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Articles Tagged with Negotiations

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out-of-the-park-842657-m.jpgA recent news story caught my eye because it shows the importance of a win-win negotiation strategy and the need to accurately assess your BATNA, or best alternative to a negotiated agreement. Though it deals with personal injury claims in Kansas, it can teach a lot to businesses in New York and across the country.

The state legislature in Kansas is considering a few important changes to personal injury litigation: increasing the cap on non-economic damages while at the same time changing the rules of evidence to allow a jury to hear whether a plaintiff has had losses covered by other, or collateral, sources including insurance, and to make it more difficult to use questionable expert testimony. To put it another way, the proposed rule changes would allow personal injury plaintiffs to collect more for pain and suffering while arguably making those harder to prove.

According to the story in the February 28, 2014, Claims Journal, Kansas has not raised its cap on damages for pain and suffering since the 1980’s. Though the cap was found constitutional by the state’s highest court in 2012, the decision disapprovingly noted the long delay in raising the cap. The warning evidently was heard loud and clear. The story notes that the chairman of the state senate judiciary committee, Jeff King, considers it only a matter of time before the current cap, of $250,000, is overturned as being too low. That is why the current bill would increase the cap, in stages, to $350,000.
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careful-899881-m.jpgWe’ve spent a lot of time this past summer talking about how important negotiations are to businesses and individuals alike, and how various negotiation strategies work together to produce desired, and sometimes unintended, results. This time, we’re coming back to one useful strategy in particular, which is known by the ever impressively indecipherable acronym BATNA, to show how it can be used, abused, and overplayed. Put another way: BATNA Beware.

BATNA is shorthand for Best Alternative to a Negotiated Agreement; i.e., your best fallback position if negotiations fail and you have to walk away from the negotiating table without getting a deal done. Everyone’s been involved in that situation before; no negotiator is immune from sometime, someday, someway, simply not being able to reach a deal. For years Verizon Communications and Vodafone could not reach an agreement to end their joint venture in Verizon Wireless. Started in 2000, after Bell Atlantic merged with GTE Corp., both of which had a large East Coast presence, and Vodafone purchased Air Touch Communications, which had a large customer base on the West Coast, Verizon Wireless is the largest cellular service provider in the United States. Verizon Communications reportedly owns 55% and Vodafone 45% of the joint venture. According to those same reports, Verizon Communications had a long standing desire to buy out Vodafone but did not want to pay Vodafone’s $130 billion asking price. It instead wanted to pay only $100 billion for the minority stake in the company. As a result, no agreement was reached until earlier this month when Verizon agreed to buy out Vodafone for the $130 billion Vodafone reportedly had been seeking all along. You can learn a lot by looking at the facts behind this apparent change of heart.

You would think that Verizon Communications had the better bargaining position. The way Verizon Wireless reportedly is structured, Vodafone has little say in the day to operations of the company. With effective control over the company, Verizon Communications apparently should have been able to operate the wireless carrier to its benefit with Vodafone having little say, or veto power, over the decisions. What Vodafone apparently had was an investment, with little opportunity to chart the path of the company to maximize the profits in its own interest. That’s a lot of trust to place in another company. You would think that Verizon Communications could have held out for as long as it needed to in order to pay what it wanted, $100 billion, to get what it wanted, sole ownership of Verizon Wireless. After all, Verizon Communications’ fallback position looked a lot better than Vodafone’s; if they couldn’t reach a deal, then Vodafone would be left with an investment it had little control over, but Verizon Communications would still have effective operational control over the nation’s largest wireless carrier, with its inherent possibilities for growth, marketing, and cross-promotion.

The problem apparently was that Verizon Communications overestimated its bargaining power and underestimated Vodafone’s fallback position. If no deal was done, and everything stayed the same, Verizon Communications would still be in charge, but Vodafone would still receive a large share of the wireless company’s profits. Reportedly, Verizon Communications wanted those profits on its books, not Vodafone’s. When you think about it from Vodafone’s point of view, is it really that bad to have a large investment in a profitable company with a good rate of return? Why walk away unless you can cash-out at or close to your asking price? After all, it might be difficult to find another place to put your money that will get you close to the same return. Maybe Vodafone really could afford to hold out longer than Verizon. What reportedly got the deal done was Verizon Communications’ concern about the effect rising interest rates will have on the cost of raising the money necessary to finance it. When you’re talking about purchases of about $100 billion, even minor fluctuations of bond prices and interest can quickly make a difference.
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fruit-and-veg-1421738-m.jpgAs we’ve spoken about in the past, negotiations are an important part of everyday life for businesses, consumers, and lawyers alike. Today we’re going to talk about how respect, trust, and confidence are the keys to successful business negotiations and how you can harness the natural urge to compare, and the common preference for choice, to attain them.

Chances are, you all have felt the urge to comparison shop; how else to tell whether you’re going to get your money’s worth out of the bargain? No matter what you are in the market for, be it clothes, groceries, a new car, or a home, most people want to take a look at multiple options before deciding which one to buy. How many people buy the first house they look at with a realtor, the first car they see in a showroom, or even the first pair of jeans they pick up in a store?

People’s urge to compare is strong, even when they are standing in one store. Think of the last time you bought a new cellphone. Picture yourself standing there, tied to one carrier, in front of a display with many different phones. Do you look at the cost and different features of each, to see which one you like better, before you make up your mind? When you finally make your decision, do you feel more confident that you bought the right phone because you made the effort to educate yourself by evaluating the choices first, or do you regret not buying the first decent looking phone that you saw? What if there is only one phone and the only choice you have is to take it or leave it? How confident are you that it is worth the money?

If having more choices to compare makes you feel more confident in your ultimate selection, then you’re not alone. Even Apple, which perennially has offered one new version of its iPhone at a time, apparently has recognized the power of choice; it reportedly is set to introduce two very different versions of its newest iPhone, one high-end and one low-end, at the same time this September.

A recent episode of the popular National Geographic Channel television show Brain Games points out just how strong the urge to compare is and how much more confident it makes people feel in their ultimate decision. To demonstrate how people make decisions, the show gave a few samples of the same type of clothing to small focus groups and asked each person to decide which one they would buy. Everyone diligently compared the items and every person had a well thought out reason for picking the item he did; the reasons inevitably had to do with the person’s decision that the particular item he chose was better than every other item he could choose from. The reason it was better was based on what the particular person considered to be important; for some it might have been that the clothing was softer, for others it might have been that the item was more durable or its colors were brighter. The reasons weren’t important, because, it turns out, each item was exactly the same as the others. The key was the way the reasons were arrived at; i.e., by comparing options and deciding which one was best, even if there was no real difference between them. If you use that urge to compare in the right way, as part of a win-win strategy, it can help you succeed in business negotiations.

According to Harvard Business School professor Max H. Bazerman, writing in Negotiation, the monthly newsletter of Harvard Law School’s Program on Negotiation, one way to successfully negotiate a deal is to present multiple simultaneous offers. Each offer should benefit you, but, importantly, each should give your negotiating partner something different in return. Let him decide for himself whether it would be better to have faster delivery, a lower unit price, or better payment terms. It’s one way to learn what is important to him; if he immediately knocks one or two of the offers off the table, at least you will know what you have to work with and what you have to work on; you can use it as a framework to better your offer and finalize a deal. When you make those offers, you also demonstrate your flexibility, confidence in your product or service, and commitment to make a deal. If he takes one of the offers, of course, then the deal is done.
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1241538_calculator.jpgWhen it comes to negotiating the best deal possible most people consider words to be king. If you make an offer there has to be a justification. If you refuse the offer, you immediately have to make a counter-proposal, and justify it. You tout the benefits of your product, justify your asking price, and critique the other side’s position; a few well-placed matter-of-fact observations, should do the trick. What most people do not realize, though, is that sometimes certain things, at certain times, are best left unsaid. Sometimes, silence is golden.

Standard negotiating advice to someone making an opening offer is to justify it. If there is something special about the item you are trying to sell, then say it. If there is something below-par about the product or service that you are trying to buy, then mention it. After all, you will be taken more seriously, and your position given more credence, because you have a reason for your offer. This advice is based, in large part, on the 1978 “Copier Machine Study,” by Ellen Langer, Arthur Blank, and Benzion Chanowith. In that study, a person waiting to make copies was more likely to let someone cut in front of him to make a small number of copies if the person offered some justification.

Katherine Shonk, Editor of Negotiation, the monthly newsletter of Harvard Law Schools’ Program on Negotiation, in an article that first appeared in October, 2011, points out that sometimes it may be wise to not justify an offer, at least not at first. She points out that the “Copy Machine Study” may have more to do with the trivial nature of the request, “Can I make 5 copies?” than with the justification offered for it.

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1393890_teacup.jpgAs we have talked about, negotiations are important, to businesses, their employees, and customers. Everyone wants to get the best deal possible. Being able to achieve it, however, is no easy task. How you conduct negotiations, the negotiation strategies that you should follow in order to get what you need out of the negotiations, might sound like academic gobbledygook, but they really are common sense ideas that have real life consequences for real life people. Businesses fail, employees lose their jobs, and products we all know and love go away, when emotion gets in the way of reason; these negotiation strategies are a way to avoid that.

We previously wrote about the need to know what you want before you begin to negotiate and the dangers of playing hardball once you start. This time we’ll talk about determining what your best alternative to a negotiated agreement, or BATNA, is. Put another way, your BATNA is your best fallback position if negotiations fail. It’s a common sense concept that gives you an idea of when you should accept an offer, when you should fight, and when you should walk away. Knowing your realistic bottom line, and that of your opponent, is essential to getting what you want, and preventing you from giving away more than you have to, in negotiations.

In order to determine what your BATNA is, you first need to actually know what all of your alternatives are. The most important, and overlooked, step is to make sure that you compare them as apples to apples because none will be exactly the same. As Harvard Business School and Law School Professor Guhan Subramanian pointed out in an article entitled, “Taking BATNA To The Next Level,” which first appeared in the January 2007 edition of the monthly newsletter Negotiation, your alternatives are not going to be directly comparable to what you can achieve in a negotiated agreement. His example, of a customer deciding whether to renew his current homeowner’s policy, proves the point. You can’t just compare premiums; you have to go through the coverages, to see what losses are covered and what you’ll receive if a loss actually occurs, before you know which policy gives you the best value. Saving a few hundred dollars a year in premiums may not mean much if you lose a few thousand dollars because the cheaper policy does not cover your loss.

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1268254_glass.jpgHow to succeed in negotiations is open to debate. It depends in large part on what you mean by success. Business owners, in New York and elsewhere, often think it means they have to win, and their negotiating partner, who they often view as their opponent, has to lose. Hardball, to them, is the key; power is what counts. Most business owners want to gain the upper-hand, and, once they have it, use it for all it’s worth. Lawyers often act in this same way, especially once litigation begins. The take-no-prisoners approach may be tempting, and it certainly does look good in the movies, but it often doesn’t get you what you bargained for.

The word “tense” always seems to come first whenever negotiations make the news. Normally up against a deadline, each party strongly believes that its cause is just and that the other side is pig-headed, if not downright evil, in opposing it. If the negotiations fail, each side is ready and willing to heap scorn upon the other.

Think of what happened to Hostess Brands. It closed down in November of 2012 because one of its unions went on strike. Hostess made Twinkies, Ho-Ho’s, and even Wonder Bread. Just about everyone has tried some of their foods at one point or another; my favorite was the Coffee Cakes. Well, the familiar story goes, Hostess ran out of money, declared bankruptcy to try to survive, and attempted to negotiate new contracts with its various unions. Some went along; the Teamsters did. Some refused. The Bakery, Confectionery, Tobacco Workers and Grain Millers, which represented 5000 Hostess employees, went on strike because they opposed the give-backs the bankruptcy judge imposed. When they wouldn’t go back to work, at least not enough of them anyway, Hostess decided to close its doors and sell off its assets. All of its major brands eventually were sold and, hopefully all will re-appear on store shelves. Many of its former employees, however, probably won’t be hired by the new owners.

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897692_firewood_5.jpgNegotiations are an important part of everyday existence for all businesses, whether big, medium, or small, whether they are located in New York, around the country, or anywhere in the world. Every time businesses buy and sell goods and services, they negotiate. Business owners want to buy low and sell high. They want to break into a market either by undercutting their competition or by charging a premium for their product to convince buyers of its superior quality. Business negotiations impact the lives of everyday people, too. Everyone knows what a Kindle is, what an iPad is, and what e-books are. Many either have, or know someone who has, at least one of them. In the last few years it’s become common for people to walk around with their nose in their tablet, either reading an e-book or surfing the web. Business negotiations played a big part in making this happen.

A good negotiator is a hard person to find. She’s someone no one else wants to go up against, but everyone wants, and needs, on their side. Whether you can become one is open to debate, but there are a few things every business owner, corporate officer, or attorney, i.e., anyone involved in negotiations on a regular basis, can do to increase their chances of success. Perhaps the most important thing is knowing what you want. Recent news stories point this out.

The United States Department of Justice has sued Apple over its alleged role in price-fixing the retail cost of e-books; the trial started this past Monday, June 3, 2013, in the United States District Court for the Southern District of New York. According to news reports, Apple is charged with conspiring with publishers to raise the price of e-books in 2009 when it sought to enter the e-book market with its iPad. At that time Amazon.com was selling 90% of all e-books, some at a loss, in order to support its e-reader, the Kindle, which it introduced two years earlier. Apple was looking for a way into the market, and the publishers reportedly were looking for a way to increase prices, and presumably profits. Allegedly Apple, at the suggestion of two of the publishers, agreed to a different pricing model than Amazon.com. The agency-model, as it was called, let the publishers set the price for the e-books and set Apple’s compensation as a fixed percentage of the sales price. According to published reports, the Department of Justice alleges that Apple’s entry into the market gave the publishers what they had been looking for: a way to increase the price of e-books. Apple is the sole remaining defendant in the case; the publishers have settled.