Understanding the interests of the other party and creating a perception of what is possible is crucial 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 situation, as we explained in one of the previous articles.
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Consider which disputes will be discussed and what opportunities exist for creating added value through concessions. Once 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 giving/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 common 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 that has been considered in the previously mentioned texts, you then possess the elements necessary for successfully giving and asking for 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 (giving and asking for 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 establishing the area in which an agreement can be reached arises from the fact that only in this 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 expectation point is a move that does not contribute to the successful conclusion of negotiations for the party that has done so. Failing to determine your own minimum expectations before negotiations is a serious strategic mistake, as the minimum expectation point has the most direct impact on the outcome of negotiations. 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.
