Tips for Success in Business Negotiations

Interview with Melinda Davis Lux
As heard on "South Carolina Business Review" with Mike Switzer
Broadcast June 17, 2011

Listen to the podcast on the South Carolina Business Review website or read the transcript below:

Introduction: Throughout a long and fruitful career, a business leader constantly uses the delicate skill of negotiation. Yet business students rarely focus on developing that skill, and as a result are unprepared for negotiations in a business setting. What characteristics make up a skilled negotiator, and what principles must you learn to negotiate great deals?

Here to discuss the art of negotiation is Melinda Davis Lux, a corporate transactional and M&A attorney from Wyche, P.A. in Greenville, S.C. Melinda also teaches a class on business negotiations to business students at USC Upstate.

Why is it important for business students to learn how to negotiate?

To be successful in business, you need to know how to negotiate. Business leaders negotiate every day with vendors, customers, bosses, and employees. Business students who learn to negotiate effectively will have an advantage over their peers when they enter the business world. Even the most seasoned business people can become better negotiators by learning negotiation theory and by honing their negotiation skills.

Should you make the first offer in a negotiation or should you let the other party make the first offer?

In most situations, you should make the first offer. There is a tendency in negotiations for the first offer to "anchor" the negotiations. What that means is that when you make the first offer, the other party tends to forget his or her aspirations and is overly influenced by your first offer. When you start high, the other party often raises his or her opening offer. That makes it easier for you to get a better outcome. If you are not making the first offer, you need to be aware of the "anchoring effect". Be sure that you don"t let the other party"s first offer influence your opening offer. In fact, if the other party makes an extreme first offer, a good strategy is to lower your opening offer to counterbalance that first offer and to get the negotiation back on track.

Are you a better negotiator if you are extroverted?

No, you are not a better negotiator if you are extroverted. Negotiation theory divides negotiations into two types. There are "win-lose" negotiations and there are "win-win" negotiations. Win-lose negotiations are negotiations that have a fixed pie. In the negotiation, the parties simply divide up that pie. Negotiating with a dealer to purchase a car is an example of a win-lose negotiation. People who are extroverted do worse in a win-lose negotiations. They tend to be agreeable and to be swayed by the opponent"s first offer. If you are extroverted, you need to be careful in a win-lose negotiations. One strategy that you can use is to set high aspirations for the negotiation. Studies show that negotiators who set high aspirations bargain more aggressively and achieve better results in the negotiation.

The good news if you are extroverted is that most business negotiations are not win-lose negotiations. Most business negotiations are win-win negotiations. Win-win negotiations are more complex negotiations that involve multiple deal terms. The parties can expand the pie by using creative problem solving in the bargaining process. In win-win negotiations, being extroverted doesn"t affect the outcome of the negotiation.

What about intelligence? Should you prefer to negotiate with someone who is not as smart as you?

No. You want to negotiate with the smartest person you can find. Again, most business negotiations are win-win negotiations. There is an opportunity to create value by coming up with creative solutions. Studies show that in win-win negotiations, if the negotiators are smarter, they create more value. So, the smarter the negotiators, the bigger the pie that"s split between them. There"s a twist though. Studies have also looked at whether one side or the other captures a bigger share of the increased value. You might assume that if you are smarter than the other side, you will grab more of the new value. Surprisingly, the studies show that the party who bargains with the smarter opponent usually grabs more of the new value.

The bottom line is that if there is more intelligence at the negotiation table, more value will be created. Also, you always want to bargain with the smartest opponent you can find.

What is the biggest mistake that many negotiators make?

The biggest mistake that many negotiators make is that they use the same negotiation strategy for every negotiation. Even very seasoned negotiators have a tendency to use whatever negotiation strategy comes most naturally to them in every negotiation. A well trained negotiator adapts his or her negotiating strategy to fit the situation.

In business, the three negotiating strategies that are most often used are an accommodating strategy, a competitive strategy, or a collaborative strategy. In my business negotiations class, I spend a lot of time teaching students how to identify the strategy that will be most effective in a particular negotiating situation. The students also learn the negotiating techniques associated with each strategy.

This information is provided by Wyche, P.A. for educational and informational purposes only and is not intended and should not be construed as legal advice. We will be pleased to discuss with you in more detail the application of any of the topics covered above to your circumstances. Please contact our firm for more information.