Let’s Make a Deal: Negotiation Basics

Negotiations Generally

In any negotiation, there are three possible outcomes:

• A deal that is good for you
• A deal that is bad for you
• No deal

Only one of these outcomes is desirable (though of the other two, one is clearly preferable to the other). But although your ultimate goal in any negotiation should be to strike a beneficial deal, it should be evident that there is an intermediate objective that is a predictor and essential component of ultimate success — i.e., gathering as much information about the other side as possible — because in negotiations, information equals strength.

Well-handled negotiations generally happen in two stages. The first stage is all about collecting information about the strengths and weaknesses of the other side, through independent research, through direct discussions with the other side, and through the negotiation process itself. The second stage is about reaching agreement on deal points. If you are more successful than the other side in stage one (i.e., you know more about them than they know about you), you will be more powerful when you get to stage two.

Negotiation Styles

There are a multitude of negotiating styles, but they can be arrayed on a continuum from purely competitive to completely cooperative. At the competitive end is a style known as distributive negotiation (sometimes called zero-sum bargaining or hard bargaining). This approach concentrates on maximizing individual payoffs in situations where one party's gain is the other party's loss. The participants typically set target points for what they hope to achieve and resistance points for what is minimally acceptable. In this approach, the participant’s hope to find overlapping ground between their resistance points (the bargaining zone) and the process focuses on conflict management aimed at compromise.

Although there are circumstances where an approach along the lines of the distributive method is most appropriate, because it is competitive and because one party's gain comes at the expense of the other, it is not conducive to building positive and continuing relationships among the parties. Consider this approach when you have a one-off negotiation with a party and when you will not have a continuing relationship with or dependence upon the other party.

Conversely, at the cooperative end of the spectrum, the integrative approach (a derivative of this approach is known as Win/Win or principled negotiations) presumes that the goals of the parties are not mutually exclusive and that it’s possible for participants to achieve joint gains. Advocates of this approach believe that a good negotiation should create, rather than merely distribute, value. In the integrative approach, parties start from pre-set positions, but through information sharing and creative problem solving, they make trades based on complementary interests that increase the size gains for both parties.

The ultimate goal in this approach is not to get the best of someone, but to reach a wise and mutually beneficial deal. The Win/Win approach is best employed when the parties will have a continuing relationship or dependency (sole-source supply contracts; sales/service contracts; and joint agreements to commercialize assets that are not finite in nature — e.g., intellectual property rights---are all examples of these type of relationships). In negotiations over intellectual property rights, the pie is potentially limitless — the object should not be to keep the other side's piece small, but instead should be to make sure that the rights end up in the hands of the party best positioned to maximize them. You cannot effectively accomplish this objective without sharing some information with the other side.[1]

A significant impediment to the adoption of this approach is that all parties must agree to it, and participate in it. Although there are some strategies for encouraging cooperation from a party who is initially uncooperative, they are not universally successful.

Tips to Keep in Mind Regardless of the Style Adopted

• Start high -- with realistically high goals; they have to be credible or they will be discounted; they should be as high as they realistically can be because some studies show that the vast majority of successful deals are accomplished within a small range of the mid-points of the opening positions (the “Midpoint Rule”). Thus, your opening position influences where you end up. You also have more control if you are not the first to open.
• Concede slowly — have a strategy and a series of fallbacks already in mind.
• Adhere to your goals until you systematically exhaust each alternative or option (selectively and intentionally) i.e., hold firm on the price, but offer to change the quantity, enhance the product/service features, accelerate the delivery date, delay the payment dates, etc.
• Exaggerate the value of your concessions.
• Minimize the value of the other party's concessions.

What about the Midpoint Rule?

There is research documenting a “midpoint rule” or midpoint bias, but the empirical support is mixed. Some evidence confirms that many agreements gravitate toward the midpoint between the first "reasonable" offer and the counteroffer. The Program on Negotiation at Harvard notes that: “The best predictor of the final deal price is the midpoint of the first semi-reasonable offer and counteroffer.” Additional practitioner/applied negotiation literature concurs with this view (e.g., Galinsky & Mussweiler, 2001).

Other large‑scale empirical work, however, shows that real-world negotiations often deviate systematically from the midpoint. A 2023 analysis of 26 million real-world buyer-seller negotiations on eBay found that anchoring effects are strong, but agreements do not typically land at the midpoint. Instead, outcomes exhibit a “buyer bias,” not a midpoint bias. Other studies show that outcomes depend heavily on the magnitude of the anchors, the aggressiveness of the counteroffers, concession patterns, market structure and product demand and perceived fairness. Additional factors could include negotiation experience and strategy, asymmetric information, and pressure to avoid impasse.

What is the Takeaway Concerning the Midpoint Rule?

There is one universal truth when it comes to choosing one approach over another – once you make a decision and pay for it, you must accept the consequences of that decision. (aka “you pays your money and you takes your choice!”)

[1] A survey of 2500 lawyers asked them to identify negotiators they perceived as effective. Sixty-four percent of those identified as effective were also described with the following characteristics — ethical, trustworthy, realistic, communicative, fair-minded, accommodating, and agreeable. Only thirty-six percent of those identified as effective were also described as demanding, assertive, tough, firm, stubborn, argumentative, and a bluffer. Shattering Negotiation Myths: Empirical Evidence on the Effectiveness of Negotiation Style, A. Schneider, 7 Harv. Neg. L. Rev. 143 (2002).