Want to check out more negotiation case studies? We actually created an overview with 13 inspiring real-life negotiation examples.
Advantages of Distributive Negotiation
Use this style if:
You need to act fast
You are 100% sure you’re right about the situation
You are dealing with an opponent who will abuse you if you show non-competitive behavior
The situation is important and an unpopular decision needs to be taken
Other negotiation styles are not possible
Disadvantages of Distributive Negotiation
Potential downside of the distributive negotiation style:
Fear of admitting ignorance of uncertainty
Reduced communication and no opportunity to explore alternative solutions
You’ll be surrounded by a ‘yes’ team. Because it’s tough to disagree with a competitive negotiator in your team
You might damage the relationship with your opponent
You’ll receive little commitment from your opponent which adds risks to the implementation phase of your deal
In general, there are 2 types of negotiations:
Distributive negotiation = one party wins, the other loses.
Integrative negotiation= both parties win, creating value on both sides.
There are many situations that call for an integrative negotiation, as it will create a long-lasting mutual value.
If you want to know more about integrative negotiations, this article contains 13 negotiation principles for integrative negotiations.
Distributive Negotiation Tips and Strategies
1. Know your BATNA
BATNA stands for “Best alternative to no agreement”. It’s your backup plan if your negotiation doesn’t lead to a deal. By determining a BATNA you’ll have more confidence because you have a backup plan if the negotiation doesn’t work out. Because of this, you won’t feel forced to make a bad deal.
Going into any negotiation, it’s important to have a clear understanding of your BATNA. If you’re negotiating with a supplier, be sure about the pricing of alternative suppliers. If you’re negotiating over salary, your alternatives might be a different job offer.
For example:
Mark, a procurement manager of a large supermarket is negotiating with a supplier of canned food. The supplier offers to deliver 100,000 pieces for a price of $1.50 within two weeks. The procurement manager knows that a different supplier offers the same product for $1.40, therefore Mark knows this offer is worse than his BATNA and he shouldn’t agree.
2. Have a clear strategy. What is important to you, and why?
Before your negotiation, it’s important to plan. Key things you should have a clear answer to: Are you in a win-win or win-lose situation? What is your goal? What is your position? What is their position? What are your interests? And theirs? What is the best possible outcome? What would be a fair deal? What is your minimum acceptable deal?
It is very important to think about these things thoroughly. Too many negotiations fail because people get worried about being taken advantage of that they forget what they really need. It’s silly to only focus on preventing the other party from winning, instead focus on your own goals.
In most negotiation situations you will have a continuing relationship with the other person. That’s why it’s important to come to a mutual feeling of ‘winning’ for both parties. If the other person feels like he lost, he might lack commitment in the execution phase of the deal. Or even worse, he will be after retaliation.
3. Focus on interests instead of positions
A key in value claiming can be found in underlying interests. Sounds vague? Let me explain. Mark, a procurement manager for a big supermarket is negotiating with a supplier of canned food. Mark’s main goal is to purchase the cans for $1.40 per piece, and he assumes the supplier tries to sell them for $1.60 per piece. They could just simply negotiate about the price of the cans. But what if they explore the underlying interests? After talking for a bit, Mark finds out the supplier has cash flow problems. Suddenly an interesting variable is added to the table. Mark offers to do an upfront payment of 100% of the deal value if the supplier is willing to accept his price. The supplier agrees.
Procurement Expert’s Advice on Distributive Negotiation
For this article, we asked a seasoned procurement professional to share his insights regarding distributive negotiation.
Sjoerd Goedhart
Owner, Goedhart Interim Management & Consultancy
LinkedIn Profile: https://www.linkedin.com/in/sjoerdgoedhart/
1. Can you share a personal example of distributive negotiation? What can readers learn from this?
“As a seller of a high-rotation food product to a buying group for several supermarkets, negotiations often revolved around just one aspect – the price. As a manufacturer, we tried to negotiate other variables, but the buyers were not open to discussing them. If a negotiation is one-dimensional like this, the supplier must have strong arguments and evidence to support a price increase. This enables a fact-based negotiation, and if the buyer does not agree to the supplier’s price, they will have to question the validity of the arguments presented. In cases where the price increase is due to raw material developments, the supplier must provide clear overviews of the impact of these developments on the product. It is also important for the supplier to have a cost-price breakdown that calculates the exact impact of each component on the product.”
2. What should readers know about distributive Negotiation?
“Distributive negotiation is not a matter of powerplay. It’s a matter of good preparation and having clear objectives of the others. Without good preparation, none of the parties is a winner in a distributive negotiation.”
3. What is the biggest misconception about distributive negotiation? What do most people get wrong about this topic?
“It is a common misconception that distributive negotiation always damages the relationship between the buyer and seller. However, in strategic negotiation, both parties should prepare for all possible negotiation strategies and have an appropriate response or alternative to them. If both parties are aware that all negotiation strategies are allowed, they can prepare for this without harming their relationship during the negotiation. Even if no agreement can be reached, it does not necessarily lead to the disruption of their relationship. Both parties will remain in contact with each other as the buyer must have alternative suppliers, and as a seller, you are always looking for potential customers.”
4. What are the key tactics used in distributive negotiation, and when is this approach most effective?
“It is important to know exactly what your position is and the position of the other person and to have a clear picture of the outcome you want to achieve and want to hold to. Also, think about possible sticks to “force” the other parties to move toward your price.”
5. Can you discuss a case where distributive negotiation was successfully employed in procurement?
“During the Ukrain-crises many of these cases were successfully employed, driven by the very high prices of raw materials. Suppliers asked proactively for higher prices under the condition to stop deliveries if not accepted. They knew that their customers had a lot of issues with the extremely increasing prices and availability of the goods. they didn’t have time to negotiate because having goods on the shelves was the highest priority.”
Follow-up Question: In terms of relationships with suppliers, how were these maintained or impacted during the distributive negotiations, and were there long-term consequences on the supplier-customer relationships?
“When it comes to maintaining relationships with suppliers, distributive negotiations can indeed have an impact. During the COVID-19 crisis, there was often a heightened sense of commitment to align and reach agreements due to the challenging circumstances faced by both parties. However, there can be long-term consequences on the supplier-customer relationship as a result of distributive negotiations. This possibility should be considered and addressed during preparation. Sometimes, the impact on the relationship is acknowledged as an unavoidable consequence. In such cases, negotiations may take a tougher stance. However, if preserving the relationship is a priority, alternative negotiation strategies may be employed to mitigate potential damage.”
6. Is distributive negotiation inherently negative because it prioritizes the victory of only one party in the negotiation?
“In my opinion not. If it is a strategy of both parties, this does not necessarily have to be negative. Parties must be aware that there is a chance that they will not do business and should have to have a BATNA. If they have a BATNA, it doesn’t necessarily mean that only one side has achieved a victory.”
7. In distributive negotiation, is it possible for the other party to perceive a sense of victory in the negotiation as well?
“Of course, that depends on the defined breakpoint. If the “losing” party’s deal is completed within the specified breakpoint, this party may still make a profit and/or perceive a sense of victory.”
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Conclusion
Distributive negotiation, also known as value claiming, is a strategy focused on dividing up the pie of values, often characterized by a win-lose approach. This is typically centered around a single issue, such as price.
The difference between distributive and integrative negotiation is highlighted by the competitive nature of the former and the collaborative approach of the latter.
Overall, understanding the nuances of distributive negotiation is crucial for negotiators aiming for successful outcomes while maintaining long-term relationships.