Much of the tension in a negotiation is the struggle between the desire to compete and the desire to cooperate. It wouldn’t make for good negotiation if there wasn’t some competitive aspect, but it can be problematic if one side has a winner-take-all approach. A successful negotiator isn’t deterred by competitive bargaining, they know the rules of both collaboration and competition.
Competitive negotiation is sometimes referred to as “distributive” bargaining because it’s a process in which parties distribute, between themselves, the substance over which they’re bargaining.
One very basic example is in the purchase of a home. The sellers, for example, may have been using the home as a rental property, so it’s furnished and included in the selling price. This could be great for buyers depending on their needs, but suppose they have their own furniture and don’t want the hassle of moving the existing furniture? They may try to negotiate a discount where the furniture isn’t a part of the deal.
Predictable Characteristics of Distributive Bargaining
The key to success is using predictability to enhance the likelihood of success. Being able to predict how you and your negotiation partner will behave is somewhat of a secret weapon in a negotiation. Although the probability of a negotiation not going to plan certainly exists, the idea is to hopefully negate surprises that could set your side of the negotiation back.
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Creates a Relatively Fixed Pie
Distributive bargaining usually assumes that the value being bargained is relatively fixed. Parties attempt to distribute a limited and specific amount of value. A pie is the typical representation of negotiation and in a distributive negotiation, your focus is typically on the distribution of one or two issues in one specific pie.
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Perceived as a Zero-Sum Exchange
This type of bargaining has been called a zero-sum exchange, or more simply, whatever one side gains, the other side must lose. This assumption tends to limit the options the parties may consider in seeking resolution to a dispute or claim.
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Necessitates Concessions
This series of compromises has been described as the negotiation “dance” – a sequence of continually diminishing moves through which parties communicate and hopefully arrive at agreement.
In studies of distributive bargaining in many contexts, a pattern emerges concerning the size and time of concessions. The pattern suggests that each concession will be about half as large as the previous concession but will take twice as long to achieve.
The Result of Distributive Bargaining is Predictable
As concessions take place, in many cases it is possible to predict the outcome of the process. As a predictable characteristic, parties tend to gravitate toward the mid-point of the first two reasonable offers.
A typical car purchase might look something like this:
The car salesperson may start any negotiation with the MSRP, or Manufacturer’s Suggested Retail Price. Dealers aren’t obligated to sell the car at this price, and it certainly isn’t what it cost them to purchase from the manufacturer, and as a result different dealerships may be willing to sell the car at different prices.
You may start with a trade-in. Undoubtedly, the MSRP is at the high-end and in addition to not being obligated, the dealership doesn’t likely intend to sell the car for that amount. Similarly, you may have ideas as to the value of your trade-in. If both sides present reasonable offers, you’ve created a more effective zone for a deal to be made and all that remains is hammering down the finer points, where each side gives a little until a consensus is reached.
In Distributive Bargaining the Dance Cannot Be Short-Circuited
It may appear that a negotiator can short-circuit the series of concessions by making an offer near the midpoint early in the negotiation. While this might be useful where negotiators know and understand each other, in most circumstances such a move would merely encourage one of the parties to use the midpoint offer to claim more value.
This is particularly frustrating since it means distributive bargaining can sometimes be very time-consuming and expensive. Succumbing to the temptation to short-circuit the dynamic, however, can result in settlements that are unsatisfactory and unworkable.
There are basically two types of distributive bargaining: hard and soft.
The hard type will be the most frustrating because both sides are essentially unwilling to negotiate. One major example came in 2014 when publishing company Hachette refused to meet Amazon’s demands on e-book pricing. Amazon responded by raising the prices of Hachette titles, delaying shipping times, and more. Typically, issues like these are handled behind the scenes, but in this case, the issues were made public, positioning Amazon as a modern-day Goliath, intent on running book publishers into the ground.
The soft type is more common, and happens when both parties show up to hammer out the details without committing themselves completely to winning.
Alternatives, Zones, and Keeping Your Head
There are two key terms that come into play frequently within a distributive negotiation, and if you’ve adequately prepared – you have a plan for both before you enter the room. The first is BATNA, or Best Alternative To a Negotiated Agreement, which is an outside option if your current negotiation reaches an impasse.
A classic example is the purchase of a car – your best alternative may also be your walk-away point. They’ve offered, you’ve counter-offered, they’ve come back and despite your best efforts, neither side is budging. Your BATNA may be to try a different dealership more willing to work with your needs.
The second term is ZOPA, or Zone of Possible Agreement, which is a bargaining range where the negotiating parties may find common ground. Using the car sale example again, neither party necessarily knows where these zone lines are drawn. The price the buyer wants to pay may exceed what the seller can reasonably offer, but the hope is that each side can find a place within the zone and come to an agreement before considering the BATNA.
Distributive Bargaining Encourages an Aggressive Style, Which May Harm the Bargaining Relationship
Unfortunately, distributive bargaining tends to motivate competitive strategies that are accompanied by aggressive personal behavior. While one may not seek a personal relationship apart from the negotiation, it may be important to have a productive working relationship within the negotiation. The dynamics, tactics, and behaviors associated with distributive bargaining may harm that working relationship.
In the example of Amazon and Hachette, both parties need each other though not in equal amounts. Although Amazon started as an online bookseller, it’s main income source is retail, so it can afford to discount books significantly, which it does – to the point where, from Hachette’s perspective, it undermines what they can sell elsewhere. With Amazon already owning 50% of the print book market, as well as three quarters of publisher’s ebook sales, they could theoretically, put Hachette, and all other publishers out of business. Due to the timing of the negotiations, Hachette ended up not only representing themselves, but all other major publishers who would eventually be in the same boat.
As The Atlantic pointed out at the time, “The rules of media ownership in the U.S. are built partially around the concept of not giving any one party too much control over the flow of ideas. Should Amazon become the sole place most books are purchased, it could start to have too much control over what we read.” From this article alone, one can see the tides of public favor beginning to turn against Amazon as the now-public negotiation was repositioned as big brother vs. independent thinking.
Amazon’s aggressive behavior may have been warranted, but it wasn’t without consequences. Ultimately, several media outlets encouraged boycotts of Amazon, and Hachette’s sales plummeted 18.5% from the same time the previous year. Though they eventually settled with both sides making concessions, the deal was for a limited number of years, almost guaranteeing the two will come head to head again.
Learn How to Negotiate with the Pros
The Lowry Group, LLC (TLG) is the outgrowth of almost three decades of experience helping organizations achieve their next level of success throughout the United States and around the world, including conflict resolution. TLG’s work began as an external consulting, systems design, and training resource composed of faculty from the Straus Institute for Dispute Resolution at Pepperdine University School of Law.
But TLG has moved beyond its academic roots to respond to repeated requests from corporate and government organizations for “real world” assistance. The TLG team has been chosen by scores of major organizations that must become more effective in negotiating sales, business transactions, client relationships and disputes.
What makes companies and individuals truly successful is the ability to ably manage negotiation. We created resources you need to identify, resolve and manage negotiation. From CEOs, to small business owners, and to anyone managing a team – developing the skills to navigate negotiations is not just important, it’s imperative. Managing negotiations is a cornerstone not only in conflict resolution but also in understanding the psychology of business relationships. Learn how to up your negotiation skills with the Negotiation Navigator Online Course!
