Different Strategies of Negotiation
Due to the complex nature of the modern business environment, negotiation is an essential ingredient for a business’ success. Negotiation is a process where two or more parties, a buyer and a seller, discuss an issue to find a mutual agreement (Harvard Law School, n.d.). Negotiation applies in diverse business contexts including deal making, labor/management talks, employee compensation, vendor pricing and sales, contracts, and business acquisitions. Great negotiation skills contribute significantly to the success of a business. Effective negotiations boost a business by developing long-term relationships with not only clients but suppliers and stakeholders too. Other benefits include lowered costs of products and services from suppliers and creation of new business opportunity. There has been extensive research in the field of negotiation in the last decades. However, Prado & Martinelli (2018) state that the research is limiting since it does not give much attention to the concept of negotiation in business. Despite negotiations being central to business activities, there is insufficient information on the real process of negotiation. A clear understanding of the concept of business negotiation is pivotal in business negotiation practices. There are three strategies of negotiation namely distributive, integrative, and compromise. Distributive and integrative classifications were first introduced by Walton & McKersie (1960) in their study of negotiations in the workplace where they focused on the components, attitudes and perceptions of negotiators as cited in Prado & Martinelli (2018). The aim of this paper is to analyze the different strategies of negotiation and how they are applied in different situations.
Despite negotiation being at the core of the business operations, there is inadequate information concerning what actually occurs during negotiations. To enhance understanding of the subject matter, this paper analyzes the strategies of negotiations and the situations when they are applied. Research data was gathered from secondary sources specifically online materials including scholarly articles, journals and books. The data acquired provided an in-depth understanding of distributive, integrative and compromise strategies of negotiation.
Distributive negotiation, also known as win-lose, zero-sum or claiming value, is a strategy used when a party is looking to achieve the maximum share of a limited resource e.g money (Prado & Martinelli, 2018). In this bargaining strategy, the negotiator employs leverage, power or persuasion to influence the other party to accept the deal. Distributive negotiators only settle for deals that are favorable to them. While one party gains, the other party loses. For example, Grace is selling her phone at $200 but does not intend to go lower than $170. Peter offers her $150 and convinces her that no one else will buy the second-hand phone above that price. Grace, in fear of losing the market for her phone, agrees to sell it at $150. In this case, she loses $20 at Peter’s gain. In another situation, Jeremy walks to a boutique and find a pair of shoe whose price is $60. Jeremy gives the seller an offer of $40, which is rejected. After back-and-forth bargaining, the seller agrees to sell the shoe at $55. The seller sold the shoe at $5 less while Jeremy paid $15 more. The winner in this case is the seller while Jeremy is the loser. Distributive strategy is sometimes employed in situations where the other party is not willing to negotiate. The negotiator makes an extreme proposal to determine if the other party is well informed about the value of the item or service. Another tactic mostly used by distributive negotiators is that they pretend that the issue is of less importance to them to disguise the value of the deal at hand. Distributive strategies are only convenient for single deals or transactions where the negotiator does not intend to make future deals with the other party. Another limiting factor of this negotiation strategy is that the opposite party might feel exploited and therefore back out of the bargaining process (Sprangler, 2003). Sometimes the negotiator can seek menial concession just before the deal closes.
Integrative negotiation, also known as win-win or interest-based bargaining, is a strategy where both parties collaborate to reach a mutual agreement. In this bargaining activity, one party gets his objective and pay off the other party basing on the interests. In integrative bargaining, “the pie” is expanded and modified. The win-win strategy creates a joint value to cultivate better and long-term relationships. In this approach, the negotiator is soft and concerned about the other party’s needs unlike the distributive negotiator who demonstrates a hard behavior without worrying about establishing future relationships. For example, John and Betty are colleagues at a technology consulting company. The two intend to establish a Learning Management System (LMS) in their company. Betty’s opinion is to outsource the service from a specialized firm while John prefers to assign the task of developing and implementing the software to the in-house team. The colleague start discussing the issue where John seeks Betty’s reasoning of outsourcing the service. She explains that if the project is assigned to the in-house team, she will be forced to oversee the project. She further states that she has newborn twins which she hardly spends time with due to workload therefore the project will worsen the situation. John’s concern of outsourcing is the associated cost yet the in-house software development team is under-utilized. He then proposes to use the in-house department provided a different manager of the project is selected, which Betty agrees. Here, John got his objective but had to pay off Betty for accommodating his interests. In another situation, Shanon walks in a store where she sees a dress that she likes. However, after a keen scrutiny of the dress, she gives it up due to its neckline design. To get her to buy the dress, the seller offers to change the dress’ neckline to her liking in two days. Since the seller was determined to achieve his selling objective, he was willing to go an extra mile of changing the neckline to please the buyer. The buyer waited for two more days to receive the dress. Integrative solutions are more gratifying for both parties. This approach enhances constructive, positive relationships among involved parties (Spangler, 2003). While the distributive bargainer uses force and insists on his position, the integrative counterpart incorporates reason and insists on objective criteria. Since relationships are at stake in this approach, one party might end up over-committing, which can lead to a loss. It is therefore important to determine whether the relationship in interest will yield value in the future before making an accommodative commitment (Strangler, 2003).
Compromise is the commonly used process in bargaining where parties give up one thing in favor of something else they want more (Sprangler, 2003). In this approach, none of the parties gets their objective but instead make compromise to reach an agreement that is satisfying to both. Compromise strategy is generally used when there is limited availability of resources e.g. money and time. This method too aims to cultivate good relationship for future interactions. For example, Bob is selling a house at $200,000. Mr. and Mrs. Fox make an offer of $160,000 for the house. Because Bob feels the $160,000 offer is too low for his intended business, he offers the couple a price of $180,000, which they agree to pay. In this case, Bob compromised to sell the house at $20,000 less while the couple compromised to buy the house at $20,000 more. In other cases, multiple issues can be negotiated. For instance, in the above case, the Fox’s may want to move in the house in a month because they stay in a hotel which, apart from being too small for them, is expensive. On the hand, Bob plans to stay in the house for three months before he moves. For the couple to achieve their objective, they accept Bob’s compensation request of $5,000. They end up paying $185,000 in order to access the house in one month. Bob on the other side, moves out of the house before his planned time but receives compensation for the inconvenience. Compromise bargaining strategy can be easily confused to integrative method. However, while integrative aims at creating joint earnings, compromise may result in partial earnings where parties give up one thing to gain the other.
Negotiation is an essential skill in today’s complex business environment. It is the process where two or more parties engage in a discussion to find an agreement. Negotiation occurs in different aspects of business including employee compensation, contracts, and vendor pricing and sales. Great negotiation skills are pivotal in a business’ success due to benefits like reduced costs and improved customer relations. However, despite negotiation being at the center of daily business operations, the real concept has received less scholarly attention where there is inadequate knowledge about what actually happens during negotiation practices. There are three strategies of negotiation namely distributive, integrative and compromise. Distributive or zero-sum bargaining is a process where a negotiator claims value at the expense of the other party. This method is applied when the resources are limited and the negotiator uses force and coercion to influence the other party to accept the deal. Distributive bargaining is effective in single-deal transactions where no future relationship is anticipated. In integrative or interest-based approach, the negotiator creates joint-value by making adjustments on the deal to satisfy both parties. The negotiators inquire about each other’s needs in order to reach a fair agreement. This is a relationship-focused approach which is convenient for future transactions. Compromise is a basic mode of negotiation. In compromise, a party gives up one need in favor for the other which he needs more. None of the parties get what they initially wanted because they alter the terms of the deal in order to meet half way.
Prado, L.S. & Martinelli, D.P. (2018 June, April). Analysis of Negoiation Strategies Between Buyers and Sellers: An Applied Study on Crop Protection Products Distribution. RAUSP Management Journal. Elsevier. Retrieved from https://doi.org/10.1016/j.rauspm.2018.01.001
Harvard Law School. (n.d.). Business Negotiations. Harvard Law School. Daily Blog. Retrieved from https://www.pon.harvard.edu/category/daily/business-negotiations/
Sprangler, B. (2003, June). Compromise. Beyond Intractability. Retrieved from https://www.beyondintractability.org/essay/compromise