Co-Opetition - Adam M. Brandenburger [108]
• burying projects they’ve turned down
• following the herd
• creating reasons to fail
Negotiation Tactics
The typical negotiation takes place in a fog. People tend to get lost navigating through this fog, and the negotiations run aground. One mistake is to overstate what you need, hang tough, and thereby kill the deal. Another mistake is trying to strengthen your hand by revealing something that, in fact, would have been better left hidden. A third mistake is forcing a consensus when preserving differences of opinion would actually be more helpful in crafting a deal. In this section, we’ll look at these three negotiation traps and suggest some ways out.
As the Escrow Flies Negotiations can be full of bluffing and posturing. People make extreme demands to try to anchor the subsequent back-and-forth in their favor. In this kind of climate, if you reveal what you really need, you can find that information being used against you. There’s a clear incentive to act tough. But if everyone acts tough, it gets much harder to craft agreements. Negotiations deadlock, and then the deal doesn’t get done, even though everyone would benefit if it did.
Let’s look at this problem a little more closely. You’ve got something to sell, and you’re talking to a potential buyer. Your absolute floor is $100. Any less and it makes more sense for you to go elsewhere. In an attempt to be reasonable and fair, you ask for $120. The buyer turns you down. Even worse, now he knows that your floor is below $120. All of his counteroffers will be below $120, and you may have to settle for an amount very close to your floor of $100. That doesn’t seem reasonable or fair.
The next time you’re in this situation, you decide to ask for a lot more than $100. You demand $180, and the buyer comes back with an offer of $140. You stand firm, hoping to get more. In fact, the buyer’s ceiling is $150, and his $140 offer was made in good faith. He simply can’t pay your price. By refusing to budge, you’ve killed the deal altogether.
Asking for a little gets you a little, and holding out for a lot may get you nothing. Neither way is clearly right.
The problem is not with the players, but with the game. University of Chicago Business School professor Rob Gertner and NYU Law School professor Geoffrey Miller have come up with a better game to play. They’ve devised some ingenious rules that enable people to behave reasonably without having their lunch eaten. They call their negotiation method “settlement escrows.”17
Here’s how settlement escrows work. The buyer and seller agree to bring in a neutral third player to act as mediator. The seller tells the mediator, in private, a price at which he’d be willing to sell. Likewise, the buyer lets the mediator know, again in private, a price at which he’d be willing to buy. The mediator checks to see whether the two prices cross—that is, whether the buyer’s offer exceeds the seller’s bid. If so, the mediator calculates the midpoint price, and seller and buyer transact at that price. If the two prices don’t cross, the mediator doesn’t reveal either price. He announces only that the prices didn’t cross.18 Neither side learns the other’s bid, and the two parties can go on negotiating without prejudice.
Let’s return to our example. It’s now much safer for you, the seller, to ask for $120. If the buyer quotes the mediator a price above $120, the deal is done at the midway price. Thus, if the buyer quotes $160, he ends up paying you $140. That’s fine by you. You get more than you asked for. And while the buyer now knows you asked for $120, and may be kicking himself for not quoting the mediator a lower price, it’s too late for him to do anything about it. The game is over. Those are the rules. As the seller, you’re protected.
What if the buyer quotes the mediator a price below $120, say $110? Then the deal doesn’t go through. True, you and the buyer will have to try some other way to reach an agreement. But in making a reasonable opening demand, you haven