In business, negotiation skills are crucial in both casual and formal settings. Quality negotiations can help build and maintain better relationships, provide lasting solutions to problems, and avoid future conflicts. It’s imperative to not only know how to negotiate well, but to do it in a way that builds trust and partnerships along the way. During this webinar, Charlie Trevor, professor and the Ruth L. Nelson Chair in Business in WSB’s Department of Management and Human Resources, explains what actions to take to find success in negotiations.
Find the zone of agreement
The zone of agreement (ZOA) is the space for a rational deal to happen from both perspectives. It is the overlap between what a buyer will pay and what a seller will accept. To better understand the ZOA, you need to set a reservation price. A reservation price is the minimum acceptable level to say “yes” to a deal.
Understand the best alternative to a negotiated agreement
The best alternative to a negotiated agreement (BATNA) is what a buyer turns to if there is no deal—if a buyer and seller walk away from each other. Knowing the BATNA will keep you from accepting a worse outcome than you could find somewhere else. It’s best for the buyer to try to build a better BATNA. The better a BATNA, the stronger the alternative, and the easier it is to walk away with more leverage.
Think through standards
Standards are the legitimate elements that help define the rules of engagement in negotiation, such as interest rates, comparative prices, and precedent. Always consider what your counterpart might use as preferred standards and frame your arguments within them. You will be more prepared for the conversation. Be careful in attacking others’ standards, but also be able to defend your own.
Consider first offers
Some say to never make the first offer, while others think it’s always the right move. Ultimately, it depends on the situation. First offers can be strategic because people tend to adjust from that starting point. Making a first offer works well if you know how to choose your anchor wisely. If your counterpart doesn’t know the market as well as you do, you can benefit from letting them throw out the first number.
Charlie O. Trevor is a professor and the Ruth L. Nelson Chair in Business in the Department of Management and Human Resources at the Wisconsin School of Business. He is also the academic director of the Strategic Human Resource Management Center.
His research focuses on employee turnover, particularly of the employees that companies can least afford to lose, layoff effects on human capital, and the determinants and consequences of employee compensation. Trevor teaches courses on negotiations, employee compensation, research methods, and HR systems.
He received his PhD in industrial and labor relations from Cornell University.