In the business world, negotiation forms a part of the daily activities. When purchasing, a buyer wants the best deal that will minimize cost, and on the other hand, a seller wants to maximize profits. This means that to strike a balance, there must be some negotiation talks that will take place.
Good negotiation goes a long way, not just in purchasing and selling but also in contracting. It can mean the acquisition or loss of a great contract. Business relationships are created by good negotiations, and it is therefore important for business owners to have the basic skills that are needed in negotiation processes. This paper aims to discuss the negotiation process and the zone of possible agreement.
The negotiation process can be divided into three parts; pre-negotiation, formal negotiation, and post-negotiation. In the first stage, activities outside the real negotiation take place. The parties get to know each other, building mutual relationships and trust in each other. In this stage, the deal is presented, and each party has time to research on what the other wants out of this deal.
By informal discussions, this can be easily achieved. Then comes the real thing; the formal discussion. Here task-related persuasive talks are held, related information exchanged and finally the parties agree. Finally, they get to the post-negotiation stage in which the deal is now implemented and new rounds of negotiations, if any are introduced, (Ghauri & Usunier, 1996).
Negotiation in itself is an uphill task as each of the parties wants the best for themselves. This makes it very difficult to agree, and sometimes, dealers opt for the ‘no deal’ option. However, there may be an option that is better off than the parties’ best choices. This option is known as the Zone of Possible Agreement (ZOPA).
This refers to the common ground range of possibilities in a negotiation that is agreeable by both parties. The range covers the sellers walk away point (the minimum he can accept) to the buyers walk away point (the maximum he can offer). The price range between the two points is the ZOPA (Fisher and Ury, 1983). This is illustrated below.
Consider a situation where I want to purchase a business entity. I, as a buyer, will, first of all, get a description of the entity and possibly a view of it. Then the seller will give his quotation, for instance, $12000. According to my view of the business, I will estimate its value, let’s say $10000 and give my quotation; a figure less than the estimated value.
As a buyer, I will try to point out many shortcomings related to the business and hide some of my interests that are in favor of the seller. All these are in a bid to try and bring the seller towards my direction. Both the seller and I can adjust accordingly and possibly agree on a figure. I estimated the real value to be about $10000; this may be my walk away price.
A ZOPA exists in the range of our quotations; if we can realize this, then the negotiation becomes an easier one. Our walk away points overlap at some point, and this is the best range to base our negotiations on. It gives us sort of some limits on which to confine our offers. This situation is likely to be a win-win situation; the seller will have the best possible deal that is the maximum profit on his sale as per the situation at hand. The buyer, on the other hand, will get the best deal possible
References
Fisher, R. & Ury, W. (1983) Getting to Yes. New York: Penguin Books.
Ghauri, P. & Usunier, J. (Eds). (1996). International Business Negotiations. Oxford: Pergamon