Negotiation Definition - Investopedia

A negotiation is a strategic discussion that involves two or more parties that resolves an issue in a way that each party finds acceptable. Business BusinessEssentials WhatIsaNegotiation? Anegotiationisastrategicdiscussionthatresolvesanissueinawaythatbothpartiesfindacceptable.Inanegotiation,eachpartytriestopersuadetheothertoagreewithhisorherpointofview.Bynegotiating,allinvolvedpartiestrytoavoidarguingbutagreetoreachsomeformofcompromise. Negotiationsinvolvesomegiveandtake,whichmeansonepartywillalwayscomeoutontopofthenegotiation.Theother,though,mustconcede—evenifthatconcessionisnominal. Partiesinvolvedinnegotiationscanvary.Theycanincludetalksbetweenbuyersandsellers,anemployerandprospectiveemployee,orgovernmentsoftwoormorecountries. KeyTakeaways Anegotiationisastrategicdiscussionthatresolvesanissueinawaythatbothpartiesfindacceptable.Negotiationscantakeplacebetweenbuyersandsellers,anemployerandprospectiveemployee,orgovernmentsoftwoormorecountries.Negotiatingisusedtoreduce debts,lowerthesalepriceofahouse,improvetheconditionsofacontract,orgetabetterdealonacar.Whennegotiating,besuretojustifyyourposition,putyourselfintheotherparty'sshoes,keepyouremotionsincheck,andknowwhentowalkaway. HowNegotiationsWork Negotiationsinvolvetwoormorepartieswhocometogethertoreachsomeendgoalthroughcompromiseorresolutionthatisagreeabletoallthoseinvolved.Onepartywillputitspositionforward,whiletheotherwilleitheraccepttheconditionspresentedorcounterwithitsownposition.Theprocesscontinuesuntilbothpartiesagreetoaresolution. Participantslearnasmuchaspossibleabouttheotherparty'spositionbeforeanegotiationbegins,includingwhatthestrengthsandweaknessesofthatpositionare,howtoprepare todefendtheirpositions,andanycounter-argumentstheotherpartywilllikelymake. Thelengthoftimeittakesfornegotiationstotakeplacedependsonthecircumstances.Anegotiationcantakeaslittleasafewminutes,or,inmorecomplexcases,muchlonger.Forexample,abuyerandsellermaynegotiateforminutesorhoursforthesaleofacar.Butthegovernmentsoftwoormorecountriesmaytakemonthsoryearstonegotiatethetermsofatradedeal. Somenegotiationsrequiretheuseofaskillednegotiatorsuchasanadvocate,arealestateagent/broker,oranattorney. WhereNegotiationsTakePlace Manypeopleassumethatpricesandoffersarefirmandfinal.Butthat'snotnecessarilytrue.Infact,manyareactuallyflexible.Negotiatingcanbeawaytocometoagreementsinavarietyofareas:toreducedebts,tolowerthesalepriceofahouse,toimprovetheconditionsofacontract,ortogetabetterdealonacar. SayyouwanttobuyabrandnewSUV.Thenegotiationprocessusuallybeginsbetweenyouandthesalespersonwiththemanufacturer'ssuggestedretailprice(MSRP).ThisisthepricetheproducerrecommendsthedealershipusetoselltheSUV.Whatmanypeopledon'tknowisthatmostdealershipstypicallysellbelowtheMSRP—unlessthemakeandmodelisverypopular.YoumayapproachthedealerwithanofferbelowtheMSRPprice—onethatthedealershipmayacceptorcounter.Ifyouhavegoodnegotiatingskills,youmaybeabletodriveawaywithagreatdeal,evenlowerthanthevehicle'sinvoiceprice.Thisisthepricethemanufactureractuallychargesthedealer. Negotiationisalsoanimportantskillwhenacceptinganewjob.Theemployer'sfirstcompensationofferisoftennotacompany'sbestoffer,andtheemployeecannegotiatedifferenttermssuchashigherpay,morevacationtime,betterretirementbenefits,andsoon.Negotiatingajobofferisparticularlyimportantbecauseallfutureincreasesincompensationwillbebasedontheinitialoffer. KeyFactorsinNegotiations Whenitcomestonegotiation,therearesomekeyelementsorfactorsthatcomeintoplayifyou'regoingtobesuccessful: ThePartiesInvolved Whoarethepartiesinthenegotiation,andwhataretheirinterests? Whatisthebackgroundofallinvolved,andhowdoesthataffecttheirpositioninthediscussion? Relationships Whatistherelationshipbetweenthepartiesandtheirintermediariesinthenegotiation?Howarethepartiesconnectedandwhatroledoesthatplayinthetermsofthenegotiationprocess? Communication Howwillthe needsofthepartiesinvolvedbebestcommunicatedinordertosecuretheiragreementsthroughnegotiation? Whatisthemosteffectivewaytoconveythedesiredoutcomesandneeds?Howcanthepartiesbecertaintheyarebeingheard? Alternatives Arethereanyalternativestowhateitherpartyinitiallywants? Ifadirectagreementisnotpossible,willthepartiesneedtoseeksubstituteoutcomes? RealisticOptions Whatoptionsmaybepossibletoachieveanoutcome? Havethepartiesexpressedwheretheremaybeflexibilityintheirdemands? LegitimateClaims Arewhateachpartyrequestsandpromiseslegitimate? Whatevidencedothepartiesoffertosubstantiatetheirclaimsandshowtheirdemandsarevalid?Howwilltheyguaranteetheywillfollowthroughontheresultsofthenegotiation? LevelofCommitment Whatistheamountofcommitmentrequiredtodelivertheoutcomeofthenegotiations? Whatisatstakeforeachparty,anddothenegotiationsconsidertheeffortthatwillneedtobemadetoachievethenegotiatedresults? TipsinNegotiating Noteveryonehastheskillsneededtonegotiatesuccessfully.Butthereareafewthingsyoucandotobetterhelpyoumakeyourpositionknown: JustifyYourPosition Don'tjustwalkintonegotiationswithoutbeingabletobackupyourposition.Comearmedwithinformationtoshowthatyou'vedoneyourresearchandyou'recommittedtothedeal. PutYourselfinTheirShoes There'snothingwrongwithstickingtoyourground.Butwhileyoushouldn'tgooveryourlimitations—suchasspendingmoremoneyifyou'rebuyingahomeorcar—rememberthattheotherpartyhasitsownrestrictionsaswell.There'snothingwrongwithtryingtoseethingsfromtheotherperson'sperspectiveandwhytheymaynotacceptyouroffer. RemovetheEmotion It'seasytogetcaughtupandbeswayedbyyourpersonalfeelings,especiallyifyou'rereallyvestedintheoutcome.Thebestthingtodoistokeepyouremotionsincheckbeforeyoustart. KnowWhentoStop Beforeyoubeginthenegotiatingprocess,it'sagoodideatoknowwhenyou'llwalkaway.Thereisnousetryingtogettheotherpartytoseewhereyoustandifthetalksaren'tmovingforward. WhenNegotiationsDon'tWork Eventhebestnegotiatorshavedifficultyatsomepointoranothertomakethingswork.Afterall,theprocessrequiressomegiveandtake.Perhapsonepartyjustwon'tbudgeanddoesn'twanttogiveinatall.Therecouldbeotherissuesthatstallthenegotiationprocess,includingalackofcommunication,somesenseoffear,orevenalackoftrustbetweenparties.Theseobstaclescanleadtofrustrationand,insomecases,anger.Thenegotiationsmayturnsourandultimatelyleadpartiestoarguewithoneanother. Whenthishappens,thebest—andsometimesonly—thingthepartiescandoistowalkaway.Takingyourselfoutoftheequationgiveseveryoneinvolvedachancetoregroup,anditmayhelpbothofyoucomebacktothebargainingtablewithacoolandfreshmind. CompareAccounts AdvertiserDisclosure × TheoffersthatappearinthistablearefrompartnershipsfromwhichInvestopediareceivescompensation.Thiscompensationmayimpacthowandwherelistingsappear.Investopediadoesnotincludealloffersavailableinthemarketplace. Provider Name Description RelatedTerms WhatIsBrinkmanship? Brinkmanshipisanegotiatingtechniquewhereonepartyaggressivelypursuesasetoftermssothattheotherpartymusteitheragreeordisengage. more BestAlternativetoaNegotiatedAgreement(BATNA) Abestalternativetoanegotiatedagreement(BATNA)iswhatitsoundslike—analternativetonegotiationsthathaveeitherbrokendownoraredisagreeable. more WhatIsaBestandFinalOffer? Abestandfinalofferisaprospectivehomebuyer'slastandhighestoffer,oftensubmittedinabiddingwarforaproperty. more MemorandumofUnderstanding(MOU):WhatYouNeedtoKnow Amemorandumofunderstanding(MOU)isadocumentdescribingthebroadoutlinesofanagreementthattwoormorepartieshavereached. more WhatIsCollectiveBargaining? Collectivebargainingistheprocessofnegotiatingtermsofemploymentbetweenanemployerandagroupofworkers. more Brexit BrexitreferstotheU.K.'swithdrawalfromtheEuropeanUnionaftervotingtodosoinaJune2016referendum. more PartnerLinks RelatedArticles Economy ThePrisoner’sDilemmainBusinessandtheEconomy BehavioralEconomics HowtoMastertheArtofNegotiation LifestyleAdvice HowtoNegotiateUsedCarPrice SellingYourHome PlayingHardballWhenSellingYourHome SellingYourHome TheContingencyClausesThatCanDelayorPreventaHomeFromSelling Salaries&Compensation SalaryNegotiationStrategiesThatCanBackfire