What is Negotiation?

Negotiation is the process by which individuals or groups attempt to realize their goals by bargaining with another party who has at least some control over goal attainment. We often step in and negotiate when a conflict is taking place, but conflict doesn’t have to exist for there to be an opportunity for negotiation.

Imagine buying a car and discussing the price with the car dealership.  Or picture yourself at a job interview, discussing the terms of your employment. Both are examples of negotiations, and both scenarios involve finding a solution that works for both parties. The dealership wants to sell the car and you would like to buy it; similarly, the organization would like to hire you and you are interested in working for them. Reaching an agreement would benefit both parties in each of these scenarios.

Negotiation Skills

Effective negotiation involves various skills, including: active listening, communication, emotional intelligence, influence, problem solving, and decision-making. Click on each of these skills in the interactive list below to learn how each contributes to effective negotiation.

Skills that Contribute to Effective Negotiation

While various skills contribute to effective negotiation, as described above, navigating the negotiation process effectively is its own skillset. The remainder of this chapter will focus on helping you understand the negotiation process and different approaches to negotiation so you can begin to develop your negotiation skills.

The Negotiation Process

The negotiation process consists of identifying your desired goals—that is, what you are trying to get out of the exchange—and then developing and executing suitable strategies aimed at reaching those goals. A key feature of your strategy is knowing your relative position in the bargaining process. In other words, depending upon your relative position or strength, you may want to negotiate seriously, or you may want to tell your opponent to “take it or leave it.” For example, you may wish to negotiate when you value the exchange, when you value the relationship, and when commitment to the issue is high. In an opposite situation, you may be indifferent to serious bargaining.

Stages of the Negotiation Process

The negotiation process can be summarized in four key stages, described in greater detail in the sections that follow:

1. Planning and preparing
2. Presenting and clarifying
3. Bargaining and problem solving
4. Closing and reflecting

Stage 1: Planning and Preparing

The first stage of a negotiation, planning and preparing (Video 1), begins with self-discovery: What do you want and/or need from this negotiation? What are your goals? What is important to you, and what will you give up? You need to remember that at this stage, you likely have the clearest view of your goals since the negotiation process has not formally begun yet.

You also want to take this time to consider the other party so you can have an idea of where this process might take you. What are their goals in this negotiation? What will they ask for? What might they settle for, and how does that differ from the outcome you are hoping for?

BATNA

Also during the planning and preparing phase, you explore your BATNA, or your “best alternative to a negotiated agreement.” Why do you need to think about alternatives when you are in a negotiation? The simple answer is to figure out whether negotiation is even worth it. Do you want to go through the negotiation process if you have other options that will make you just as satisfied, if not more?

Additionally, when you have more options, you are likely to evaluate negotiation proposals with a more critical eye and get the best deal possible for yourself. Having a BATNA makes you really think about how a proposal fares in relation to your alternatives. Is it better? Is it worse? This comparison will allow you to critically evaluate whether you should take a deal or walk away from it entirely.

The party with the best BATNA has the best negotiating position, so try to improve your BATNA whenever possible by exploring possible alternatives.^[2]

Stage 2: Presenting and Clarifying

In the second stage of a negotiation, presenting and clarifying, you present your proposals and listen to counter-proposals. Both parties will explain, clarify, bolster and justify their respective positions or demands. For you, this is an opportunity to educate the other side on your position, as well as to gain further understanding about the other party and how they feel about their position. You might each take the opportunity to explain how you arrived at your respective positions, and include any supporting documentation.

This doesn’t need to be—and should not be—confrontational, though in some negotiations, that’s hard to avoid. But if tempers are high moving into this portion of the negotiation process, then those emotions will start to come to a head here. It’s important for you to manage those emotions so serious bargaining can begin.

Stage 3: Bargaining and Problem Solving

The bargaining and problem solving phase of a negotiation involves mutual adjustment. When you presented your proposals, you likely discovered areas of disagreement or potential conflicts, and now you need to come up with solutions that both parties will agree to. Both parties have an idea of what they want the final outcome to look like, but you need to now work together to create something that will be acceptable to both parties.

A natural part of this third stage is making concessions, namely, giving up one thing to get something else in return. Making a concession is not a sign of weakness—parties expect to give up some of their goals. Instead, concessions demonstrate cooperativeness and help move the negotiation toward closure. Making a concession shows forward movement and process, and it allays concerns about rigidity or closed-mindedness.

This is where the planning and preparing stage becomes even more important. You should enter a negotiation knowing that you will likely have to make concessions at some point, so you need to have a clear understanding of what is important to you. What are you willing to give up so that you can gain something else? This is where communication and active listening become so vital to effective negotiations. You need to truly understand why the other party wants something or is unwilling to give something up. You need to understand where their constraints stem from rather than just accepting their constraints at face value. The more you understand the “why” behind their positioning, the better equipped you are to create solutions that will be mutually beneficial.

Let’s consider an example. Imagine that you’re a retailer and you want to buy patio furniture from a manufacturer. You want to have the sets in time for spring sales. During the negotiations, your goal is to get the lowest price with the earliest delivery date. The manufacturer, of course, wants to get the highest price with the longest lead time before delivery. As negotiations stall, you evaluate your options to decide what’s more important: a slightly lower price or a slightly longer delivery date? You do a quick calculation. The manufacturer has offered to deliver the products by April 30, but you know that some of your customers make their patio furniture selection early in the spring, and missing those early sales could cost you $1 million. So, you suggest that you can accept the April 30 delivery date if the manufacturer will agree to drop the price by $1 million.

“I appreciate the offer,” the manufacturer replies, “but I can’t accommodate such a large price cut.” Instead of leaving it at that, you ask, “I’m surprised that a 2-month delivery would be so costly to you. Tell me more about your manufacturing process so that I can understand why you can’t manufacture the products in that time frame.”

“Manufacturing the products in that time frame is not the problem,” the manufacturer replies, “but getting them shipped from Asia is what’s expensive for us.”

When you hear that, a light bulb goes off. You know that your firm has favorable contracts with shipping companies because of the high volume of business the firm gives them. You make the following counteroffer: “Why don’t we agree that my company will arrange and pay for the shipper, and you agree to have the products ready to ship on March 30 for $10.5 million instead of $11 million?” The manufacturer accepts the offer—the biggest expense and constraint (the shipping) has been lifted. You, in turn, have saved money as well.^[3]

Stage 4: Closing and Reflecting

The final stage of a negotiation is closing and reflecting. This is the point in a negotiation where everything comes together, and the negotiation ideally comes to a successful close. However, you may experience negotiations in which the closing phase is simply the end of the discussion, and one or more of the parties choose to walk away before an agreement is reached.

Most negotiators assume that if their best offer has been rejected, there’s nothing left to do. You made your best offer and that’s the best you can do. The savviest of negotiators, however, see the rejection as an opportunity to learn. “What would it have taken for us to reach an agreement?” By following up in this manner, you might learn something that’s useful for future negotiations. What’s more, the other party may be more willing to disclose the information if they don’t think you’re in a “deal-making” mode.

Taking time to assess what went well, what could have been improved, and where common pitfalls occurred can enhance your skills for future negotiations. Below are some common mistakes that can negatively impact negotiation outcomes. Recognizing these pitfalls when they occur can help you approach future negotiations with a clearer mindset and a strategy for continuous improvement. Click on each of the common mistakes in the interactive list below to learn more.

Common Mistakes in Negotiations

Negotiation Approaches

Negotiations can be categorized into two main types: distributive bargaining and integrative bargaining.

Distributive Bargaining

In essence, distributive bargaining is “win-lose” bargaining (Video 2). That is, the goals of one party are in fundamental and direct conflict with those of the other party. Resources are fixed and limited, and each party wants to maximize her share of these resources. Finally, in most cases, this situation represents a short-term relationship between the two parties. In fact, such parties may not see each other ever again.

A good example of distributive bargaining can be seen in the relationship between the buyer and seller of a house. If the buyer gets the house for less money (that is, she “wins”), the seller also gets less (that is, she “loses”).

In a distributive bargaining situation, each side will probably adopt a course of action as follows. First, each side to a dispute will attempt to discover just how far the other side is willing to go to reach an accord. In a distributive bargaining situation, each side typically starts by probing the other’s limits. To gauge how far the other side is willing to go, parties often make extreme initial offers—either very low or very high—as a way to test their opponent’s position. Such an approach uses anchoring, which is a strategy of setting an initial offer that serves as a reference point for the rest of the discussion. This first proposal, whether high or low, can strongly influence how both parties perceive the acceptable range of outcomes, subtly steering subsequent offers and counteroffers closer to the initial position. By establishing this starting point, the party setting the anchor aims to shape the other side’s expectations and ultimately affect the final agreement.

For example, in selling a house, the seller will typically ask a higher price than she actually hopes to get (Figure 2). The buyer, in turn, typically offers far less than she is willing to pay. These two prices are put forth to discover the opponent’s resistance price. The resistance price is the point beyond which the opponent will not go to reach a settlement. Once the resistance point has been estimated, each party tries to convince the opponent that the offer on the table is the best one the opponent is likely to receive and that the opponent should accept it. As both sides engage in similar tactics, the winner is often determined by who has the best strategic and political skills to convince the other party that this is the best she can get.

Integrative Bargaining

Integrative bargaining is often described as a “win-win” approach (Video 3). That is, with this technique, both parties try to reach a settlement that benefits both parties. Such an approach is often predicated on the belief that if people mutually try to solve a problem, they can identify creative solutions that help everyone.

Video 3: LINGO: Integrative Negotiation. Closed captioning is available.

Integrative bargaining tactics are quite different from those typically found in distributive bargaining. Here, both sides must be able and willing to understand the viewpoints of the other party. Otherwise, they will not know where possible consensus lies. Moreover, the free flow of information is required. In discussions, emphasis is placed on identifying communalities between the two parties, while differences are played down. The search for a solution focuses on selecting those courses of action that meet the goals and objectives of both sides. This approach requires considerably more time and energy than distributive bargaining, yet, under certain circumstances, it has the potential to lead to far more creative and long-lasting solutions.

Review the key differences between distributive and integrative bargaining in Table 1 below.

Table 1: Two Approaches to Negotiation

Bargaining Characteristic	Distributive Bargaining	Integrative Bargaining
Payoff structure	Fixed amount of resources to be divided	Variable amount of resources to be divided
Primary motivation	I win, you lose	Mutual benefit
Primary interests	Opposed to each other	Convergent with each other
Focus of relationships	Short term	Long term

Developing Your Negotiation Skillset

Negotiation is a powerful tool—and a learnable skill—that allows individuals to bridge differences, create value, and achieve mutually beneficial outcomes. By developing your negotiation skills and understanding negotiation best practices, you will become more adept at identifying common ground and fostering constructive dialogue, even in challenging situations (Videos 4 and 5).

Video 4: Negotiating (more of) What You Want Anywhere with Anyone, Part 1. Closed captioning is available.

Video 5: Negotiating (more of) What You Want Anywhere with Anyone, Part 2. Closed captioning is available.

Chapter Review

Optional Resources to Learn More

	Articles
	Harvard Business Review: Negotiate Like a Pro
	Kellogg Insight: Be a Better Negotiator by Having a “BATNA”
	Kellogg Insight: Is Your Negotiation Strategy Wrong?
	McKinsey: Author Talks: The Formula for Successful Negotiation
	The Wall Street Journal: How to Negotiate Better and Get What You Want (Without Looking Like a Jerk)
	Books
	Getting to Yes: Negotiating Agreement without Giving In by Roger Fisher, William Ury, and Bruce Patton
	Negotiation Genius: How to Overcome Obstacles and Achieve Brilliant Results at the Bargaining Table and Beyond by Deepak Malhotra and Max H. Bazerman
	Negotiating Rationally by Max Bazerman and Margaret Neale
	Never Split the Difference: Negotiating As If Your Life Depended On It by Chris Voss
	Podcasts
	Planet Money: Summer School 7: Negotiating and the Empathetic Nibble
	WorkLife with Adam Grant: The Science of the Deal | Apple Spotify Transcript
	Videos
	Big Think: How to Win a Negotiation
	CrashCourse: How to Become a Better Negotiator: Crash Course Business – Soft Skills #8
	Harvard Business Review: How to be an Effective Negotiator
	Harvard Business Review: The Explainer: How to Negotiate Nicely Without Being a Pushover​​
	Negotiations Insights Series by Professor Deepak Malhotra (playlist)
	Stanford Graduate School of Business: Class Takeaways — The Art of Negotiation
	TED: 3 Steps to Getting What You Want in a Negotiation

Chapter Attribution

Chapter 14 of Black, J. S. & Bright, D. S. (2019). Organizational behavior. OpenStax. https://openstax.org/books/organizational-behavior/pages/14-introduction. Licensed with CC BY 4.0.

Chapter 10 of University of Minnesota. (2017). Organizational behavior. University of Minnesota Libraries Publishing. https://open.lib.umn.edu/organizationalbehavior/chapter/10-5-negotiations/. Licensed with CC BY-NC-SA 4.0.

Watkin, J. (2024). A guide to effective negotiations. https://ecampusontario.pressbooks.pub/effectivenegotiations/. Licensed with CC BY-NC-SA 4.0.

Media Attributions

Figure 2: Rice University. (2019, June 5). Distributive bargaining in buying a home. OpenStax. https://openstax.org/books/organizational-behavior/pages/14-4-negotiation-behavior. Licensed with CC BY-NC-SA 4.0.

Table 1: Rice University. (2019, June 5). Two approaches to negotiation. OpenStax. https://openstax.org/books/organizational-behavior/pages/14-4-negotiation-behavior. Licensed with CC BY-NC-SA 4.0.

Video 1: Chicago Booth Review. (2019, March 12). How to prepare for a negotiation [Video]. YouTube. https://youtu.be/NeWWU6nTvEA

Video 2: McCombs School of Business. (2010, April 20). LINGO: Distributive negotiation [Video]. YouTube. https://youtu.be/5fmY3JV6iNI

Video 3: McCombs School of Business. (2010, May 20). LINGO: Integrative negotiation [Video]. YouTube. https://youtu.be/rJEOylZCUUs

Video 4: Stanford Graduate School of Business. (2015, January 7). Negotiating (more of) what you want anywhere with anyone, part 1 [Video]. YouTube. https://youtu.be/203Kt_jWTUI

Video 5: Stanford Graduate School of Business. (2015, January 7). Negotiating (more of) what you want anywhere with anyone, part 2 [Video]. YouTube. https://youtu.be/zKsJ9oRu3KY