In a typical negotiation there are 4 potential outcomes: Win-Win, Win-Lose, Lose-Lose, and No Deal. Note: Our focus here is negotiation between two parties. Negotiation involving more than two parties can be more complex and can result in combination outcomes.
Many people enter a negotiation hoping to ‘win’ so it might seem like Win-Win and Win-Lose (with you on the Win side) would be the two outcomes you would most prefer. It is not quite that simple as you will see in the descriptions below.
Win-Win – both parties have their interests satisfied as a result of the transaction. An example of a Win-Win outcome is when a buyer in a transaction is satisfied with the product and price paid, and the seller is satisfied with the price received. This is not to imply that the gains on both sides are congruent. The seller might have paid slightly more than they hoped or the seller might have accepted slightly less than expected to complete the transaction quickly. The point is that a transaction does not need to be 100% equal to be considered a Win-Win. The key is that both parties have their primary interests satisfied with terms that are acceptable. To achieve this requires the two parties to find common ground that intersects their interests. Win-Win outcomes are most likely when people enter the negotiation with a collaborative approach and at least a moderate level of trust.
Win-Lose – one party has their interests met at the detriment to the other. An example is when one party’s gain in a transaction is a loss for the other party. This typically happens when one side in a negotiation is determined to get more out of the transaction (Win) than the other. Win-Lose is sometimes referred to as ‘fixed pie’ negotiation because at least one of the parties views the value at stake as a fixed amount and their goal is to get more than half of the pie. This approach sets up an adversarial environment and increases the likelihood that the outcome will be lopsided. In a two party Win-Lose negotiation, each party has a 50% chance of losing. That is obviously bad for the party on the Lose end of the transaction. But even the party with the Win might see a downside if the losing party is discouraged from dealing with them in the future. That could mean the loss of future business or damage to the reputation of the Win party. For example, the ‘losing’ party could tell others that they were taken advantage of by the ‘winning’ party. That negative publicity might prevent others from dealing with them, fearing they might also ‘Lose’. When you consider that, seeking a Win-Lose outcome is generally not the best approach for either party.
Lose-Lose – neither party has their needs satisfied as a result of the transaction. When both sides take rigid positions and are unwilling to seek common ground, the possibility exists for this truly negative outcome. An adversarial negotiation tends to pit sides against each other and derails any chance for a positive outcome. Another way Lose-Lose can occur is when neither party is clear on their interests. Even if two parties negotiate in a collaborative way, if they have not clearly identified their interests the result could be disappointing with both unsatisfied. Lose-Lose transactions can be especially bad if there are ramifications that go beyond the negotiated outcome. For example, with both parties feeling aggrieved they may avoid dealing with each other in the future or spread negative information about the other party because of the experience. With no redeeming qualities, Lose-Lose outcomes should be avoided at all costs.
No Deal – the parties involved cannot come to agreement and mutually decide not to consummate a transaction. If the buyer sees the price for a product as too high while the seller is unwilling to sell it at a lower price, the likely outcome is that an agreement will not be met and there is no deal. The best outcome for a party whose interests will not be satisfied is often to walk away and not make a deal, assuming they have a viable alternative. In many situations, No Deal represents a positive outcome as it is always better than Lose-Lose and usually better than Win-Lose.
Some people enter into negotiations with the intention of ‘winning’. In other words, they want to have their interests met at the expense of the other party. This can turn the process into an adversarial situation. No one wants to ‘lose’ in a negotiation, so creating a Win-Lose environment often makes coming to an agreement more difficult. When one party seeks to take advantage of the other or is perceived as doing so, it can jeopardize the consummation of a transaction. Quite often, when a transaction is trending toward ‘Win-Lose’, the party that would be on the losing end will opt for No Deal.
Continue Reading: BATNA – The Importance of Having an Alternative