How to Create Value in Negotiations?

Understanding the interests of the other party and creating a perception of what is possible is essential for the other party to accept the agreement for their own reasons, and this is key to creating value in negotiations, i.e., an agreement that is better than the alternatives available to the negotiating parties.

To achieve this, it is necessary to be well-versed in the skills required to create value without exposing yourself to the risk of the other party exploiting your efforts to create value. Here, it is extremely important to understand the nature of the negotiating situation, as the method of creating value varies depending on the context of the negotiation, as we explained in one of the previous texts.

Consider which disputes will be discussed and what opportunities exist for creating added value through concessions
After you know everything about your interests and, hopefully, quite a bit about the interests of the other party, do the following for yourself and for the opposing negotiating party:
• List all disputes that cause disagreement in reaching an agreement. In most cases, the more there are, the better, as this provides more opportunities for making/asking for concessions.
• Rank the disputes from higher to lower priority of importance.
• Assign them a certain range of value (ZOPA) so that you can make concessions.
• Ask yourself what the other party truly wants, how far you can go on each dispute, what are the priorities of the other party?
• Compare your priorities with those of the other party, as every difference represents an opportunity for exchanging concessions.
Now you have a solid foundation for identifying areas of mutual interest, areas around which a compromise will eventually need to be reached, and areas that are opportunities for making concessions.

Principles of Concession Exchange
When you know what the interests and needs of the other party are in negotiations, what situation your interlocutor is in, and when you have the information discussed in the previously mentioned texts, you then possess the elements necessary for successfully making and requesting certain concessions and can create value in negotiations for all parties involved. In any case, the essence of exchanging concessions is to improve your position (and we believe the position of the other party as well, as this is the easiest way to reach an agreement).

The basic assumption that must be met for the exchange of concessions (making and requesting certain concessions) to occur is the awareness that what has significant value for one party does not represent the same value for the other party in most cases. Something that has less value for us (and great value for the other party) is given for something that has great value for us, and vice versa.

Zone of Possible Agreement
The Zone of Possible Agreement (ZOPA) is between two points of acceptable minimum expectations of the negotiating parties. The significance of determining the area in which an agreement can be reached arises from the fact that only in that zone can a mutually satisfactory agreement be achieved, as otherwise, negotiations are likely to break down after some time.

An agreement without ZOPA will not be possible, regardless of the negotiating skills of the parties involved, if there are no other elements that can be of value for consideration or if the minimum expectations (Reservation Price) of one or both parties do not change. However, we must be aware that even when there is a ZOPA, it is not a guarantee that negotiations will successfully conclude, that an agreement will be reached, as it may happen that the parties simply cannot agree due to having the wrong approach to negotiations, or they lack knowledge and skills in negotiating.

Minimum Expectations
The minimum expectations (Reservation Price/walk-away position) is the lowest/highest value that will be accepted in reaching an agreement (depending on whether you are the seller or the buyer) and these two points determine the ZOPA. In most cases, neither party truly knows what the minimum expectations of the other party are, as it is, of course, an estimate. Revealing your minimum expectations point is a move that does not contribute to the successful conclusion of negotiations for the party that has done so in any type of negotiation. Failing to determine your own minimum expectations before negotiations is a serious strategic mistake, as the minimum expectations point has the most direct impact on the outcome of negotiations. In doing so, it is possible to reject an offer that is better than our BATNA or, conversely, to accept an offer that is actually worse than our BATNA.

Signaling
After you have checked your assumptions (from the preparation phase) at the negotiating table and obtained other information, skillful questioning and listening will be used to signal and argue to create a perception in the other party about what is possible to achieve in negotiations.

Negotiating often starts by taking strong, seemingly immutable positions.
• It is impossible to change our delivery deadlines. / You have received the best possible price. / You have the best possible terms.
After some time, negotiators usually signal a willingness to modify their initial positions. You must recognize these signals and use them yourself.
• It will be really difficult for us to achieve shorter delivery deadlines. / It will be really difficult for us to change the stated terms. / We usually do not give credit. / We never give discounts, and even if we did, …
It is characterized by a barely noticeable change in expression from absolute statements to conditional statements. Therefore, listen carefully, watch, confirm, clarify, expand.
• Under what conditions would you still give credit? (deposit laid?) / Which of our terms can you still meet? / Can you clarify when you can change the deadlines?

Making Proposals
When positive signals are received from the other party, negotiations move into the phase of making proposals that align with the priorities of the negotiating parties.

Making proposals is not the final offer around which negotiations are conducted but an upgrade to the signaling process, i.e., an attempt to concretize the received signals.
• If you are willing to increase the discount by 7%, then we will consider increasing our minimum orders.
• If you reduce the unit price to 10 kn, then we will consider increasing our order.

Proposals should be explicit in terms of what you want from the other party and vague about what you are willing to do, so the other party does not exploit your confirmation of willingness for certain concessions.
• Be brief in making your proposals. Then be silent and wait for a response. Do not make a counterproposal if the other party is silent, i.e., do not negotiate with yourself as this may be a tactic of the other party.

Packaging
Packaging is the process of adjusting items (disputed points) into a mutually acceptable package (agreement). We need to find out what is a ‘win’ for the other party, as if we do not know, we are unable to satisfy the interests of the other party. The key is to find a package that satisfies the interests of the parties in negotiations in a way that gives concessions ‘less valuable for me, more valuable for you’. 

The packaging process requires understanding the positions and interests of both parties in negotiations, which you should have largely established by this stage, as well as creativity, flexibility, and patience. If the other party has hesitated to provide essential information about their priorities, packaging can help you get a rough picture of what they value more and what less, allowing you to compare the packages they have chosen against other packages.

Example of Packaging:
Item        Package 1        Package 2        Package 3
Price        99 kn            89 kn            94 kn
Contract Length 3 years 5 years       4 years
Quantity 10,000 pcs 15,000 pcs 13,500 pcs
Payment Terms 60 days 45 days 45 days

S.M.A.R.T. – WIN Concept of Business Negotiation
Copyright Ivica Katanić, www.pregovaranje.com