A Guide to the Fine Art of Negotiation
The Modern Survival Guide #108
This is the Modern Survival Guide, a guidebook I’m writing for things I think people need to know about living in the modern world. The views expressed here are mine, and mine alone. And if there’s one thing I’ve learned in this wild and crazy modern life, it’s that almost every social interaction is some form of negotiation. Whether it’s buying a new car, asking for a raise, ordering pizza, figuring out what movie to watch, or even convincing your friends to play a game, having some negotiating savvy is a good way to open doors and make things happen.
It’s a shame this isn’t a subject taught in grade school, but no one ever said the educational system has perfect priorities.
So in this article let’s take a look at the fine art of negotiation — and make no mistake, it is an art, not a science. I can give you tips, and I can point to the artistic bits, but I can’t teach the art. You have to learn and practice on your own. You have been warned.
The basic pattern of a negotiation isn’t complicated: you bargain with another person to get something you want in exchange for something else. In most cases you start at a position that you consider ideal, the other person starts at their ideal point, and you both work towards the middle until you have a mutually acceptable compromise.
That said, achieving a successful negotiation is never guaranteed. There are too many variables, too many ways for one side or the other to end up with a bad deal. But there are some good ideas to keep in mind any time you try to negotiate. I’ll list them here and cover them in detail for the rest of the article:
- Identify zero-sum vs. win/win negotiations
- Define your minimum, acceptable, and ideal results
- Research the other side
- Set an anchor point
- Ask for what you want
- Be calm
- Be patient
- Know when to walk away
Let’s dive in.
Zero-Sum vs. Win/Win Negotiations
It’s an often-overlooked fact that there are (at least) two types of negotiation.
There’s option A, where whatever you stand to gain is something that someone else loses — a “zero-sum” or “distributive” negotiation, in industry terms. For example, negotiating price is almost always a zero-sum negotiation; any money that one side gains, the other side loses. If you negotiate a lower price on a car, that’s money the dealership does not get.
Then there’s option B, where both sides gain something from the negotiation. This is called either a “win/win” or “integrative” negotiation in industry terms. This is common in resource allocation deals and deals between long-term partners. For example, a restaurant might negotiate access rights on a local private road to allow customers to reach the restaurant, in exchange for a stipend for road maintenance. The restaurant wins, because they get customers; the road owner wins because their maintenance costs are covered.
In general, zero-sum negotiations are more adversarial than win/win negotiations, for obvious reasons. They are accordingly more common in situations where neither you nor the other party expect to encounter one another again.¹ In any negotiation where you expect to encounter the other party again, or do business with them again, it is worth your while to invest some time to figure out how to turn a zero-sum negotiation into a win/win negotiation.
A word of warning: you cannot engage in a successful win/win negotiation with someone who does not trust you, cannot comprehend your needs, or is not interested in cooperation. Choose your battles.
Now for the art: I can’t tell you when to pick zero-sum vs. win/win strategies. It’s totally situational. What I can tell you is that the style of negotiation will be decided fairly early in the game. Either you or the person with whom you are negotiating will push down one of these paths — and once you get started, it can be hard to switch tactics.
In general, it is easier and better to go from a zero-sum to a win/win negotiation than the other way around. In general, it is probably a better idea to try for a win/win situation. But it’s not always possible, and not always a good idea. You will need to pick an option, keeping in mind the consequences of that choice.
Regardless of which type of negotiation you find yourself in, the rest of the points in this article still apply.
Define Your Minimum, Acceptable, and Ideal Results
Now we get into proper negotiating tactics. Before you sit down across from the other person, you need to know the following points:
- What is the minimum (not great but still kinda OK) offer that you will take?
- What is an acceptable (good enough) offer that you could happily accept?
- What is the ideal (best possible) offer that you would grab in a heartbeat if it hit the table?
For most everyday negotiations this is fairly straightforward. For example, let’s say you’re trying to decide on a dinner restaurant with your spouse. You want to eat out, they want to make dinner. Your ideal result in a steakhouse. Your acceptable result is ordering food. Your minimum result is that you have to make dinner yourselves. If you know that going in, it helps your odds of getting what you want (because it’s hard to get what you want if you don’t know what you want).
Note also that your minimum, acceptable, and ideal options may determine in large part what kind of negotiation you want to use. If you move the steakhouse in the “acceptable” block, your odds of employing a successful win/win negotiation just went down, and you might be stuck with a zero-sum strategy that will almost surely result in an unhappy spouse.
From this example we can see that it’s important to identify minimum, acceptable, and ideal results in terms of what you think the other party will give. It’s no good going into the dinner negotiation with an ideal result of a Wagyu beef steak served by Jennifer Lopez on a silver platter at a private ballroom. That’s not going to happen. If you can’t figure out what the other party can afford to give, or will give without insult, consider putting off the negotiation until you’ve got a better idea.
Now for the art: I can’t tell you what your minimum, acceptable, or ideal outcomes are in any situation. That’s entirely on you and your own circumstances. All I can say is that you need to put in the work to figure them out. Speaking of which…
Research the Other Side
Do this before the negotiation. To continue the example, if you think you might be in a dinner negotiation with your spouse, maybe sound them out for their options earlier in the day. If they happen to say “I could eat literally anything other than steak tonight,” your steakhouse dream probably just died. Time to move on.
Scaling up a bit, if you’re buying a car it’s worthwhile to check the internet to see if you can find information on your local dealership’s price points. If you try to negotiate for a price where the dealership would take a loss on the sale, you’re probably not getting the car for that price. On the other hand, if it looks like they really need to move cars off the lot no matter what, you might be able to make that deal.
Now for the art: You are never going to know exactly what the other side wants in any serious negotiation. The other side will, understandably, often go to great lengths to conceal their acceptable and minimum negotiating points. It is simply worth noting that their opening offers will probably be more towards the “ideal” end of their personal options, which leads us to the next tip.
Set an Anchor Point
In negotiations, an “anchor” is an offer that both sides use as a point of reference. It’s called an anchor because it tends to set the scope and tone of the negotiation. Sometimes you can “re-anchor” the discussion with a new offer, but this can be very hard. For example, if you offer a high price in your car negotiation, then try to bargain for a lower price, the dealer will likely fixate on your high price because they think that’s what you can afford.
On the other hand, if you start at a low price, you have a great deal more initial leverage. The dealer also has to talk to that low price, even if their goal is to get you to a higher price. They have to re-anchor if they want to get to a higher price, which they will probably try to do, but then you can refer back to your lower price and set the boundaries for the price range. The negotiation starts from a much better position for you.
Similarly, in the dinner negotiation, if you state your preference for eating at a steakhouse first, it makes it much more likely that you will eat out, or at least eat steak, or at least eat a meat dish. It makes it much less likely that the dinner will default to “salad.” It sets the tone of the negotiation by communicating your intentions.
These examples all illustrate the same things about anchors: you should always set yours on the ideal side of the negotiation, from your point of view, and it’s almost always worthwhile to be the one to set the anchor first. If you can control the scope and tone of the negotiation and push it towards your preferred outcome, that’s an excellent way to start a negotiation.
Now for the art: Anchors are dangerous. The wrong anchor point can cause serious problems in a negotiation by upsetting the other side or, if you set the anchor in the wrong place, throwing off your own strategy. And I can’t tell you where those danger points are; they’re situational. This is why research and knowledge of your own position are so important — you’re always walking a line between pissing off the other side and short-changing yourself. This is why the next point is so important.
Ask for What You Want
When in doubt, ask for what you want and use that as your anchor point. If you want leather seats in car, ask for leather seats. If you want to eat at home, ask to eat at home. Never, ever, engage in negotiations without clearly stating your preferred outcome; the other side has to know what you want before you can get it.
Note the language there: “preferred.” Not “ideal,” not “acceptable,” not “minimum;” keep these to yourself. Preferred. This is to say, the value that you want to communicate to the other party as your preference for the outcome. The actual negotiated outcome will probably not be your preference, nor yet your ideal outcome, but you have to voice the preference.
Now for the art: Your preferred position will set the high water mark for the negotiation. It should be at least your ideal result, and you should be prepared to negotiate down from there. Once you state your preferred position, you cannot negotiate up from there; it’s an anchor point. So be careful, and make sure you have some idea of what the other party would consider a ridiculous request before you set your preferred position.
Be Calm
This is just a good general tip. Negotiations can be adversarial, or otherwise emotionally draining. Try to stay calm. It’s an interesting psychological point that in any argument, the person who stays calm is more likely to “win.” Negotiations share a lot of ground with arguments, so stay calm. Remember, when emotions turn on, the logical brain turns off. You want to stay cool and collected, and keep your priorities firmly in mind. You want to avoid anger, shrug off pressure, and generally act like you haven’t got a care in the world.
Now for the art: I can’t tell you exactly how to do this. Different people have different strategies for keeping calm, and what works for one person may not work for someone else. But if nothing else, it’s worth your time and effort to figure out how to keep yourself calm, because it’s a valuable skill in many different situations.
Be Patient
A big part of winning a negotiation is being able to outlast the other person. This is because most people involved in negotiations are in some sort of time crunch, and the party who can hold out until the other side starts running out of time has a better chance of getting what they want.
If you’re car shopping, for example, the dealership is often incentivized to sell the car in relatively short order. They have quotas to meet and model years to roll over. By the same token, though, if you are car shopping it probably means you also need a new car in relatively short order. As the man said, the hardest part of playing chicken is knowing when to flinch.
If at all possible, try to engage in negotiations from the position of having time to burn. If you can’t do that, at least try to get the other side to think you have time to burn.
Now for the art: I can’t tell you how much time you should allow to pass while waiting out a good deal. Keep in mind that there is such a thing as wasting time in negotiations, where neither you nor the other side are budging and you’re just sitting on your position waiting for them to make a move while they wait for you to make a move. If you waste too much time, it’s very possible to miss the metaphorical bus. You’re going to need to decide when to flinch. And if you don’t want to give in…
Know When to Walk Away
Sometimes you just need to walk away, for one of two reasons: either you need to make the point that you have other options, or you need to go to another option.
It’s a common tactic in car purchase negotiations to walk out of the dealership. This is a reminder to the them that you really can just go to the next town over and buy a car there. It helps to focus their attention.
And at the same time, there are times when you really need to walk away from a car salesman. If they aren’t meeting your price point, it’s time to try that other dealership for real.
Now for the art: I can’t tell you when this point should be, or even if it should occur. It’s up to you. You probably should walk out of a car purchase negotiation at least once; you probably should not walk out of the dinner negotiation with your spouse. There are different consequences involved. Once again, you need to know those consequences and judge whether the juice is worth the squeeze.
Art Takes Practice
If you’ve read this far, you’ll have noticed that almost every specific instruction in this guide was glossed over in the “art” part of each section. I didn’t name this article “The Fine Instructions of Negotiation,” or “The Fine Checklist of Negotiation,” and that’s because you can’t teach art. You can only guide it.
One final thing I can say to guide you in the fine art of negotiation is to practice. Contrary to popular belief, practice does not make perfect — but it does promote confidence, and it does help you gain experience. Confidence and experience are worth their weight in gold. You’re not going to be a good negotiator the first time you try, or the second time, or even necessarily the fortieth time. Some people will never be good negotiators; I won’t sugar coat it. But if you practice, you will be a better negotiator.
This is a survival skill, and in a modern world defined by commerce and specialized skills you will be forced to negotiate for many, many things. It’s not an “if;” it’s a “when.” So make that “when” a successful win. That was a pun, or play on words. You’re welcome. And good luck with your negotiations!
¹This would be a “non-iterative” game, if you want the game theory term. If you’ve never heard of game theory, it’s quite a fascinating attempt to model choices in terms of mathematics. It has some flaws, but it’s very useful in tightly-defined scenarios, such as a simple negotiation. Its main flaw is that it has trouble accounting for non-rational actors — people who don’t know what they want, or who act counter to their own interests, from an objective point of view.
