Types of Negotiation and When to Use Them

Introduction to Negotiation Types

Negotiation is an integral part of our lives. We negotiate regularly in both personal and professional settings, consciously or unconsciously. Yet we pay little attention to development of the most essential and the oldest skill of our lives. We mostly blame others or situations for our problems, constraints but the hard reality is that we fail to negotiate effectively.

One of the common questions that is asked by lot of people is about different types of negotiation and how do we decide which type of negotiation to use in a given situation. There can different ways to categorize the negotiation types. However, it must be kept in mind that when negotiating one one often uses a combination of negotiation types depending on the situation and the people involved.

One of the ways to categorize the negotiation types is based on the approach we take to negotiation. In our training programs, we focus on three approaches to negotiation i.e. Distributive, Compromising & Integrative Negotiations. Each type of negotiation approach has its pros and cons, which should be kept in mind when applying to a given situation.

Distributive Negotiation

Distributive negotiation, also known as zero-sum or win-lose negotiation, focuses on dividing a fixed amount of value. Let's take an analogy of two friends dividing a pizza to share between themselves. The size of the pizza is fixed, and therefore if one of them picks a larger piece, the other will get the smaller piece. The gain for one party comes at the cost of the other. For this reason, this type of negotiation is also known as "Win-Lose" negotiation.

Examples of this type of negotiation include routine items, bulk commodities, and situations in which there is "power imbalance" between the parties or "demand & supply imbalance." Let's say that there is situation of failure of cocoa crop leading to demand more than supply. The cocoa growers and traders may use this situation to maximize gains for themselves, whereas the buyers may have to take the cost hit. The situation may reverse if the supply is more than demand. The primary objective here is to maximize one's share of the limited resources.

When using distributive negotiation, one must consider the adverse impacts i.e.

• It may have a negative impact on the relationship between the parties. The one who loses, may consider the other party unfair or unreasonable. Therefore, they may not want to deal with the other party in the future. Use distributive negotiation, if developing relationship is not one of your key priorities.

• You may squander the opportunity to collaborate for creative problem solving. In distributive negotiation, both parties hod on to their positions and do not reveal their interests. Therefore, there is no effort to collaborate and think out of the box to find common ground that serves the mutual interests.

• Distributive negotiation often leads to conflict and deadlocks because both the parties hold on to their positions.

Compromising Negotiation

Compromising negotiation, also know as "you win some, I win some", involves both parties making concessions to each other to arrive at mutually acceptable agreement. It's all about finding a middle ground where each side gives up a little to gain a little, aiming for a fair outcome that both can live with. Let's use a fruit cake analogy for compromise. One person might be willing to trade away the bottom (the larger portion) in exchange for the fruit topping.

Examples of compromising negotiation include trade & political negotiations between countries, buying a car, salary negotiation, business deals including M&A. The essential ingredient of compromising negotiation is that both parties adopt a flexible approach and recognize their mutual dependence to achieve their goals.

However, there are certain pitfalls that should be guarded against when adopting compromising negotiation approach:

• You might end up conceding more than necessary if you haven't done your homework and aren't watchful about ensuring you receive equivalent concessions in return.

• By focusing on splitting differences, you may overlook creative solutions or integrative agreements that could provide greater mutual benefits.

• If one party feels they consistently concede more, it can lead to resentment and a breakdown of trust, harming long-term relationships.

• Regularly compromising might be perceived as a lack of conviction or strength, potentially diminishing your negotiating power in future discussions.

Integrative Negotiation

Integrative negotiation, or "win-win negotiation", aims at finding solutions that benefit all parties involved. This collaborative approach is conducive to building long-term relationships and fostering collaboration. In integrative negotiations, parties work together to understand each other's needs and interests, seeking mutually beneficial solutions. Both parties walk away with a feeling of satisfaction of achieving most of their goals.

This type of negotiation is ideal for business partnerships, problem solving, conflict resolution, and team projects. The integrative negotiation involves moving beyond the initial positions taken up by parties and digging deep into the underlying interests & motivations. This is followed by finding creative solutions that serve the interests of both the parties.

Let's take an example of a supplier & buyer negotiation. The buyer's initial position on the payment credit terms is 60 days whereas the supplier insists for 30 days. On digging deeper, the buyer discovers that the supplier's underlying concern is working capital pressure. To address this, the buyer arranges trade finance for the supplier at favorable terms through their banker. This solution alleviates the supplier's working capital problem and meets the buyer's need for extended payment terms, resulting in a win-win situation.

Here are some types of situations that demand integrative negotiation:

1. Long-Term Relationships:

   • When the parties involved have ongoing interactions, such as business partnerships, employer-employee relationships, or supplier-customer relationships, fostering a collaborative environment can help maintain and strengthen the relationship over time.

2. Complex Issues with Multiple Interests:

   • In negotiations involving multiple issues, such as contract negotiations, mergers and acquisitions, or strategic alliances, there are opportunities to trade off different interests and create value for both parties.

3. Joint Ventures and Strategic Partnerships:

   • When two or more companies form a joint venture or strategic partnership, integrating resources, capabilities, and goals is essential for mutual success.

4. Community and Environmental Issues:

   • Negotiations involving community groups, government agencies, and corporations on issues like land use, environmental conservation, and public health often require integrative approaches to balance various interests and achieve sustainable solutions.

5. Project Collaborations:

   • When multiple organizations or teams work together on a project, integrating their expertise, resources, and timelines through collaborative negotiation ensures the project’s success.

Conclusion

Understanding the different types of negotiations (distributive, compromising & integrative) and their appropriate applications can significantly enhance your negotiation skills. Whether you are negotiating a salary, forming a partnership, or resolving a conflict, choosing the right negotiation style can lead to more favorable outcomes. Often one may use more than one negotiation type in the same negotiation to resolve complex issues. By mastering these negotiation types, you can navigate various situations with confidence and achieve your desired results.