A to Z of Negotiation - D is for Distributive Bargaining
While we may negotiate over hundreds of different types of outcomes, there are two main methods of negotiation - distributive or integrative (or interest-based) negotiation.
Distributive negotiation is based on the idea that there is a fixed resource (often money). After the negotiation concludes, one party will have more of the resource and the other party will have less. Distributive negotiation generally is a one-dimensional process.
On the other hand, integrative negotiation tries to expand the amount of resources that can be brought to the equation. Rather than simply looking at one resource it may consider a range of other factors. This is often described as "growing the pie" so that there are more resources to be shared by both parties.
Take for example, a negotiation to buy a car. In a purely distributive negotiation there are two key questions. How much is the buyer willing to pay and how much is the seller willing to accept. Obviously, the buyer wants to pay as little as possible and the seller to receive as much as possible. Assume that the seller opens the bidding with a price of $25,000. The buyer may counter with an offer of $20,000. We would expect to see some haggling and various concessions until the parties reach agreement. We know from research that generally, a distributive negotiation will end up somewhere around the midpoint of the two initial offers. Here we would expect to see a deal done at around $22,500.
Compare that to an integrative approach. Here, before discussing price the parties will find out more about each other’s needs. The buyer may ask the seller why they are selling the car. They learn that the seller is in fact about to move overseas in six weeks’ time. They are not in a hurry to sell the car but wanted to start the process early so they would not be pressured into accepting a low price. In fact, they would really prefer not to sell the car just yes as they will need it over the next six weeks and may need to hire a car if they to sell early.
The buyer asks about how they come to be interested in the car. The buyer discloses that this is their first car. They are about to move into a new apartment in a months’ time. Where they are living at the moment there is no parking available and they would need to be parking the car at their parents’ house some distance away until they move.
The parties quickly identify that there is value to be created here. If they can agree on a price, then the actual settlement of the transaction can be deferred saving the seller the hassle and cost of car hire and the buyer the hassle of trying to find somewhere to park the car.
Of course, the parties still need to discuss cost. And the negotiation over price may be exactly the same as it would have been in a distributive negotiation. Perhaps they still arrive at a price of $22,500 but each party has saved time, money or stress.
In any negotiation, there will come a time where all the possible value has been created and the parties will need to claim their “fair share” of the value and move to distributive negotiation techniques. The challenge for the good negotiator is to not move to these techniques too early.
For more information about how to negotiate effectively, or for assistance with your next negotiation, contact us for a confidential, no-obligation discussion.