If you had a single pie to split with someone, how much of it do you think you could get?
If you don’t like pie, then you probably don’t care. But if you’re like me, and you do like pie, then you probably hope that you can get at least half of it, maybe more. And if you could get the whole pie, you’d be ecstatic.
Really, we’re not just talking about pie here. We’re talking about negotiations. In my article on the different types of issues that we negotiate, I talked about distributive issues and compared them to a fixed pie. That’s because, in distributive negotiations, there’s one thing that both sides want, and for one to get more, the other has to get less. It’s like a fixed-pie. Or rather, a pie that can’t grow or shrink. And that pie has to be split between the two sides in a way that both are willing to agree to.
So how do you ever come out of such an arrangement with more than half of the pie?
Well, real negotiations usually aren’t as simple as the pie metaphor. And the reason is, that neither side really knows how big the pie actually is.
We sit down and we negotiate back and forth over something, and we don’t even know how much value (pie) is actually on the table?
That’s exactly right. Let me show you why.
Buying a Car
Let’s use the example of buying a car. This is a perfect example of a distributive or fixed-pie negotiation. Now, we’ll say that I have found exactly the car I want to buy, and I’ve looked around and know that I can get it at one dealership for $10,500. But I’ve done my research and I think that I might be able to get it for as little as $7,500 although I haven’t found anyone pricing it that low.
So now, I decide to go to a second dealership that has the same car and I want to see if I can do any better.
Right now, I know that I can get the car for $10,500 somewhere else, so that’s my BATNA (best alternative to a negotiated agreement). If you don’t remember what a BATNA is, check out my article on the things you need to know before any negotiation. It’s also the highest price that I’m willing to accept, so it’s my reservation point too. There’s no way that I’ll accept to pay anything more than that.
Now, look at the diagram below. My negotiation range is the green area. The low end is at $7,500. I really want to get to that price and I think it might be possible. My high end is at $10,500. That’s the highest price I’d be willing to pay. If I can’t negotiated it lower than that, I’m better off walking away.
Now, we’ll look at things from the car dealer’s perspective. He thinks he could sell the car for as much as $12,000. He doubts he’ll get that much, but it just might be possible. Anything higher than that, though, would be unrealistic. This same dealer is also really confident that if he really had to get it off the lot, he could sell it immediately if he lowered the price to $9,000. So there’s no way he’ll accept a price lower than that. So the dark red area makes up the dealer’s negotiation range.
You can see that there’s a section where our two ranges overlap. I’ve highlighted this area in orange. This is called the bargaining zone. This is the area where both the dealer and I would be willing to make a deal, because the sale price would be lower than my reservation point, and higher than his. This section is the pie.
Now, I told you that in these negotiations, we usually don’t actually know how big the pie really is. And that’s true. Think about it. The car dealer doesn’t know how much or how little I’d be willing to pay. And I don’t really know how low the car dealer would be willing to go. So the size of the pie is unknown to both of us.
So how do you make sure you get as much of it as possible?
Here are Some Tips to Help You Out
- Prepare—There is nothing better for a negotiation than preparation. The first thing you need to know is your own BATNA, reservation point, and aspiration point. Again, if you aren’t familiar with what those are. Check out my article where I described them in detail. Once you know those for yourself, do some research. Try to figure out what they might be for the other party. The better you know what the pie looks like before you go in, the better change you’ll have of getting more of it.
- Consider the Relationship—Is this a one time interaction with the other person? Or do you have to work with them in the future. If you’re negotiating over the price of a car, it’s probably a one-time interaction. If you’re negotiating over your salary, it’s probably not. Research shows that playing hardball and using intimidation or anger can actually get you more of the pie in one-time negotiations. But if the relationship is ongoing, you’re better off being kind and happy. You might get a bit less today, but you’ll get more in the long run.
- Increase your Power—Winning in negotiation is all about who has the power. In the car buying example, both parties have some level of power. If it’s a normal day, then the dealer probably has other people interested in buying cars and doesn’t have to sell to you if you’re not willing to pay what he wants. Likewise, there are other dealerships and you can find the car you want somewhere else. But, if you come in toward the end of the month and the dealer is behind on his quota, then you have more power because he needs to sell more cars. If you show that you’re willing to walk away, then you can increase your power. In general, you increase your power by making yourself less dependent on the other person while making them more dependent on you.
- Be Honest—Nothing kills a negotiation like catching someone in a lie. It destroys any amount of confidence that you had in the other person. And in general, we don’t like making deals with people that we don’t trust. So be honest. That said, honesty doesn’t mean you reveal everything. You don’t want to reveal your BATNA or reservation point. If you do, you give the other person the entire view of the pie. So don’t do that. But look for ways to signal that you’re being honest. Offer a little more information than you have to. Something that doesn’t make you too vulnerable, but that shows the other person that you’re being honest.
- Connect—Find a way to connect with the other person. People like to help out the people they like. If the person you’re negotiating with feels connected to you in some way, you’re more likely to get a good deal. So if you negotiate in their office, look for pictures, trophies, or anything that indicates what’s important to the other person. Find something that you have in common and mention it. If you see a family picture, go ahead and say, “You have a nice looking family there. I’ve got two kids that are a little younger than yours and they’re the highlight of my life.” Again, don’t lie. That’s a bad idea. But find a way to connect.
- Make the First Offer—People go back and forth on this one. Some people think that by making the first offer, you’re laying your cards down without seeing any of the other person’s cards. Well, that’s not really true. Stating the first price doesn’t tell the other person your BATNA. What it does do, is limit how good of a deal you can get. Because once you have a number out there, you’ll never make a deal that’s better than it. So use a number around your aspiration point. If the other person agrees immediately, then great! You just got exactly what you wanted. It’s possible you could have done better, but who cares. You got what you came for. But most often, the other person will want to negotiate from there. And by setting the price first, you anchor the other person to a number. They’ll immediately start thinking of what you offered and negotiate from there, rather than negotiating from their own aspiration point.
- Remember Your Aspiration Point—So what if you don’t get to make the first offer. In our example, car dealerships usually post a price on the car. That’s the starting point for the negotiation. That immediately puts you at a disadvantage. So focus on your own aspiration point. They want to anchor you to the sticker price, but don’t let them. Come right back with your own offer that’s based on your aspiration point, not theirs. And focus on your aspiration point. By keeping that number fresh in your mind, you’ll be more likely to push to get close to it. If, instead, you focus on your BATNA, you’ll be more likely to make the common mistake of accepting the first price that’s better than your BATNA. You can do better. So focus on your aspiration point.
- Don’t Forget Your BATNA—All that said, don’t forget your BATNA. It’s pretty common for people to get caught up in the heat of the negotiation and in an effort to make a deal, they accept an offer that’s not even as good as their alternative. If you can’t do better than your existing alternative, then you’re better off not reaching a deal. Now, let’s say you’ve focused on your aspiration point and reached a deal. But the deal you got was below your aspiration point. Now, you’re upset because you didn’t do as well as you hoped. This is a good time to remember your BATNA. Start thinking about that number. Then, you can feel good about the deal you reached. It was below your aspiration point, but they usually are. Think about how much better you did than your best alternative. That’s where you claimed real value.
Lot’s of people think that to be a great negotiator, you need to be quick. You have to think on your feet. The truth is, it’s all about preparation. You need to know your negotiation range, and you need to estimate the other person’s. Add to that some psychological tactics and you’re ready to negotiate with the quickest people out there, if they’re not as well prepared as you. I hope these tips for fixed-pie negotiations serve you well.
Remember, the pie is the space between what you’re willing to accept and what the other person is willing to accept. Neither person actually knows how big the pie is. So if you prepare well and use these tips, you’ll start walking away from negotiations with more pie.
And who doesn’t like more pie?