Negotiation 101: More tips
Tips about added value, choosing a first offer, and more!
It is time to continue our journey in negotiation lessons. I went through the course I was doing a few weeks ago and compiled some of the tips that were not covered in my previous negotiation posts. Let’s go!
Added value
In many scenarios, there are more than two players. The calculation of pie gets more complex here. We use the concept of added value here. The added value of a player is the difference they can make in the size of the pie by their presence.
Let’s consider a card game to understand this. We have 27 players with playing cards. Player 1 has all the red cards (hearts and diamonds). Other players have one black card each (club or spades). Any pair of red and black cards is worth $100. What is the added value of player 1? The size of the pie is 0 without him, since he holds all the red cards. If he is in the game, the size of the pie is $2600. So, his added value is $2600. Similarly, the added value of each other player is $100. Clearly, they all get less than their added value when we split the profits.
This analysis is useful to understand what is the maximum a player should get. No player should get more than their added value. Because otherwise, it makes sense for the others to do the deal without that player.
Let’s consider a small modification. Say player 1 just throws away one of his red card. By doing this, he brought his added value down to $2500. But, what happens to the added value of all the other players? Say player 2 for example. With or without his presence, the rest of the player can still make $2500 pie. So, his added value is now $0. Similarly, the added value of each individual player holding one black card is $0. The player 1 now gets the power to split the profits unevenly. He can propose to give $5 to each player holding a single card, and they would all agree since their added value is $0.
The added value can be manipulated easily. Just because a party cannot compete with other parties for a product, it does not mean that their added value is zero. They can still raise the price of the product by just playing. And since they can do that, they can expect to get paid for just staying in the market!
Choose a good anchor
The very first offer we make usually affects how much we will get out of the negotiation. There have been studies to prove this. A lot of negotiation ended up on a higher price because the first offer was high. But that doesn’t mean we should make an arbitrary high number as our price. That can offend the other party, and then they stop cooperating.
Also, a specific number tends to work better than the rounded number for the first offer. For example, $693 vs $700. The first number is just a bit lower. But, it gives the other party a feeling that we have done some calculations to come up with that number. Whereas the rounded number seems more like an approximation.
Don’t get nibbled
Many times, after the main deal, the other party asks for a small add-on. For example, after buying a suit, a customer can ask for a free tie. We call this a nibble. The best way to avoid getting nibbled is to recognize when you are getting nibbled and gently call it out. Use some humor. For example, “I see what you did there, I would also like to do it sometime. Teach me!”.
Don’t exceed your negotiating authority
If you are negotiating for someone else, know your negotiation limits. It is never worth losing your job to get a deal for your employer. If you find yourself in a position where the employer might benefit by exceeding the negotiation limits, make a conditional deal. Tell the other party that you will propose this option to your boss but if the boss agrees, the other party should hold their end of the deal (no more negotiation).
I hope you liked reading this. Do let me know in the comments! You can find my previous posts on negotiations here:
My favorites
Video: The prisoner math riddle (Veritasium)
Quote: “God grant me the serenity to accept the things I cannot change, courage to change the things I can, and wisdom always to tell the difference.” — Kurt Vonnegut, Slaughterhouse-Five.