Stages of Negotiation

Learning OUtcomes

  • Describe the stages in the process of negotiation

Negotiation, in simplified terms, is a five-step process. Those steps are shown in Figure 1.

First: Preparation and planning. Second: Definition and ground rules. Third: Clarification and justification. Fourth: Bargaining and problem solving. Fifth: Closure and implementation.

Figure 1. The five steps of negotiation

Let’s take deeper look into each step.

Preparation and Planning

In the preparation and planning stage, you (as a party in the negotiation) need to determine and clarify your own goals in the negotiation. This is a time when you take a moment to define and truly understand the terms and conditions of the exchange and the nature of the conflict. What do you want to walk away with?

You should also take this moment to anticipate the same for the other party. What are their goals in this negotiation? What will they ask for? Do they have any hidden agendas that may come as a surprise to you? What might they settle for, and how does that differ from the outcome you’re hoping for?

This is a time to develop a strategy for the negotiation. We’ll talk more about strategies in the next section.

Definition of Ground Rules

After the planning and strategy development stage is complete, it’s time to work with the other party to define the ground rules and procedures for the negotiation. This is the time when you and the other party will come to agreement on questions like

  •     Who will do the negotiating—will we do it personally or invite a third party?
  •     Where will the negotiation take place?
  •     Will there be time constraints placed on this negotiation process?
  •     Will there be any limits to the negotiation?
  •     If an agreement can’t be reached, will there be any specific process to handle that?

Usually it’s during this phase that the parties exchange their initial positions.

Clarification and Justification

Once initial positions have been exchanged, the clarification and justification stage can begin. Both you and the other party will explain, clarify, bolster and justify your original position or demands. For you, this is an opportunity to educate the other side on your position, and gain further understanding about the other party and how they feel about their side. You might each take the opportunity to explain how you arrived at your current position, and include any supporting documentation. Each party might take this opportunity to review the strategy they planned for the negotiation to determine if it’s still an appropriate approach.

This doesn’t need to be—and should not be—confrontational, though in some negotiations that’s hard to avoid. But if tempers are high moving into this portion of the negotiation process, then those emotions will start to come to a head here. It’s important for you to manage those emotions so serious bargaining can begin.

Bargaining and Problem Solving

This is the essence of the negotiation process, where the give and take begins.

You and the other party will use various negotiation strategies to achieve the goals established during the preparation and planning process. You will use all the information you gathered during the preparation and planning process to present your argument and strengthen your position, or even change your position if the other party’s argument is sound and makes sense.

The communication skills of active listening and feedback serve the parties of a negotiation well. It’s also important to stick to the issues and allow for an objective discussion to occur. Emotions should be kept under control. Eventually, both parties should come to an agreement.

Closure and Implementation

Once an agreement has been met, this is the stage in which procedures need to be developed to implement and monitor the terms of the agreement. They put all of the information into a format that’s acceptable to both parties, and they formalize it.

Formalizing the agreement can mean everything from a handshake to a written contract.

Practice question


Let’s take a look at this process in action. A team from a retail organization, Salesco, is looking to purchase widgets for resale directly to the consumer. You lead a team from WholesaleCo and are interested in negotiating an offer to sell these widgets to them at a wholesale cost.

  • Preparation and Planning. You know that WholesaleCo will be going up against OtherCompany, who is likely to outbid you on price. You research, as best you can, the price and quantity OtherCompany is willing to come to the table with. You also know, from your earlier research, that Salesco is a company that values quality and if they’re going to say no to OtherCompany, it’ll be because they have a reputation for skimping on quality. Your company produces the better, but more expensive, widget. Armed with this information, you put together your proposal.
  • Definition of Ground Rules. Salesco, as your customer, has let you know that they expect widgets to be manufactured and delivered in the first quarter of the following year. They’d like to sign with a 25% deposit. Your company usually requires 50% down, but you counter with 30%, provided you have a signed contract before the end of the year, which is approaching quickly. You offer Salesco your proposal. Salesco does not share OtherCompany’s offer.
  • Clarification and Justification. Salesco wants to understand more about your deposit requirements, and you’d like to know if your offer is otherwise in the ballpark for them. You reiterate that you provided them the best price you could for the quality product you produce. Salesco assures you your offer is good but they’ll review it further with their legal team.
  • Bargaining and Problem Solving. Salesco understands that WholesaleCo is not providing them the best price but that the quality they look to provide their customers will only come from WholesaleCo, and never OtherCompany. They’d still like to go with a 25% deposit because that’s all they have budgeted for the remainder of the fiscal year. As a representative of Wholesale, you offer to go with a 25% deposit if a second payment can be made at the beginning of the next quarter, which would allow them to pay it out of next year’s budget. Agreements are made.
  • Closure and Implementation. WholesaleCo makes changes to the contract for the widgets and a representative from Salesco signs. The new contract outlines the changes in the deposit structure, and a full delivery schedule of widgets to Salesco’ distribution centers by an agreed-upon date.

The negotiation process is complete.

Books have been written, and classes have been taught on the art of negotiation. The ability to master negotiation strategy is a coveted skill in the business world. Now that we understand the basics of the negotiation process, let’s take a look at some of the negotiation “experts” that are out there and how they finesse the process to get the best results.