As the following points of win-win negotiating will demonstrate, ensuring that your counterpart is satisfied with a particular deal requires you to manage several aspects of the negotiation process, including his outcome expectations, his perceptions of your outcome, the comparisons he makes with others, and his overall negotiation experience itself.
1. Outcome Expectations
Prior to and during a negotiation, people develop expectations about the type of deal they will receive. Work by business school professors Richard Oliver and Bruce Barry of Vanderbilt University and Sundar Balakrishnan of the University of Washington demonstrates that negotiators automatically compare their actual outcome with the outcome they expected prior to negotiating.
As a result of the process, two negotiators with the exact same outcome can feel very differently about their deal.
- For example, consider two car buyers who both purchased the same model car for $30,000. The buyer who expected to pay $29,000 will be dissatisfied with this deal, while the buyer who expected to pay $31,000 will be quite pleased.
Skilled negotiators manage expectations prior to and during a negotiation in order to create a true win-win negotiation. Some managers do this instinctively.
- For example, in the month prior to salary negotiations with employees, managers may broadcast the message that this has been a difficult year for the company. After having their expectations lowered, some employees may be satisfied to receive even a small cost-of-living raise.
Your reaction to an opening offer can also influence your counterpart’s expectations. By reacting with a surprised look, a laugh, or a flinch, you can lower your counterpart’s expectations about the feasible zone of possible agreement (ZOPA). Conversely, by appearing very cooperative or particularly eager for agreement, you may raise your counterpart’s expectations.
One common negotiation mistake that sabotages a win-win situation is to escalate expectations by making a steep concession that could lead the other side to expect another.
Imagine that you’re bidding on a house that has been on the market for some time at a high list price of $390,000. You like the house but start with a lower offer: $300,000. In response, the seller offers you a slight reduction from the list price to $385,000. Hoping to bridge the gap, you make an offer close to your bottom line: $340,000.
The seller may misinterpret this move and believe that you can easily make another $40,000 jump. Rather than quickly agreeing to your offer, the seller might escalate her expectations regarding likely outcomes.
A related win-win mistake is to agree to your counterpart’s demands too quickly.
Adam Galinsky and Victoria Medvec of Northwestern University, Vanessa Seiden of Chicago-based Ruda Cohen and Associates, and Peter Kim of the University of Southern California, studied reactions to initial offers in negotiation. They found that negotiators whose initial offers were immediately accepted were less satisfied with their agreement than were negotiators whose offers were accepted after a delay – even if the former group reached better final outcomes than the latter group.
Those whose initial offers were immediately accepted were more likely to think about how they could have attained a better outcome than were negotiators whose offers were accepted after a delay.
As these results suggest, you can actually make your counterpart less satisfied by agreeing too quickly. In fact, a better win-win strategy may be to delay agreement and even ask for additional concessions, because you may be able to make your counterpart more satisfied with a deal.
2. Perceptions of Your Outcome
Just as win-win negotiators evaluate how good a deal is for themselves, they also assess how good a deal is for their counterpart. For example, when negotiating a labor agreement, unions often care not only about how much they gain in wage and benefit concessions, but also about how management is making out.
This is a lesson that Donald Carty, former CEO of American Airlines, learned the hard way in 2003. The airline was struggling with an uncertain financial future, and the management team asked employee unions to cut their benefits by $10 billion over six years. After protracted negotiations, the unions finally agreed to wage cuts that ranged from 15.6% to 23%.
The unions perceived that this deal was in their best interest – until they learned about the special deal American Airlines executives had worked out for themselves. Six top executives at the company, including Carty, had arranged to earn large bonuses (twice their salary) if they stayed at the company through 2005; the company also set up a special pension fund for 45 executives in the event that American Airlines filed for bankruptcy. These perks were disclosed in the Securities and Exchange Commission filings made public one day after the unions’ leadership rescinded the deal. One week later, Carty was forced to resign.
Discover how to handle complicated, high-level business negotiations in this free report, Win-Win or Hardball? Learn Top Strategies from Sports Contract Negotiations, from Harvard Law School.