting one.
 Use objective criteria where possible.
 Seek solutions that create value for both sides.
10.6 Distributive Negotiation
Distributive bargaining assumes a fixed pool of value. The negotiators are mainly concerned with
dividing that value. It is commonly described as win-lose or zero-sum negotiation.

Feature Distributive Negotiation

Value Often treated as fixed.

Primary goal Claim as much value as possible.

Information Positions and sensitive information may be guarded.

Typical tactics Anchoring, concession patterns and deadlines.

Relationship May receive less attention when the interaction is one-off.

Risk Deadlock or relationship damage if used aggressively.

10.7 Integrative Negotiation

Integrative negotiation assumes that the parties may be able to expand the total value available
before dividing it. This is achieved by identifying differences in preferences and trading across
issues. Information sharing is more important than in purely distributive bargaining.

Feature Integrative Negotiation

Value Can be expanded by creating mutual gains.

Primary goal Create and then claim value.

Information Relevant interests are shared more openly.

Typical method Trade issues that have different values to each party.

Relationship Often supports longer-term relationships.

Risk Requires time, trust and enough information to discover trades.

10.8 Principled Negotiation – Harvard Model

The supplied notes identify four central rules associated with Fisher and Ury's principled negotiation
model:
1. Separate the people from the problem.
2. Focus on interests, not positions.
3. Invent options for mutual gain.
4. Insist on objective criteria.

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These principles encourage negotiators to address the substance of the disagreement while
protecting relationships and using standards of fairness rather than arbitrary demands.
10.9 BATNA / ZOPA Framework
BATNA represents the negotiator's walk-away alternative. ZOPA represents the overlap between
the parties' acceptable ranges. The framework helps answer two practical questions: “What will I do
if no agreement is reached?” and “Is there a range in which both sides can agree?”

No ZOPA
If the parties' acceptable ranges do not overlap, there is no rational agreement on the current terms.
The negotiators may need to change the issues, add non-price terms, improve alternatives or stop
the negotiation.

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