A to Z of Negotiation - A is for Alternatives
It might seem a little strange to start an A to Z of negotiation with a discussion of alternatives. This is because when we talk about alternatives, we are looking at what happens if we don’t reach agreement in the negotiation. For many people, this equates to the negotiation being a failure.
Understanding our alternatives clearly, helps us to redefine what success means in a negotiation perspective. Alternatives consider plan B. What other actions are available to us if we don't do a deal with our negotiation counterpart. If we can meet our interests better by abandoning the negotiation, failing to reach agreement does not make the negotiation unsuccessful (at least from our perspective!).
Unfortunately, once we have invested time, money and emotion in a negotiation, it’s easy to lose sight of the alternatives. We may end up agreeing to something that was in fact worse than our alternative. Now that’s an unsuccessful negotiation!
Raising your alternatives in a negotiation can be a tricky business. It can easily come across as a threat, significantly impacting the relationship. Consider the infamous Tim Tam negotiation where Campbells Arnotts threatened to stop supply of Tim Tams to Coles if Coles didn't agree to a price rise. The resulting publicity didn't do any good to either party.
A study by Pinkley tells us however, that there can be a real benefit in communicating your alternative to your counterparty when your alternative is strong. The subjects who disclosed their alternatives had more positive outcomes than those that didn't. Finding a way to subtly make the new buyer aware of the first offer is likely to mean that their initial offer is higher than it might otherwise have been.
A further study showed that disclosure of a strong alternative is likely to lead the other party to make a more favourable opening offer. As a negotiation, statistically, is likely to end around the mid-point of the two opening offers, improving the opening offer has a positive effect on the outcome.
So, next time you are preparing to negotiate, don’t forget to think about what avenues are open to you if you can't reach agreement.
For more information about how to negotiate effectively, or for assistance with your next negotiation, contact us for a confidential, no-obligation discussion.