When companies negotiate, they are often looking for sources of advantage in the negotiations that give them power to control the outcome. That power might come from having a desirable resource that is valuable to the negotiation partner. It might come from having an acceptable best alternative to a negotiated agreement, so that walking away from the current negotiation is a possibility. Or it might come from having less time pressure on reaching an agreement than the negotiation partner.
The nice thing about having an advantage like this, of course, is that it gives you an opportunity to get the most favorable terms out of a negotiation. So of course when you find a source of power in negotiation, the instinct is to go for the jugular and get the best deal you can for your side.
In some cases, that is what you should do. In particular, it is best to maximize the gain from your advantage in those situations in which you are not establishing a relationship with your negotiation partner or sending a message to other negotiation partners about how you do business.
In general, though, negotiation isn’t done in isolation. You will have to deal with the firms you negotiate with again in the future. In addition, your strategies become part of your reputation. The way your firm is viewed by the community will influence both how other companies choose to deal with you in the future, as well as whether they are willing to engage with you at all.
Here’s a historic example from the Greek historian Thucydides, who wrote extensively about the Peloponnesian Wars.
One event Thucydides recounts involves the Athenians’ conquest of the island of Melos. Athens was a much stronger military force than Melos, and they entered into negotiations in which they asked the Melians to surrender and allow themselves to be ruled by Athens. The Melians did not want this outcome, and asked to be left independent. They argued that if Athens simply took over Melos, then other independent nations would ultimately align with the Spartans, who were the enemies of Athens.
The Athenians eventually used their power to take over Melos, killing many of the inhabitants and installing their own government there. They used their power to get what they wanted. As the Melians predicted, though, this show of power led many other independent nations to align with Sparta.
The lesson from this history is that the broad context of a negotiation is important for determining how to succeed in the long run. The best use of power is one that leads to an outcome that parties in the negotiation might resist, but is ultimately in the best long-term interests of everyone.
For example, in 2007, Wal-Mart used its power as the largest retailer of consumer goods in the United States to require the makers of liquid detergents to compact their formulas. Making detergents more concentrated was valuable to Wal-Mart, because it would save shelf space, but it would also decrease shipping costs across the supply chain. Indeed, they announced this initiative for the first time at the Clinton Global Initiative. They achieved their goal of selling only concentrated detergents by 2008.
Detergent manufacturers resisted this request at first, because there was a substantial research and development effort required by manufacturers to find a concentrated formula that would work effectively. They only undertook this development work because of the pressure from Wal-Mart, who would no longer carry detergents at their original concentration after a specified date.
In this case, Wal-Mart did exercise power unilaterally, but they did so in a way that created benefits for an entire community.
As Peter Parker’s Uncle Ben says in Spiderman, “With great power comes great responsibility.” In the context of negotiation, that responsibility is to achieve your goals while also finding a way to benefit the entire community as much as possible and preserve your reputation as a fair dealer.