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14Jun/096

Negotiations: Just Another Board Game

negotiation1Why do we negotiate?

  • Obtain favorable terms: you try to win the biggest share of the pie for yourself, e.g. buying a car for below market price, get an increase in salary or a better terms of employment
  • Build personal relationships: negotiation isn't always all about winning - it can also create win-win settlements, and develop mutually beneficial relationships

What? Building relationships and "winning" aren't necessarily at odds. This means that you don't have to be a stubborn son of a bitch to come up with an agreeable settlement.

Distribute vs. Integrative Negotiations

Distribute negotiations:

  • Focus on claiming value. It's usually a zero-sum game: what one party wins, the other party looses
  • Typically involve a single issue
  • Example: buying a used car: if the market price is $x, and you get it for $x+500, it means the dealer has a $500 surplus (or "win"), and you are stuck with a $500 loss.

Integrative negotiations:

  • Focus on creating value: enlarge the pie by adding more issues on to the table. Some of the issues may be distributive, but both parties might have similar interests for the rest
  • The negotiation as a joint problem-solving task
  • Opportunity to trade on issues that are more important to you, and less important to the other party
  • Example: job offer negotiation: housing might be a critical issue for you, but for your employer who is a real estate developer, they would actually prefer to have you stay in one of their condos.

The goal is to try and convert all negotiations you care about to integrative - integrative negotiations ensure that both parties maximize their share of wins, while not destroying any relationships. Speaking of wins, there are a few things one needs to keep in mind when negotiating:

BATNA (Best Alternative To a Negotiated Agreement)

This is your greatest source of power. Your BATNA is your fallback plan: if the negotiation doesn't result in a deal, what alternatives do you have? For example, if you are negotiating a job offer with one employer, you are in a position of power when you have a good BATNA, e.g. a comparable job offer. In this situation, you are able to negotiate compensation, benefits, etc. - whereas without the BATNA that is the other offer, this discussion might not lead to such favorable terms for you. Therefore, while negotiating, it is in your best interest to increase your BATNA. Find other options that you equally like, may it be a second house you'd be willing to purchase, or a hoverboard when negotiating for a car.

Reservation Price

Reservation price is your "bottom line". If this price is not met, you do not do a deal - lest you are subjected to the agreement bias, where you go into an agreement just for the sake of reaching a deal, even though you will actually be worse off than you currently are.

Making the first offer

Usually, it's a good idea to make the first offer, because it anchors the other party on YOUR terms: research shows that final agreements are more strongly influenced by initial offers than by subsequent concessionary behavior. An aggressive first offer gives you room to concede and thus appear flexible and cooperative, while also letting you get a better deal. On the other hand, weak first offers tend to make you appear stubborn, as you do not have room to make any concessions.

The only exception to the "always make the first offer" rule is when you know the other party has a lot more information than you do, in which case you might make a misinformed - and hence dumb - first offer.

How aggressive should your first offer be?

  • “As high as you can go without embarrassing yourself in front of a respected third party” (Fisher & Ury)
  • Use target price to set your first offer
  • Use references (past prices, similar products) to rationalize the offer
  • Most important: ensure it is reasonable - especially when you want to build a relationship with the other party. An irrational first offer will set a tone of distrust.

Notes: I wrote this as a recap of my Negotiations class at Kellogg, to aid in my exam  studies and real world negotiation project. I hope this was as helpful to you as it was to me!

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9Jun/095

Gender Targeting in Advertising

655Gender targeting is one of the Kellogg topics that piqued my interest. Men and women are clearly different, but I found it interesting how some of the different factors of their personalities can be used in targeting a particular advertising campaign towards either gender. Men and women, apparently, differ greatly in how they make judgments - and, thus, their purchase decisions:

  • Men are more likely to:
    • Be quicker in making their decisions
    • More certain about their judgments
    • Be less easily persuaded
  • Women are more likely to:
    • Be slower in making decisions
    • Consider more details in their decision making process
    • Seek more discussion

Therefore, when making decisions,

  • Men tend to be goal-oriented, single-minded, and look for short cuts, such as prior knowledge or the first information presented.
  • While women will tend towards comprehensive information processing, and will tend towards products with more information, not less when making their purchase decisions

This means that, even though gender targeting can be easily presented through the use of obvious, everyday cues (the Heineken ad is a great example of this), the WAY the ad is presented can be just as important in improving the effectiveness of the ad for the target gender. This was a revelation to me!

Some ads try to appeal to both trains of thought - for example, the headline in this AMX ad might appeal to men, while the detailed information might appeal more to women.

I find that the print ads below illustrate perfectly the differences between the male vs. female thought processes. I've never seen them illustrated so well before! I love this campaign.

Print Ad 1 Print ad 2 Print Ad 3

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