Three Things I Learned about Negotiation at Business School – That I Know Will Make Me a Better Negotiator
By J. Quinn Clement-Schlimm
Negotiation is everywhere. From the most complex corporate merger to deciding on who will do what chores, learning the art of negotiation will have real world impact. What I love most about negotiation is that it is for everyone and, if you do it well, everyone can be better off.
I recently completed a Rotman School of Management course on advanced negotiations and conflict resolution. The class combined the latest in negotiation theory and empirical negotiation research with negotiation exercises. Although these negotiations took place in a classroom, the simulations were designed to mirror real world scenarios and dynamics, resulting in very practical takeaways. In this blog I share three learnings that you can apply to improve your negotiation outcomes.
(1) Ethics and Reputation Matter
There are two broad ethical perspectives: consequentialism and deontology. Consequentialists believe that what is ethical is based on the consequences of an action. Is it ethical to kill one life to save two others? A consequentialist would likely answer yes. The consequence of saving two lives justifies the taking of one. Deontologists believe in static ethical codes. Is it ethical to kill one life to save two others? A deontologist would say no, because killing is wrong.
Research has shown that people trust and favor dealing with deontologists as opposed to consequentialists. This conclusion was reinforced by our negotiation activities in class. We ran multiple union-management negotiation simulations. I am a deontologist and refused to lie in the negotiations. While some other management reps were able to secure short term gains by lying in the negotiations, I was able to secure long term gains after winning the trust of the other negotiation party. Ethics matter, and you can improve negotiation outcomes by having an ethical code and sticking with it.
(2) Learn to Play the Expert
People like to trust experts and will often defer to them. If there is an area where you are an expert (or even just know more than the other negotiating party) use that to your advantage. You don’t need to have decades of exposure in a field to be able to use your knowledge or credentials to your advantage.
For example, in one of the negotiation exercises, I played the role of a tribunal mediator with the objective to help mediate and resolve an employment dispute. Because I am a JD/MBA (law and business), the other participants, who didn’t have a legal background, assumed that I was an expert in all things mediation. Despite having never studied mediation or dispute resolution in my legal education, I was able to use their perception of my expertise to speak confidently and with authority to help resolve the dispute.
(3) Understand and Use Anchoring
A third piece of interesting human psychology in negotiation is our response to “anchors.” Anchoring is a cognitive bias that results in reaching settlements that consciously or subconsciously are influenced by an anchor, or the first piece of information offered. Even completely arbitrary anchors can greatly influence our decision making.
To take advantage of the anchoring effect, you must make the first offer. Contrary to the conventional negotiation wisdom, which is to never make the first offer, the first offer can often become a powerful anchor that frames the rest of the negotiation. Keep in mind, however, that this offer does limit what you can get out of the negotiation. You therefore want this offer to be very beneficial to you. A rule of thumb: ask for as much as you can reasonably justify. If the other party makes the first offer, you can counteract your and their subconscious from treating it as an anchor by laughing it off. Treating the offer as a joke will help prevent the mind from treating it as the negotiation anchor. Alternatively, you can switch issues and establish an anchor on that issue. For example: if the other party begins by anchoring on price, you can switch the issue and establish an anchor on service terms.
Application to a Software License Negotiation
During one of my summer jobs, I was tasked with negotiating a renewal of a business administration software. The three lessons from the negotiation course on ethics, expert status and anchoring proved highly valuable.
The company received an email from our provider informing us our subscription was ending and we would need to call back to renegotiate. My boss assigned this task to me and gave me breadth to negotiate a new deal. I am by no means a software expert but by speaking with the admin/business team and software engineers I was able to make myself an expert in what our company needed and expected from the software.
When I called the provider, they began by anchoring the negotiation around price and licensing model: they informed me that the rate we were paying was a “promotional rate” and that the price of the service would need to increase significantly. I responded by truthfully explaining our position: we were happy with their service, but had an issue with their business pricing model. Their model was “usage-based,” i.e. they sold a set amount of software enabled administrative transactions we could perform per month. Our company did not want to be limited (or pushed into a higher pricing bracket) and was looking for an “all in” model. I therefore countered that we preferred to have unlimited uses per month and were prepared to pay a premium for this. I thus shifted the anchor to something that I was an expert in: what our company wanted and why. And that issue was as simple: we could not be constraint by usage limitations. If this could not be done, we were committed to exploring competitive products.
My counterpart informed me that their pricing model was “non-negotiable” – but that to compensate they were willing to reduce their price and continue offer the promotional rate for usage based licensing if we continued with their product. I asked if the price could be further reduced to levels more comparable with their (less advanced but still sufficient for our purposes) competitors but was told that this was the best they could do.
I ended the negotiation informing them that this was regrettable as we liked their product but that the price was simply too high for a pricing model which didn’t provide unlimited transactions. This wasn’t a bluff in the 11th hour: this was our honest position. A couple hours after the end of the call, as I began researching competitive products more deeply, I received a call back. The salesperson had received “special permission” from their supervisor and was able to reduce the price further and offer more transactions per months - to the point that our company should not even approach the limit in any given month. I expressed my gratitude for the call back and accepted their offer.
I believe this negotiation shows the value of the three lessons. Honestly expressing our satisfaction with their product and our desire to stay with the company while stating our willingness to switch to a competitor if necessary did not weaken my negotiation position; on the contrary it provided credibility. Becoming an expert in our company’s needs and anchoring around this issue created room to receive other concessions. The result was a negotiation that was a win for everyone: they were able to retain a key client (and their usage-based model in concept), and my company was able obtain a sufficient number of monthly transactions at an acceptable price; and I no longer needed to complete what would have been my next assignment: researching our providers’ competitors’ products and pricing in detail!
About J. Quinn Clement-Schlimm
Quinn holds a Bachelor’s Degree in Political Science from the University of Toronto and is currently completing his JD/MBA at the Rotman School of Management and the University of Toronto, Faculty of Law. He has worked as a summer student at TD Canada Trust (Retail Strategy and Solutions), Geotab Inc. (marketing and legal departments, and Gowling WLG (Toronto office). Quinn, however, most likes to put his negotiation skills into practice over a game of Settlers of Catan.