By Gregory Polcyn; Area Vice President, AFGE 1658
Traditional negotiations can often be thought of as a “zero-sum game”; what is one parties’ loss is the other’s gain. In this fixed pie, limited resource environment hardball tactics are often used to get to an agreement. Often times traditional negotiations lead to “win-lose” outcomes, because one side will always get more than the other side in this scenario.
In traditional negotiations both parties often begin with very similar strategies. In labor negotiations, there are opening positions and final positions. To illus-trate traditional negotiations, I’ll use the example of buying or selling a piece of real estate. For example, an 1100 sq ft. condominium with a 1 car detached gar-age. This is a scenario we all can relate to either as the buyer or the seller.
As the seller, my strategy is to ask more than what I expect to get for the condo. This would be my asking price; in this case $115,900. Remember, my asking price is not what I expect to get. What I expect to get is my target price, which will be lower than my asking price. In this case my target price is $109,500, $6,000 less than my asking price. However, I really want to sell this condo so I’ll take even less than my target price. In fact, I’ll take $102,900, but that’s it; that’s my lowest price. This lowest price ($102,900) is referred to as the seller’s reserve price or a bottom line price. The seller will walk away from the table if they don’t get this price.
On the other side of the table is the buyer. The buyer also has an asking, target and reserve price but they are opposite in value. As the buyer, I want to start low and go higher incre-mentally. One aspect of traditional negotia-tions is that parties do NOT normally share information such as the bottom line price. In this example, my initial offer on the condo was $101,500, lower than the seller’s reserve price, but I don’t know that. If the seller agrees too quickly to my price, I know I over-bid. My target price would be $104,900. My reserve price, the price I will not exceed, would be $108,900.
Somewhere between $102,900 and $108,900 is a zone of possible agreement (ZOPA). Eve-ry dollar the buyer pays goes directly in the sellers’ pocket, that is why these types of ne-gotiations are so confrontational. As the buy-er I don’t know what the seller’s reserve price is and he is not going to tell me, so I have to guess. If I guess high, then I lose. If my guess is close to or at $102,900 (seller’s reserve price), I win.
In traditional negotiations both sides tell only what they think the other side needs to know. As the seller, I don’t want to mention that I have “crazy” neighbors that throw parties every weekend during the summer. If one side tells too much, then that opens up the possibility of losing something, i.e. time or money.
In my next article I’ll discuss the use of a BATNA- Best Alternative to a Negotiated Agreement and how that plays into negotiations.
