Negotiations

Negotiation
 Process of formal communication, either face to face or via
electronic means, where two or more people come together
to seek mutual agreement about an issue or issues
Five phase negotiation process
1. Identify or anticipate a purchase requirement – purchase
requisition, inventory counts etc.
2. Determine if negotiation is required – is bidding
sufficient?, any non-price issues etc.
3. Plan for the negotiation – strengths, weaknesses of the
participants, develop strategies and tactics
4. Conduct the negotiation – work to narrow differences and
manage time pressures
5. Execute the agreement – provide feedback
Reasons for negotiation
1. Non-price issues – delivery schedule, special packaging,
technology support, allowable costs, IPR issues etc.
2. Contract value is large
3. Purchase requires complex technical requirements
4. Purchase requires capital intensive plant and equipment
5. Agreement requires a special or collaborative relationship
6. The supplier will perform important value added activities
– like product design / testing etc.
Sources of power in negotiation
1. Informational power
2. Reward power – give something
3. Coercive power – take away something
4. Legitimate power – based on position
5. Expert power – special form of informational power
6. Referent power – personal qualities and attributes of an
individual
Concessions
 Movement away from a negotiating position that offers
something of value to the other party
 Without concessions, most negotiations result in a deadlock
 Boulwarism – negotiating style in which buyer / supplier
open their best and final offer with no concessions
Negotiating tactics
1. Reciprocation – obligation to give something back to
someone after we have received something
2. Consistency – consistent in our beliefs and actions
3. Social proof – look to behavior of others to determine
what is desirable
4. Liking – work well and are more agreeable with people we
like
5. Authority – we are more likely to accept the directions
from authority
6. Scarcity – e.g. you are already short of raw material
Characteristics of win-lose / win-win
negotiations
Win-lose negotiation (Distributive
bargaining)
Assume rigid negotiation positions
Compete over a fixed amount of value
Practice strict use of power by one party
over another
Pursue adversarial relationships
Win-win negotiation (Integrative
bargaining)
Understand each other needs and wants
Focus on common rather than personal
interest
Conduct joint efforts to solve the problem
and develop creative solutions that provide
additional value
Engage in open sharing of information