Negotiation Tactics Shortlist: Influence and Defend

negotiation tactics

In this post we outline a set of negotiation tactics you can use during your negotiations. For better understanding, we recommend you to first read the article A Real World Negotiation Strategy Framework.

The negotiation tactics listed below complement the strategy framework in the sense that they may help you execute your chosen strategy. The list is neither comprehensive nor mandatory for success, but simply outlines some options available to you. Based on your situation you may choose to use some of the tactics, or none at all.

Negotiation Tactics of Influence

1. Highlight potential losses rather than potential gains

People don’t like losing and are prone to focus more attention to a potential future loss, especially if the loss appears to be great. Highlighting the potential losses may sway your opponent to be more open to negotiation.

Note that it’s important to not over-emphasize or exaggerate a potential loss. Doing so may come across hostile or humiliating and your opponent may reject your hypothesis.

Example: a video-game development company may be persuaded to support a certain technology if not supporting it means the loss of a significant part of the potential player base.

2. Disaggregate gains, aggregate losses

Building on the previous tactic, it is useful to separate all the gains into separate arguments and aggregate all losses. This makes it seem as if the deal presented has a lot more positive elements than negative. In addition, the large loss looks easier to overcome or prevent.

3. Door in the face

When using the door in the face technique you follow a strong request with a more moderate request. As your opponent rejects the first request, it is more likely that they will approve the second request.

4. Foot in the door

The foot in the door technique is the opposite of the door in the face technique. Instead of aiming for rejection with the first demand, you aim for compliance. Your first request must be very reasonable for the other party to agree with.

Example: an online subscription service may offer you a free trial of one month before asking you to pay a monthly fee.

5. The power of justification

Nothing beats an honest and reasonable request from a trusted party. When the other party believes your request is justified by the information you provide, they are more likely to agree.

Example: when a child needs to use the restroom urgently, you will be able to convince the restaurant owner more easily to allow use of the restroom without purchase.

6. The power of social proof

Everyone knows that social peers can be a great enabler to make a purchasing decision. However, you don’t always need peers to use the power of social proof. Sometimes the suggestion of social proof is sufficient.

Example: when a company claims an online-only product is in high demand and urges you to order quickly, they may choose to limit the bandwidth of the page so less concurrent visitors can access it. As a result, it appears as if the website traffic is very high and thus must be very popular.

7. Token in literal concession

Giving a reward in exchange for an action may get people to give in to your demand.

Example: when signing up for Dropbox, you get extra storage space for sharing the service with your friends.

8. Employ reference points 

This tactic combines the leverage of justification and social proof. It is widely used by companies aiming to increase their market share within an industry. Note that it’s important to use reasonable reference points. If the reference point is deemed unreasonable, it may undermine your negotiation.

Example: Xiaomi offers smartphones with similar features for a much lower price than its competitors. It may seem reasonable to spend more than you intended for a smartphone whose value is derived from the reference point.

9. Logrolling

Simultaneously negotiate multiple issues valued by each party differently to trade off concessions. This involves a lot of quid pro quo and complements an integrative negotiation strategy.

Example: you are deciding with your significant other where to go on holiday. You both dislike preparing for the trip. You want to go on a beach holiday and your significant other prefers a city-trip. Instead of negotiation the two topics separately (“Where to Go?” and “Who will prepare?”) you deal with both at the same time. A solution may be to split the vacation time in part beach, part city-trip, and each person prepares their preferred part of the holiday

Defending from Negotiation Tactics

Armed with the negotiation tactics listed above you can prepare for your negotiation. However, you must expect your opponent to also prepare properly. Therefore it’s important to also defend from these tactics influencing your decision making. Below you can find a shortlist of practices that can help you defend.

1. Prepare systematically

As outlined in the negotiation strategy framework post, it is important to prepare your negotiation thoroughly. Before entering the negotiation you need a clear outline of what you want as outcome of the negotiation, what you are willing to give up, and which line you are not willing to cross.

Some items to consider:

  • Target Point: what do you want?
  • Reservation Point: what line are you not willing to cross?
  • BATNA: what are your alternatives and how solid are they?
  • ZOPA: what would a potential agreement look like?
  • Bargaining Mix: what elements may be on the table?

2. Create a scoring system

Different elements of the negotiation may be of varying value to each partner at the table. Use a scoring system that determines the value you attribute to each element and keep track of your scoring system during the negotiation. If possible also create a (virtual) scoring system for your opponent.

A scoring system will help you maintain focus on your priorities as well as serve as a more objective basis to determine the outcome of the negotiation

3. Separate information from influence

When receiving information from the other party, be aware they may be trying to influence your decision.

Choose alternate sources to cross-check the information provided and separate genuine information from the influence.

4. Rephrase the offer in different terms

Rephrasing an proposition by your opponent gives you a couple of advantages.

Firstly, it gives you additional time to evaluate the proposition and its merits. Secondly, it forces the other party to reconsider the value of the proposition. Thirdly, it allows you to take or regain control of the negotiation process and dictate the pace.

Last but not least, it helps clarifying the details of a proposition.

5. Appoint a devil’s advocate

A devil’s advocate will help you simulate the negotiation and understand its dynamics before entering the real negotiations. Ideally a devil’s advocate will put you in an uncomfortable position so that you test out different tactics.

A great devil’s advocate will be tougher in negotiations than your actual opponent because they are not an invested party in the outcome.

6. Refuse negotiating under time pressure

Referring back to the negotiation strategy framework, time pressure forces a negotiator to rely on their System 1 thinking. You want to avoid this situation at all cost.

If needed, employ the Go To The Balcony technique to remove yourself physically or mentally from the negotiation

Negotiation Tactics for Weak Positions

Typically speaking, your negotiation position is as weak as your strongest alternative to an agreement. Although it is not recommended to enter a negotiation from a weak position, sometimes it is inevitable.

In this case, the first step is to recognize that your are in this position. Once realized, you can employ certain tactics to still make the most of the negotiation. Note that the success rate for negotiating from a weak position is low and it’s more than likely the other party will succeed. Therefore the tactics outlined below could be considered methods to minimize the damage.

1. Do not reveal you have a weak BATNA

Especially in negotiations where the other party also has a weak best alternative to a negotiated agreement, it is in your best interest to ensure they don’t know you are weak.

It may be helpful to construct a virtual best alternative to inspire confidence during the negotiation.

Note that the best course of action in case of a weak BATNA is to expand and improve your BATNA

2. Leverage the other party’s weakness

In a scenario where you are co-dependent on the other party, it may be useful to leverage the other party’s weakness by offering to help resolve it.

Example: in salary negotiations you may offer your boss to use your professional network to help resolve a problem that is out of the scope of your job description.

3. Leverage your unique value proposition

Focus on what sets you apart from the alternatives.

Sometimes it’s not important to make the best offer, but to make it to the final round of contract bidding. Having an offer that is compelling because it offers something other bidders don’t may be appealing.

If you offer something unique, communicate this with the final customer and educate them. If the final customer appreciate the unique value, this attribute may increase the value of your offer.

Example: in an M&A transaction, remove the agent from the equation to reduce the overall cost of transaction as much as possible.

4. Be honest

If you define yourself in an extremely weak position, it may be useful to give away any power you have by being honest about your situation.

Honesty may increase the consideration of fairness with the other party. The other party may give you a better deal than necessary in exchange for possible reciprocity in other situations.

Example: when applying for a new job position with low salary conditions, you may reveal to your future boss that you will take the job because you need to support your family, even though you consider the salary is too low. In that case your boss may be willing to increase the salary according to their judgment.

5. Increase the scope of negotiation

By presenting the bigger picture to the other party, you may be able to hide your weak position. You can do this by leveraging the power of extreme weakness in case the other party needs you to survive. Also you can cooperate with other people in similar weak positions to form a union against a stronger negotiating party.

Example: you are the primary supplier in the smartphone value chain. Your customer represents 80% of your business, and you supply 60% of the product to your customer. When the other party negotiates for lower prices, you may leverage that lower prices would lead to your company going out of business. In that case, the other party would lose a significant portion of the product necessary to build the smartphone. Looking at the bigger picture, lower purchasing prices may not seem as important.

A Real World Negotiation Strategy Framework

negotiation

In this post we talk about the framework for real world negotiation strategy. The content of the post follows lengthy discussions with Frank Gong on the matter.

Expertise and Experience

In the real world there are two key elements to success: expertise and experience. Expertise implies a certain level of proficiency in your job or field, particularly when it comes to understanding the matter in a structural way. Typically you obtain expertise by studying a course or going to school. Experience is the skill and knowledge you build up over the years as you’re practicing in the real world.

Expertise and experience are both important in the real world. They can help you find a solution in a structured way, or come to a solution faster or more efficiently.

While it is advised to gather expertise first, then gain experience in the real world, it is not the only way to be successful. As a general rule of thumb, it’s good to have both. If you are experienced in a certain field it pays to improve your expertise further. If you have great expertise, it’s valuable to return to the field and gain experience through practice.

In this post we will discuss a negotiation strategy shared with me by Frank Gong.

System 1 and System 2 Thinking

Broadly speaking you can separate the way we think in two categories. System 1 thinking is fast, and System 2 thinking is slow.

You can conceptualize System 1 thinking as using your intuition to make a decision in a split second. It requires little to no conscious effort and is largely automatic. You may not even be aware you’re using System 1 thinking! The drawbacks is that it is strongly biased towards false positives and is often distracted by appealing narratives.

On the opposite side, System 2 thinking is slow and conscious. It requires you to focus your attention to the problem and carefully consider the implications. It is more logical and rational, therefore people like to believe they use System 2 thinking most of the time.

In real world negotiation, in particular in the business setting, it is advise to always rely on System 2 thinking processes.

Five Step Negotiation Strategy Preparation

In preparation of a negotiation, there are five essential steps

  1. Define your Target Point (TP), your Reservation Point (RP), and your Best Alternative To a Negotiated Agreement (BATNA)
  2. Improve and expand your BATNA
  3. Determine your opponent’s BATNA
  4. Define the Zone Of Possible Agreement (ZOPA)
  5. Determine the Negotiation Fit

In the next section we will cover each step more in detail.

1 – Target Point, Reservation Point and BATNA

Based on the outcome of a System 2 thinking and analysis process, you should define two key situations that may occur in the negotiation: when to agree and when to walk away. Your Target Point defines what you ideally want from the negotiation, whereas the Reservation Point defines the point you do not wish to cross.

For example, when you are buying new running shoes your Target Point may be $60 for a pair of shoes and your Reservation Point may be $80. If the listed price is $90, you may haggle with the shop owner to lower it to $60. If the shop owner drops the price to $70 you can accept the offer even though it’s not as low as you wanted.

Setting a Target Point and Reservation point helps us override the urge for System 1 thinking to take over. In the example above, it would prevent us from buying shoes we really want for a price that is higher than our reservation point.

To determine your Reservation Point, it is important to determine what is your Best Alternative To a Negotiated Agreement or BATNA. A BATNA is nothing more than alternatives to your negotation. In the example of the running shoes, a simple BATNA is to go to the store next door and look for better priced running shoes

2 – Expand and Improve Your BATNA

The best time to look for a job is when you already have one

Common wisdom as the quote above teaches us that the best antidote to the lack of a good alternative, is to always work on improving or expanding your alternatives. The better your alternatives are, the more power you will have within the negotiation. You have the power to say no, walk away and still create a win-situation.

You can ask a couple of simple questions to work on your BATNAs:

  • Can you do without any agreement?
  • What is the cost of walking away from the negotiation?
  • Are there any alternatives available?

Once you have identified the possible outcomes, it’s important to continue to work on improving them

For example: you have stagnated in your career and are looking to improve this. In first instance you may consider to negotiate a raise and promotion. If you don’t have a BATNA, four things may happen:

  1. Success: you are given a raise and promotion
  2. Partial success: you are given a raise or a promotion, but not both
  3. No success: you are denied either a raise or promotion
  4. Failure: you are let go

To avoid disappointment, or disaster, let’s consider the BATNAs in this situation.

One alternative is to consider looking for employment outside the organization. Applying for open positions on the job market gives you a good understanding and appreciation of your worth on the market. Perhaps you find a job that pays better, that is more interesting, or is closer to home. In this case, expanding your BATNA means looking for other job opportunities. Improving your BATNA means going to interviews and impressing the potential employer.

Another alternative to consider is the worst possible outcome: getting fired. If you have been in a high-paying position and saved up plenty over the years, then maybe it’s not such a bad idea to take a couple months off. However, if you have little savings and a lot of expenses then taking time of is a weak alternative. If you want to expand your BATNA with the option of taking time off, you can improve the BATNA by looking for a second part-time job.

3 – Determine Your Opponent’s BATNA

To know your Enemy, you must become your Enemy

Sun Tzu

An obvious aspect of preparing for a negotiation is to understand the position of your opponent. The best way to prepare is to think about what you would do if you were your opponent. So consider what are their Target Point, Reservation Point and BATNAs.

Thoroughly evaluating your opponent’s BATNAs gives you the advantage of knowing if their are negotiating in good faith. It will also help you determine their possible Reservation Points which will increase your power in the negotiation.

However, even though you can spend a lot of time on the analysis, be aware that you are not your opponent. There will be information asymmetry, meaning there will be things you are aware of that they are not and vice versa. Factors that you deem important may be unimportant for your opponent. Therefore beware of over-valuing information you are able to gather.

4 – Zone Of Possible Agreement

The zone of possible agreement (ZOPA) defines the virtual area between two parties where an agreement can be formed where both parties agree. Within the zone an agreement is possible. Outside this zone, an agreement is not possible. This zone is sometimes referred to as a Win Set.

Typically the ZOPA lies between the reservation points of both parties. In the example of the running shoes, the zone of possible agreement is between $70 (lowest price the shop owner is willing to sell) and $80 (the highest price you’re willing to pay).

  • $90: Target Point Seller
  • $80: Reservation Point Buyer
  • $70: Reservation Point Seller
  • $60: Target Point Buyer
  • ZOPA: $70-$80

Considering this example, it is also easy to understand the concept of a win-win negotiation. There’s a clear win for the shop owner for making a sale, and there’s a clear win for the buyer as they own a new pair of running shoes. There is a negotiation surplus

5 – Determine the Negotiation Fit

Within the context of a negotiation, it is important to aim for maximum profit. However, the negotiation usually exists within a broader context that may impact the probability of reaching an agreement. If you pursue maximum profit within the context of the negotiation, you may risk minimizing the probability of the deal going through. In which case you end up with no profit, or worse.

Having a good understanding of the broader context of the negotiation will help you determine the negotiation fit.

In the example of the negotiation for a raise and promotion, the broader context implies that in case of success it is likely you will have to continue to work with your colleagues. Squeezing your boss for every penny in the salary negotiation may leave a bad impression. That may cause your boss to be unwilling to keep you in the loop or not having your back in case a project goes wrong.

Win-Win: Distributive and Integrative Bargaining

To wrap up this post let’s return to point four of the five-step program: the zone of possible agreement. As mentioned, it is possible to create a win-win as opposed to a zero-sum situation in the negotiation. This is the difference between distributive and integrative bargaining.

Distributive Bargaining

In distributive bargaining everything is a zero-sum negotiation. That means the size of the loss of one party is the exact size of the win of the other party.

For example, let’s consider two children who are tasked with dividing 30 M&M chocolates. Any amount higher than half, or 15, for one child is the same amount of loss for the other side. This is a clear zero-sum negotiation. The optimal strategy for this kind of situation is to have one child divided the candy into two groups and allow the other child to first pick the group of choice. That ensures the division of candy will happen in good faith.

Does that mean this situation is always a zero-sum negotiation? No.

Integrative Bargaining

In integrative bargaining we come to a win-win agreement by gathering more information so we better understand the needs and desires of both parties. The size of win of one party may

For example, let’s consider the 30 M&Ms come in 5 different colors distributed equality. Child A loves Red and Black, and is neutral about Green, Blue and Yellow. Child B loves Red and Blue, is neutral about Green, and is allergic to Black and Yellow.

In a distributive agreement each child would have 3 M&Ms of each color. The final result would be that 6 candies are not eating as Child B is allergic to both black and yellow.

In an integrative agreement Child A can choose to give up 3 of their blue candies (which they feel neutral about and the other child loves) in exchange for all of the yellow and black candies (which Child B is allergic to). The final result is that both children will eat more candy.

  • Distributive Bargaining
    • Child A: 15x candy (Red, Black, Green, Blue, Yellow)
    • Child B: 9x candy (Red, Blue, Green)
    • Throw away: 6x (Blue, Yellow)
  • Integrative Bargaining
    • Child A: 18x candy (3x Red, 6x Black, 3x Green, 0x Blue, 6x Yellow)
    • Child B: 12x candy (3x Red, 3x Green, 6x Blue)
    • Throw away: 0x

Concluding thought

The main take-away from this article is that negotiations are best done by applying System 2 thinking (rational and logical) and that information gathering and evaluation is your best friend.


What Is (Good) Business (Strategy)?

business strategy image
(picture source: peterpaul.com)

“What is business strategy?” is the question that popped up this morning in my daily conversation with Frank Gong. Lacking a sufficiently succinct definition proposed by either Google or Baidu, we set out to dissect the term.

Business

Business is the exchange of the tangible or intangible for a kind of payment. More specifically, it is the selling of a product or a service to a customer. When the demand for a product or service is larger than the supply, it is sufficient to simply have ‘business’. Make the product or perform the service and you will make money. In this case there’s no need for a strategy, let alone putting effort into finding a good strategy.

Example: a friend decided to start his own company to make electronic components with relatively low complexity. He previously made products as a hobbyist and was able to sell them to customers directly as well as a larger distributor. The distributor agreed to sell the products he is working on in his first year of business.

In this example, because the demand is already there it is sufficient to simply have business. Do it, and you make money.

Business Strategy

Sadly, in most markets and industries supply far outweighs demand. In this case, simply making the product or doing the service will not be enough to be successful. You will need a strategy to make it work.

A strategy is a specific plan designed to achieve certain goals. When forming a strategy, the firm must consider three things:

  • What are the existing and potential attributes of my product or service?
  • What are customers willing to pay some money for?
  • Which attributes do we focus on such that we are unique in the market?

Attributes can take many forms, both tangible or intangible. For example, a smartphone has tangible attributes such as screen size, camera quality, battery lifespan, operating system, storage size; and intangible attributes such as privacy, design style, after-sales customer care.

As part of the strategy, a firm must choose which of those attributes to focus on. Focus implies that the firm aims to achieve excellence for that particular attribute. It is in a sense the true north of the firm in this business.

In most cases, it is not sufficient to choose only one attribute. Focusing on only one attribute makes it easy for your competition to copy your focus and you’ll be in trouble. A firm’s unique value proposition is the unique collection of attributes that the firm decides to focus (and not focus) on.

Thus we can propose the following definition: a business strategy defines the unique set of specific attributes the firm chooses to focus on aiming to achieve superior long-term return on invested capital.

Good Business Strategy

In the previous section we talked about business strategy in general. But what sets apart business strategies? Which strategies are bad, good, great, or even fantastic?

This depends on the market.A firm’s goal is to achieve short-term revenue growth and superior long-term sustained return on invested capital. If you achieve the goals, then it means you chose a good business strategy. If you don’t achieve the goals, then it’s a bad business strategy.

Returning to the attributes, we said it’s not sufficient to simply identify those you want to focus on. It’s also important to identify those attributes the market is willing to pay some money for. Achieving excellence in an attribute no one is willing to pay for is a wasted effort and will reflect in poor long-term return on invested capital.

Of course there’s more that goes into achieving success than just having a business strategy with good potential. The business strategy success relies on the execution. A fantastic business strategy with poor execution will fail, but a good business strategy with good execution will bring some success

What’s Not Business Strategy

In the real world often people confuse business strategy with the actions, aspirations or visions of a firm. While these are not part of the strategy, they often support the formulation or execution of the strategy. A couple of examples:

“Our strategy is to expand globally” is not a business strategy, but rather a business tactic in support of the business strategy. Expanding globally only makes sense in the context of making a specific business strategy succeed.

“Our strategy is to be market leader” is not a business strategy, but rather a goal you set as an indication of business strategy success. To be market leader can be the result of a successful business strategy.

“Our strategy is to best understand our customer needs” is not a business strategy, but rather an activity that helps you better understand which specific attributes your firm should focus on. Better understanding of the customer needs will help you choose those attributes customers are willing to pay money for.


AMD Captures 30% of Liquid Cooling Enthusiast Market

Recent findings suggest AMD is outselling Intel 2:1 in the DIY enthusiast segment. Internal data from EK Water Blocks suggests AMD captures around 30% of the liquid cooling enthusiast market.

People familiar with the internet are very much aware of how heated online discussions can get, especially when it comes to two companies competing for the same customers. Most recently, a small report compiled by a Redditor sparked debate as data suggests AMD is outselling Intel 2:1 at the German online reseller Mindfactory.de. The author writes:

“After a record month another record month: AMD again outsold Intel by a ratio of 2 to 1. It sold more than 16,000 units, more than ever and dwarfing sales in last year. […] The new Coffee Lake series starts to sell in numbers, but the 9900K is still 600 Euros, almost a 100% premium compared to the Ryzen 2700X. Threadripper also enjoys healthy sales while Skylake-X dropped to a few units […] All in all good times for AMD in the DIY market. Lets see how long this streak continues.

If the data is a true representation of global sales, it would be fantastic news for AMD. The company’s recent success comes after years of suffering in the desktop PC market. However, cross-checking the information with industry partners in Taiwan suggests the news may be a bit overblown. Looking closer at the sales data of EK Water Blocks, a leader in custom loop liquid cooling, supports that idea.

EK Water Blocks is known for their high-quality water blocks and liquid cooling solutions. The target customer is the high-end PC gaming and enthusiast market which include primarily high-end PC DIY enthusiasts, but also price/performance-oriented DIY enthusiasts and triple-A title PC gamers. The benefits of liquid cooling are first and foremost its intriguing aesthetics and superior thermal performance compared to more common air or all-in-one cooling solutions. At the very high-end segment of the market you can find boutique systems such as 8Pack’s “no-compromise” OrionX Dual System priced well over US$30,000.

EK Water Blocks offers a wide range of CPU water blocks for both AMD and Intel mainstream and high-end desktop platforms. You can find products in the form of universal CPU blocks, compatible with all motherboards, as well as monoblocks which are designed to fit specific motherboard models.

It’s clear that the launches of the Ryzen and Ryzen Threadripper products on March 2, 2017, and August 10, 2018, were a turning point for AMD. In 2018, the market share for AMD hovers around the 30% mark. This is a significant improvement compared to two years ago – before Ryzen – but far removed from the 2:1 ratio Mindfactory’s data would suggest.

As AMD assumes a technology leadership position with 7nm CPUs to be released next year, announced at their Next Horizon event last month, it will be interesting to see if the liquid cooling enthusiast market shifts further in the direction of the Santa Clara based technology company.