Negotiation Analysis - Term Paper Example

Negotiation Analysis Term Paper 04/21 Introduction My sister and I recently decided to buy a slightly used (nearly new) car to replace our old vehicle, so we went through the car shopping process in the past couple of days. In the course of this, we passed through several different stages of negotiation. This gave us a great opportunity to learn about how negotiation works in real life. Our objective was to trade in our 2010 Ford Fusion SE at a good price and buy another one. We wanted to learn how to negotiate a deal to maximize our chances of getting the results that would best satisfy our needs. We hoped to get a slightly used car that would still be good for long-term use at the lowest price we could. This was not an easy task. It took a lot of time, expense, and energy. We researched car models, prices, and reliability before buying the car. After making a lot of comparisons, we decided to buy a 2014 Mercedes-Benz C250, due to its low fuel consumption and reliability. We were willing to spend no more than $26,000 with a down payment of $12,000. Buying a used car from a private owner and from a dealer are very different experiences. Dealers have much more negotiation experience, which makes research and preparation very important. My research also indicated that car dealers make a point of observing whether their clients can afford more expensive cars. This lets them engage them in price discrimination to increase their profits. We got quotations from multiple car dealers so that the negotiation process would be easier. Three days ago, we met a dealer named James who worked at Hendrick Motors of Charlotte. A friend of my sister’s friends had referred us to him because he dealt with Mercedes-Benzes and paid well for used cars. After some conversation, we filled out two inquiry forms: one for selling the old car and one for buying the new one. We mentioned the car model we were interested in and some other preferences. James then showed us a couple of 2014 Mercedes-Benz C250s, all of them slightly used. He was asking between $26,990 and $27,990 for each of these, and offered us $9,000 for our Ford. Functional Analysis Conflicts never help anyone; instead, they increase tension and anxiety. It is better to talk things over and reach mutually satisfactory solution than to disagree. Problems should not be dragged out unnecessarily, and an effort should always be made to reach a conclusion that respects everyone’s interests. When negotiating, each party should try hard to consider the needs, interests, and expectations of everyone involved. The importance of negotiation should not be underestimated. It is important not only in the corporate sector, but in our daily lives. We all should develop negotiation skills and try our level best to implement negotiation strategies and tactics in order to avoid confusion and lead peaceful and anxiety-free lives. In this case, the car dealer was asking between $27k and $29k, but we were not willing to pay more than $26k. Furthermore, his offer of $9k for our car was below the market price. We thus had two options: negotiate, or find another dealer. We chose to negotiate. Planning, Preparation, and Strategies The first step in effective negotiation is preparation. We needed a clear vision of where, when, and how we would achieve our goals. The following is some of the “homework” we did before entering negotiations: THE BUYER (My sister and I ) THE CAR DEALER Background information My sister and I had only one car-buying experience, about two years ago. He may have extensive experience in car dealing and negotiation. Major goals To minimize the cost of a new car and to maximize the sale price of our old car. To convince us to accept his offer and pay as much as we can. Key negotiation issues Price of the new car Trade-in price of the old car Financing issues BATNA Get a different model of the car at a lower price. Walk away from this dealer and seek another one. Lower the asking price to get the buyer to take the car. Insist on the high asking price and risk losing the buyer’s business. Walk-away points If the car’s price remains beyond our budget. If the buyer’s bid is so low that the dealer would see no profit in the sale. Styles of negotiation 1) Accommodating. The parties emphasize giving more value and preserving their relationship. This style is mostly used in the corporate sector. It is less useful when the parties are likely to negotiate with each other only once. In the present case, therefore, it will not be useful. 2) Avoiding. The parties try to avoid negotiation for various reasons. If there is negotiation, the process is difficult and tends to lead to a deadlock. There is little chance of avoiding negotiation in this case. 3) Collaborating. The parties try to invent creative solutions to their negotiations. This helps them reach positive results. Many people use this style in the corporate sector and in daily negotiation, as it helps them understand each other’s concerns. 4) Competing. Each party tries to win at any cost. One party may indeed win and the other lose; but this style does not help them build a relationship. It is used mostly when negotiation will happen only once. In the present case, therefore, the chances of competitiveness are high. 5) Compromising. The parties give more value to fairness and equality in negotiation than too winning. Many parties use this style. In the present negotiation, the chances of compromising are high as well. Negotiation strategies 1) Distributive negotiation. This technique involves distributing a fixed amount of value among all the parties. The term distributive indicates that there is a finite amount of something being divided among several people. This technique is sometimes called “fixed pie” distribution, or as “win-lose,” because whatever one person gains, another person is losing. A distributive negotiation usually involves parties who have never had a previous relationship or are unlikely to have one in the near future, like in our own case, of buying a car from a unfamiliar dealer. 2) Integrative negotiation. This is also known as “interest-based” or “principled” negotiation. It is a set of techniques in which both of the parties try to improve the quality of the negotiated agreement and its likelihood of success. This approach focuses on the primary interests of both parties. Integrative negotiation often involves a higher degree of trust than other approaches, and even the forming of a relationship between the parties. It sometimes involves creative problem-solving, and can lead to a win-win result that satisfies everyone. This technique may be helpful our particular case. Observations and Effects It was difficult task to negotiate with the dealer because he was very experienced. He had more than fifteen years of experience in car trading. We already had quotations from the multiple dealers; however, so we definitely had the option of walking out if we reached our limit was reached. This was our strongest negotiation tool. We had decided that we should arrange our financing before negotiating. We had two options: we could pay cash or finance the purchase through a bank, not through the dealership. The problem with dealership financing is that the dealer gets a kickback, because if the bank charged a higher interest rate, the dealers would get more money. 1) Knowledge is power. Our first step, as I said, was to prepare by doing a lot of research. This helped us get a sense of the market and the cars’ market prices. Because the car dealers have more information about the market, they are generally in a position to negotiate to their own benefit. But we as customers could counter this by visiting different companies’ websites and making comparisons ourselves. Technology has empowered us as buyers by letting us take a better position in negotiation. We were glad that we did a lot of research and obtained quotations from other dealers ahead of time. There was no little or no chance that the dealer would exploit us. But without any knowledge of the market, we would not have been able to start negotiating. 2) Know how dealers make their money. Generally speaking, dealers make most of their money through four routes: 1. Selling a car for more than what they paid for it. 2. If they include trade-in value, selling a car for more than they lost accepting it in trade. 3. offering dealership-financing plans that let them take kickbacks from banks. 4. Charging high customer service fees and by selling overpriced add-ons to cars. To deal with 2 and 3, my sister and I decided to secure our own financing once an agreement was reached. We then prepared negotiate hard over the trade-in price in order to be sure that we got the best compensation we could. 3) Use of emotions. Emotions play an important part in initiating the negotiation process. They can have positive and negative effects on negotiations. Positive emotions help both parties reach an agreement and build a long-term relationship. They also help party get concessions from the other. Negative emotions lead to intense, irrational behavior and conflicts. Sometimes they also help in getting concessions. It was my sister’s friend who referred us to the dealer. He had family connections with the dealer, so we took the advantage of this in the negotiation process. Due to our reference to our common connection, the dealer’s behavior was polite and positive, which helped us make a good deal. Communication, Persuasion, and Conflict Resolution Processes 1) Because we were referred to James by one of my sister’s friends, our meeting with him started out with a very comfortable conversation. We talked about how we heard of him and about the reason for our visit. James was polite and respectful and promised to find a good deal for us. 2) After we filled out some short inquiry forms, a staff member took us out to test drive a couple of Mercedes C-class cars and get a sense of their ride quality. Afterward, my sister and I exchanged opinions privately and decided to go with a white 2014 model that had 9,600 miles on it, for which James was asking $26,990. We asked the employee more questions about it and checked this particular vehicle’s CarMax and driving history. 3) We returned to James’ office and started the negotiation process with him. We understood that even though we were quite interested in the car, we should not show our real feelings. We set out to be calm and patient, and we listened carefully to James’s offer. We were disappointed that, James was reduced his asking price by only $200, to $26,790. 4) Patience is always critical to successful negotiation, and we kept that in mind. We needed to take our time to make this deal happen, and we needed our research and preparation to be useful. We told James that according to KBB.com and some other resources, this car’s wholesale value was well below his offer, and that we would prefer to pay only $25,000 for it. (We set up our bottom line at $26,000, and decided that if an agreement could not be reached before that, we would walk away.) James did not accept this offer. 5) After 25-minutes of negotiating, James told us that the lowest price he was authorized to offer us was $26,100. This was pretty close to the limits of our budget, but my sister and I pretended that we were still quite unsatisfied with this number. We told him that we’d like to set this aside for a second and talk about the trade-in instead. After another ten minutes, James printed out a quote for our 2010 Ford Fusion SE and offered us $9,000. From our research, we knew what our car was worth. James seemed to be offering us a fair price this time, but we did still not agree to it right away. 6) We told James that we were honestly not satisfied with his asking price for the Benz and that we expected a greater discount on it. James insisted that $26,100 was the lowest price he could offer us. He suggested that we consider some 2013 models, which he could sell for less than $25,000. We refused and started to use some strategies to bargain for a better outcome. I told James that according to this vehicle’s CarFax, it had been a leasing car and had already had two owners in less than a year. This meant its value would be lower than that of one-owner cars. James did not argue with me, but he did not lower his price. My sister and I asked for a short break, and we spoke in the restroom. We had a lot of quotes with us, and the lowest asking prices for cars in similar condition were between $27,900 and $28,500. In light of this, James’ offer seemed quite acceptable. 7) We decided to adjusted our target and to put more effort into getting a better trade-in price. We returned to James’s office and spent another twenty minutes bargaining over this. We used the Benz car as leverage, telling James, “Since you’re offering us such a small discount on the C250, we hope to see a better deal on this car. Otherwise, we’ll have to leave and work with another dealer.” This finally got us a $9,800 offer, which was much better than we’d expected. In addition, James provided us with five free car maintenance appointments, worth $130 apiece. He told us that he had done everything he could within his authority and that he hoped to keep us satisfied. We showed our appreciation for this. 8) We were glad that we had arranged our financing before going to the dealer. This let us avoid the “drama in the dealer’s finance office” and buy with more ease and confidence. We remained polite but still refused all the add-ons the dealers suggested. We believed that if we really wanted any of these in the future, we could get them much cheaper from a third party. Similarly, we refused the extended warranties, because we intended to buy full insurance coverage on the car, which would be enough for us. 9) In the end, after a two-hour negotiation process, a deal was reached between the parties. The next step was to carry out the transaction. When the contract was ready, both parties reviewed it thoroughly in order to avoid future conflicts. We inspected the car before signing the contract in order to know whether any repair work was required. The dealer promised to put the temporary registration in place, after which we would be able to drive the car. After that, both parties signed the written agreement. Summation In a nutshell, our negotiation were planned and executed efficiently since we considered most of the vital elements essential for negotiations to enhance the outcomes. To begin with before initiating a consultation, it is prudent that the involved take a thorough research on the provisions of the subject. In this case, we conducted and completed this step by investigating the prices of both cars online and from other car dealers to get the accurate picture and information concerning the car to enable us know what to expect when negotiating with real dealer. Relatively, since we were new to the car dealership business, it was a good idea to identify the manner in which traders make their cut during such deals in order to avoid exploitation. Dealers normally bank on the ignorance of the buyers, to exploit unsuspecting them (Schiffman, 2010). The consultation was yet another fact that was quite impressive in this particular negotiation. Since there was the two of us purchasing the car, we showed a sense of oneness all through the entire process by repeatedly consulting with each other to ensure congruence of ideas and thus demonstrated compactness to the dealer. Often negotiations involving more than one person become tricky since individuals tend to make conflicting demands, and this often acts to their disadvantage as the opposing party often seizes the opportunity to his/her adavantage. Emotions are crucial elements that often determine the path in which particular negotiations take. During our negotiations we remained calm and composed because we had done prior preparation and thus we were armed with all the necessary information ready to counter any kind of misleading facts and negotiation tactics the dealer would use on us. Their composure demonstrated we had courage and thus depicted us as serious or rather seasoned negotiators, even though, it was our second time to conducting such a business. We knew the moment we showed signs of fear or restlessness, the other party can pretty be sure it was either our first time to making such deals or rather were not not conversant with such negotiations or dealings and thus from such a perspective the dealer would exploit us because of our emotions. The setting of objectives of the negotiations was another remarkable element of our negotiations. Everything that happens has to have a motive or rather a goal that is to be achieved in the end. In this scenario, our goal was to dispose of the old car at a reasonable price and find a reliable new car at a better bargain; possibly not anything less than $26,000. Thus, we were ready to walk away to another dealers if the negotiations resulted in anything contrary to our goal. Therefore, negotiation objectives were imperative parameters in negotiations as they enabled us to focus on the end goal and not to settle for what the other party offered, which would not be our interest. Conversely, goals act as a benchmark for what is to be negotiated. This enabled us to concentrate our efforts on the negotiations to realize their intended results. We recognized the fact that most car dealers are expert negotiators; are conversant with the business language and the persuasion tricks to use on clients and thus could manipulate us into accepting a shoddy deal if we had no definite objective for the negotiations. Thus, we had to concentrate on the negotiations by avoiding any distractions during the negotiations until we sealed the deal (Schiffman, 2010). Similarly, it was quite impressive to note that we had made our financial arrangements on how to finance the new car transaction to avoid the shylocking tactics of the dealer. The fact that we refused the value added services that the car dealer suggested, even though, the three-time car service at $130 was quite encouraging and enticing, we demonstrated maturity in the negotiations. Most people would have opted for that offer without the knowledge that it is possible to find alternative services at a cheaper price. In general, the rapport that the negotiation built for both parties was impressive and the next time we check in for a similar deal the dealer for sure will offer us better deal since we demonstrated courage and the know-how involved in negotiations. In essence, the negotiation was well planned and choreographed. However, we seemed to express admiration for the new car in a more definite manner that made the dealer stick close to his initial offer without giving in to our bargain. We should have pulled a stunt or demonstrated that we were ready to walk away to seek better offers from other car dealerships just to read the dealer’s reaction. The fact that the private negotiation between the dealer and us resulted in another meeting, demonstrated that we desperately wanted the car and thus would fall for any compromise that he suggested. Thus, we needed to improve our negotiation skills, especially playing, with mischief, to convince the dealer that we had alternative options to explore, although we needed the car badly. Such a move could have made the dealer to offer us a better deal since he would not want to lose the deal (Schiffman, 2010). References 10 Ways Car Dealers Make Money Off You - Listverse. (2009, March 9). Retrieved April 18, 2015 from http://listverse.com/2009/03/09/10-ways-car-dealers-make-money-off-you/ Fisher, R., & Ury, W. (2011). Getting to yes: Negotiating agreement without giving in (3rd ed., rev. ed.). New York: Penguin. Lewicki, R. (2010). Negotiation: Readings, exercises, and cases (6th ed.). New York: McGraw-Hill Irwin. Schiffman, S. (2010). Negotiation Techniques (That Really Work!). Cincinnati: F+W Media. Read More