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Learning and Training

Author	Petter Westerback
Course	Group Decision Support Systems
Supervisor/Instructor	Dr. Pirkko Walden
Institution/University	Abo Academi University Turku, Finland

Introduction

ITEX is a fictitious company that is engaged in manufacturing and marketing products which require a high degree of precision, for instance, gear assemblies. My task was to negotiate as a representative for ITEX Manufacturing. The negotiation concerned gear assemblies for mountain bikes. As a representative for ITEX I was supposed to sell such systems to Cypress Cycles, a company that manufactures bikes. In the actual case  different issues to negotiate about were given. Different, possible options were also pre-determined. Before starting the negotiations, I was informed of a minimum price and a delivery time that should be reached but otherwise everything was up to me to decide.

Preparations for the negotiation

Before the negotiations it was important to make some preparations. Decisions about which issues were most important as well as which options were most desirable had to be made. It was also of great importance to set my own reservation levels for each issue. Naturally I also set an overall goal for myself including all the issues and prepared a plan for how to reach my goal.

The following table shows the different issues and my rating of them.

As can be seen from the table above I gave the delivery issue the highest weight. The reason for this is that I feel it would give great bad-will for our company if we can’t meet the delivery-time. The manufacturing department has mentioned 30 days as a time limit they most probably will be able to meet. The price issue is next in importance with 30 points. Payment is pretty much related to price, in other words, if I get a higher price I may be willing to give better payment conditions. The issue concerning returns of broken goods is assigned 20 points. This is due to the fact that we believe in the high quality of our products and such an issue doesn’t bring the same utility for us as the price.

Next step was to assign points to each given option for each issue. The following tables show my ratings.

A few comments about the rating might make it clearer. I think that the price is satisfactory from $3.98 and higher. The price $3.71 is still acceptable but I can’t go beneath that. Everything above $3.98 is very good but because the most important thing is to enter the market, I will be satisfied with $3.98 as well. The rating of payment time varies naturally according to time of payment, but a 60-day payment time is far too long in my opinion. Considering the delivery time we are able to meet 30 days. In my opinion this and all the longer delivery times are equally satisfying. Options for Returns are  acceptable except for the possibility that all returned goods will be fully compensated at any time.

The following table shows my reservation level for each issue.   These reservation levels mean that if I don't reach them, I prefer not to make an agreement rather than making one including an option worse or similar to the reservation level.

A reservation level is the worst possible option I may accept it but it is definitely not the level I will try to reach. The level I try to reach, my aspiration level; it is different from the reservation level. If I achieve aspiration levels for all issues I would be satisfied with my performance. These levels are shown in the table above. It is easier to negotiate if one has clear goals to reach for. It would be far more difficult if I only tried to reach "the best possible agreement" or similar vague goals.

The next step was to make up a strategy for carrying out the negotiations. My first intention was to go out first and make the first concrete offer. My counterpart would then hopefully anchor his thinking according to my offer. To get some space in further negotiations I would furthermore make this opening offer very high from my point of view. Depending on my counterpart’s reactions to my opening offer, I would then bit by bit compromise and eventually try to reach as good a level as possible. If my counterpart, on the other hand, is out first with an opening offer I will try not to pay too much attention to it. Instead I would try to make a very fast counteroffer with the same levels as my intended opening offer. My strategies will naturally depend greatly on how the negotiations develop and on my counterpart’s strategy and manners. One important thing at this stage, which isn’t known, is the person I’m about to negotiate with. In a real situation this knowledge would also be very important. Age, sex, cultural background and nationality are factors that definitely would have an impact on my own strategies and the negotiations.

At this point all necessary preparations are made and the negotiations may begin.

The negotiation

Round 1

I was lucky and got out first with my offer. In order to gain space to future offers my opening offer had the best options considering each issue from my point of view. I also enclosed a quite neutral, kind message where I presented myself and the company I represented. The objective with this was to get a feeling of my counterpart and his way to carry out negotiations.

It took my counterpart Andreas-Helmut about one week to respond to my offer. It didn’t come as a complete surprise to me that his offer was the opposite of mine, i.e., all the issues were in his favor. He also enclosed a message in which he politely pointed out that my offer was totally unacceptable. One interesting case in point was that he focused on my offer and wanted to change it. His message also pointed out price and return conditions as important issues.

The introduction round was behind and both of us had got a little hint of what was ahead. At least my first impression of my counterpart was that it wouldn’t be a piece of cake to reach a favorable agreement. In his last offer he had worried mainly about two issues: price and return conditions. In my second offer I though that I didn’t want to bargain in these issues. There are two reasons for that. The first reason is that both issues were of outmost importance for me too and the second reason is that I wanted to be in charge of the negotiations and not give this advantage to my counterpart. In my new offer I shortened the delivery time to 45 days. As I knew that we could meet a delivery time of 30 days this move was from my point of view connected to no risks whatsoever. Furthermore I intended to use this compromise as an argument later on to get compromises from my counterpart. My ratings considering reservation levels and aspiration levels hadn’t changed at this point of time.

The counteroffer was again influenced by my latest offer. Delivery time was risen to 30 days, payment shortened to 30 days and price was risen to $3.71.

The message, kind again, announced nothing else new but a wish to agree on delivery time to 30 days. I think that this counteroffer brought  us much closer to an eventual agreement since both of us had come closer to each other. After these two rounds I think I had a little advantage since I only had bargained considering delivery time (which was safe) and moreover I hadn’t revealed any essential information about my preferences and ratings. My counterpart had made compromises considering price, payment and delivery and partly also revealed the most important issues for him: price and return conditions.

Round 3

To show my interest in getting to an agreement I accepted a delivery time of 30 days. It suited me pretty well and in this way one issue would be clear and we could focus on other issues where disagreement was larger. At this point I argued that since I accepted a shorter delivery time the return conditions should also be more favorable for us. A faster production time will probably cause more broken goods since time for quality controls is shortened. In this offer I also lowered the price to $4.12 which still was higher than my aspiration level and it would be good for further negotiations. I enclosed a kind message in which I explained our needs of better return conditions due to a shortened delivery time.

My counterpart responded with a bit surprising but smart move. He only sent me a message in which he pointed out that price was still too high and the return conditions unacceptable. The message was written in a bit more inpolite way than the previous messages but two things could again be identified. The first thing is that he referred to my offer and tried to get me to change it, instead of convince me to accept his offer. The second thing is that once again he revealed how important the price and return conditions were to him. Still I think that his move was very smart because he cut off the trend of giving up bit by bit in each offer in order to reach a compromise, eventually. So far I had had a little advantage, at least from my point of view, and now he was forced to come up with something.

After considering my counterpart’s latest message I analyzed the situation and realised that I had three possible alternatives.

1. I could send him a message and point out that his offer does not satisfy me. This would though seem as I am using the same strategy as he and perhaps give him more confidence.
2. Another possibility is, not to do anything at all. After all I had made the last offer and it was in fact his turn to make a counteroffer. My objective in these negotiations was though to reach an agreement and such a behavior would have required a lot of time and made the negotiations more difficult.
3. Naturally I also had the opportunity to accept his offer and lower my price and give him better return conditions. This would though be a great risk since then I would be terribly close to my reservation levels and actually be on my aspiration levels which would mean that I practically couldn’t bargain anymore.

I decided to act according to the third alternative. I thought that he might get the feeling that this would be an easy game and hopefully he would then also make mistakes.

It appeared as if my strategy, at least partly, succeeded. My counterpart obviously felt that this would be a piece of a cake and as his previous message was a bit angry this one was very polite and happy. In his message he also pointed out another possibility: my return conditions 75% with 5% combined with a price $3.41. This announcement was very important and interesting though it was naturally unacceptable for me. So far he had declared that a price of $3.98 was possible in some conditions, a 30-day-delivery time in some, a payment time of 30 days was already agreed upon and the return option 75% with 5% was possible under some circumstances. In other words his reservation levels couldn’t lie under these alternatives. At this point I was pretty sure that that these alternatives would be the eventual ones. My biggest problem was that I already had offered pretty close to these alternatives. The only issue I could bargain about was payment conditions. So, now my goal was to get my counterpart down to my levels without changing my own offer.

After receiving the latest counteroffer I tried a somewhat similar tactic as my counterpart had used. I sent him only a message. In the message I stressed which issues were unacceptable in a tough and clear way. At this point my counterpart was in a mood that this would be an easy game and simultaneously he had revealed his reservation levels. A little tougher message would probably wake him up and perhaps he would realize that he is forced to compromise in order to reach an agreement. At the same time I had the chance to test my counterpart’s reactions in such a situation. So far I had used a polite and kind tactic and this was a clear change in that tactic. In my message I made it clear that the return conditions were unacceptable for us and I used the delivery time as an argument for better return conditions.

My counterpart responded with a message, which didn’t help us at all. Once again he tried to force me to lower my offer. Apparently we had ended up in a deadlock, I was unable to change my offer because it was already lowered to my reservation levels. My counterpart didn’t seem too eager to compromise considering his offers.

To get it all rolling again I first took a little break in order to let the situation calm down a bit. Then I tried a little trick or bluff. I sent my counterpart exactly the same offer with the same alternatives as before (offer 4). The only difference was that I enclosed a message to this offer containing almost the same text as my previous message (round 5), though written in a different manner. I had two objectives with this act. I wanted to check if my counterpart was alert and awake and aware of where we stood in the negotiations. Furthermore if he were awake he would probably understand that I was serious about not changing my offer.

Counteroffer 4 showed that my tactic had succeeded. My counterpart enclosed a very interesting message in which he first said that my latest offer was totally unacceptable. Still he approved every alternative but payment time. This seemed to me as a desperate way of trying to achieve a better agreement. He had already offered a payment time of 30 days, which he suddenly raised to 60 days. I think we both were well aware of that I wouldn’t accept a payment time of 60 days while he most probably would accept a 30-day-payment time given that he wanted to make an agreement. Somehow I got the feeling that he tried to save what still was possible to save after being so close getting a very good agreement. Considering the most important issues this was though an important counteroffer and we both realized that an agreement was close.

My next step was to keep every other issue as they were but offer a payment time of 30 days. I enclosed a polite message in which I wished that we would soon reach an agreement in order to start the production. This was the last offer I was willing to give but I didn’t reveal it in the message.

The same day my counterpart accepted my latest offer so we had reached an agreement.

Afterthoughts

Afterwards when I analyzed the negotiations, I could specify some important points that were significant for the agreement. It is probably necessary with some comments on these.

• Even if I was first out and made the opening offer I don’t think it gave me any big advantage. It was mainly due to the fact that all issues and options were given. In a real situation where one could compose the issues and options a shocking first offer would definitely have a larger impact on the counterpart.
• The beginning of the negotiations was by the book, so to say. Each of us gave up little by little. The breaking point to this routine was my counterpart’s smart move to only send me a message where he required that I should change my offer. So far I had had a little advantage but due to this move I feel that the advantage slipped over to my counterpart.
• Next significant step was when I sent my counterpart the same offer as previously to show him that I wasn’t going to bargain anymore. At this point we had ended up in something like a deadlock. This move had the intended effect and I think that due to this the negotiations came a good bit closer to an agreement. Even though I perhaps gained a little advantage at this point, it was already too late to start to push the limits without risking the agreement.

These were the most significant moves in the negotiations. Considering the final agreement, it is worth mentioning that it wasn’t possible to improve for neither of us. I feel that we both were satisfied with it, at least I was. An interesting case in point was that the agreement actually had the same options as the aspiration levels that I created in the beginning. Based on this fact I think it is justified for me to say that I reached my goal. The next chart gives a graphical overview of the negotiations and shows how the different offers have come closer to each other. It is important to notice that the offers are valued, based on my ratings and preferences which means that my counterpart’s graph based on his ratings will probably look pretty much different. A few clear stages can be distinguished from the chart. After being very far away from each other in the beginning we slowly started to approach each other. Then there was a period of time when nothing really happened, i.e. a deadlock. In the end we then approached each other in a way that an agreement was possible.

The counterpart

During the whole negotiation it was very interesting to speculate about my counterpart and who he really was. The only thing I knew about him was his name: Andreas-Helmut. Based on the name I would locate him to Germany or Austria but since everyone was free to choose whatever name one wished it is only possible to speculate about nationality and sex based on a name. With my own name, Thomas, I wanted it to be hard to locate me which I also think it was. It would have been interesting, for instance, to use a female name and still so to say act and negotiate as a man. Andreas-Helmut´s English was very fluent and his negotiation manners were very polite and skillful. Neither gave this any more clues but I still have the feeling that I negotiated with a man. I don’t think that he neither had much experience in negotiating at least I wasn’t able to recognize any fancy tricks.

A tiny clue of my counterpart’s nationality was to be found regarding the time when he usually sent his offers. They were consequently made about six o’clock in the morning Finnish time (that is 5:00 CET). He could of course be a very eager and alert student from Finland but I still think that Andreas-Helmut has another nationality. For instance in North America time is 23:00 in the evening when it’s 6:00 here in Finland so that would also be a good possibility when we keep in mind his fluent English. After much speculation I came to the conclusion that my counterpart was probably a young male student from North America.

INSPIRE

The negotiations were carried out using a software called INSPIRE. The negotiations were carried out over the Internet. Overall, I think that the software was very easy to use, sometimes even too easy since the possibilities were quite restricted. The given options to all the issues contributed to make the negotiations easier but they also restricted them a bit. The biggest difference to real negotiations was apparently the lack of personal contact. Also in this case I think that my negotiations would have been carried out differently if we had had personal contact instead of negotiating over the Internet. My experiences from negotiations over the net were though very good and I do believe that such negotiations have potential to increase in the future. One great advantage of such negotiations is that it doesn’t require the participants to be located in the same place at the same time. Overall I think that it was a very useful and educational experience.

Conclusions

During my negotiations I learned a lot. First of all my impression of the possibilities of Internet increased. I truly believe that Internet will gain importance in the future for negotiations and similar activities. Considering my counterpart I learned an important lesson, i.e., never to underestimate one’s counterpart. From oneself it is required that one is awake and alert all the time in order to reach a good agreement.

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