How to arrive at optimal agreements in negotiations
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.
Keeping your bargaining partner happy: Satisfaction with outcomes in negotiations
Win Win Negotiation Example 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.
Win Win Negotiation Example 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.
Social psychologists George Loewenstein at Carnegie Mellon University, Leigh Thompson at Northwestern University, and Max Bazerman at Harvard University have demonstrated that negotiator satisfaction is affected by social utility – the comparisons people make between their outcome and their counterpart’s outcome. The American Airlines workers were willing to agree to wage concessions, but they wanted their sacrifice to be shared companywide.
In negotiation, we form perceptions about both sides’ claims. As the initial American Airlines deal illustrates, these perceptions can be mistaken. The unions were unaware of the type of deal executives would be getting until management was forced to disclose their benefits.
The lesson? As car salespeople have learned, be modest about your gains from a deal, and commend your counterpart for her hard bargaining in order to create a win-win situation.
Win Win Negotiation Example 3. Social Comparisons
Wharton School professor Maurice Schweitzer and Yale University professor Nathan Novemsky identify social comparisons as another critical factor in guiding win-win negotiator satisfaction.
Not only do negotiators compare their profit from a deal with the profit they imagine their counterpart earned, but they also compare their profit with the profits of other negotiators who were in a similar situation. For example, a car buyer is likely not only to assess how much the dealership made off of him, but also to compare his price with the deal his neighbor got. If the buyer’s neighbor bought the same model car for a higher price, he is likely to be more satisfied with his purchase than if his neighbor got a better deal.
Social comparisons can drastically skew our perception of a particular outcome. Unfortunately, our ability to make comprehensive and accurate social comparisons is limited. We typically compare our own outcomes with those who are close to us – neighbors, coworkers, and family members.
In addition, individuals or organizations sometimes limit our access to information that could improve the accuracy of our social comparisons; for example, many companies discourage employees from disclosing their salaries to another. Similarly, your brother-in-law may choose to tell you only about the stocks he purchased that increased in value.
As a negotiator, you need to recognize the limitations you face in developing a complete and accurate social comparison set. In addition, you should seek to guide the comparisons that your counterpart selects if your goal is a win-win negotiation. When engaged in labor negotiations, for instance, a management team might highlight recent labor contracts in which other unions received less advantageous terms than the union desires.
Win Win Negotiation Example 4. Negotiation Experience
Research on procedural justice by social psychologist Jerald Greenberg of Ohio State University has found that we attach a great deal of importance not only to our outcomes but also to how we achieved those outcomes. In particular, people feel more satisfied when a negotiation involves procedures that they perceive to be fair – even when the outcome is unfavorable for them.
To guide these win-win perceptions, give your negotiation counterpart a voice in the decision process. Even when you are in a position of power, be sure to acknowledge your counterpart’s perspective and invite him to express his views, to suggest alternatives, and to react to initial proposals.
You can also enhance perceptions of fairness after an outcome has been reached by providing detailed explanations for unappealing actions or outcomes. These explanations, though time-consuming in the short run, can help your counterpart develop a much more favorable view of the process – and ultimately save you substantial time and effort later. And that’s clearly a win-win result.
Originally posted in 2013.