Some Helpful Principles of Competitive Negotiation

Christian Duve is a handsome, very bright, very perceptive attorney mediator practicing with Freshfields Bruckhaus Deringer in Frankfurt, Germany.  I have known and admired him for many years and recently learned a lot (once again) listening to a conversation he held with GE’s Michael McIlwrath on negotiation techniques.

The conversation is available here, one of the 80+ podcasts that McIlwrath has posted on the CPR Institute web site.  Duve addresses five techniques for competitive negotiators, and each of them is well worth consideration. 

The first is “anchoring.”   It is a first offer (or a first counter-offer) that is chosen and explained in a compelling way, so that it sets a clear basis for subsequent discussion.  This opening number is so well supported by facts and law that it is difficult to depart from it — it becomes what Duve calls a “sticking point,” a constant reference during the subsequent negotiations.  For example, an accounting reserve or accrual that a company has set aside in respect of a litigation is a very compelling number of the counterparty’s opening demand; indeed, it is almost impossible for the company to argue why that reserve number is not, in fact, the accurate value of the claim — after all, the company itself set it.  “Anchoring” is used right out of the box, as the first demand. 

The second is the “salami” technique.  This is the process of incremental concessions, with both sides moving little by little.  Duve finds it can be somewhat effective in the beginning of negotiation, but if continued for too long it can become exasperating and can hinder real progress.  In the heart of the bargaining dynamic, bolder and more confident moves will yield better rewards.  Salami-slicing is conservative, defensive, and might actually be most useful if the aim is to frustrate the other side.  This approach puts the negotiation at risk.  At some point, both parties must show more courage in order to signal a desire to come to an outcome.

The third technique is “threatening.”  Threats of one kind or another are always used in negotiation, says Duve, and nothing is more useless because they are almost never enforced.  Threatening without following up is an invitation not to be taken seriously as a negotiator.  It can undermine your credibility and render you ineffective going forward.  “If we don’t get X by a certain date, then we will sue.”  This kind of statement is an invitation for the counterparty to do nothing until the date noted, and see what happens.  Usually what happens is absolutely nothing.  Most people don’t do what they threaten, and their future statements are cast in grave doubt.  Duve cited a simple demand in an invoice: “If not paid in 30 days, we will initiate court proceedings.”  Really?  Duve’s advice is, “Don’t threaten to do it if you don’t intend to immediately implement it.”

The fourth topic is “bluffing,” or at its extreme “lying.”  Giving the counterparty a sense of uncertainty as to your own estimate of value, or your strategic plans, can be useful — thus the virtue of selective bluffing.  But misrrepresentations put your credibility at risk, and once you have acted inconsistently with your own statements you won’t be taken seriously as a negotiator.  A negotiator may say “I have authority only to 100,” but then in a few hours offer 200.  This is a bluff and most people ignore the initial statement as soon as it comes out of the negotiator’s mouth.  For bluffing to work, it needs to come a little later in the process (in poker, I bluff on the bet before the last one) and be consistent with one’s behavior.  Lying never works. 

The fifth and final topic is “commitment” — such as saying “take it or leave it.”  Duve says this can be a powerful technique if used the same way as threats — that is, if immediately and credibly acted upon.  If it’s your last offer, then you say so and you don’t make another offer.  When remaining at the negotiation table is no longer productive, then give your last and final offer and make sure it is understood as your last and final offer.  Then follow through — leave if it is not accepted.  You don’t have to settle today — you can get together at some future time.  And when you do re-gather, you will be better understood by your counterparty, and your posture in the subsequent negotiation will be enhanced.

Duve says that anchoring is both the most powerful technique, and the least used.  A good anchor yields a successful negotiation, yet it is amazing how few parties understand the advantage of being the first to put an offer on the table.  Commitment is also powerful if used selectively and credibly.  By contrast, salami-slicing, bluffing and threatening are too often used, and almost never effective. 

Very helpful — at least to me!

  1. Excellent conversation and valuable insights regarding distinct types of negotiating techniques I have been privy to as a construction mediator over the last 12 years in practice. Christian Duve has synthesized them very well. His hierachy of effectiveness is most helpful to those of us who still seek guidance in how best to facilitate the negotiation after the fundamental mediation phases have been covered.

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