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What is Negotiation? - The Five Steps of the Negotiation Process

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  1. 1:35 Preparation and Planning
  2. 2:17 Definition of Ground Rules
  3. 3:16 Clarification and Justification
  4. 4:29 Bargaining and Problem Solving
  5. 5:35 Closure and Implementation
  6. 6:11 Lesson Summary
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Taught by

Jennifer Lombardo

Companies have to negotiate in numerous areas of organizational conflict. Negotiation is an open process for two parties to find an acceptable solution to a complicated conflict. There are five steps to the negotiation process.

Negotiation

The Ninja Corporation has one of the largest factories on the East Coast. Every five years, the company puts out a request for bids for businesses to clean and paint the factory floor. Once a contractor is selected, Ninja Corporation starts a negotiation process in order to facilitate the best price and service on this massive undertaking. Negotiation is an open process for two parties to find an acceptable solution to a complicated conflict. There are some specific conditions where negotiation will achieve the best results:

  • When the conflict consists of two or more parties or groups
  • A major conflict of interest exists between both parties
  • All parties feel that the negotiation will lead to a better outcome
  • All parties want to work together, instead of having a dysfunctional conflict situation

Ninja Corporation has received numerous bids for the factory painting job. The company has decided to enter negotiations with Wet Paint Biz. There are five steps to the negotiation process, which are:

  1. Preparation and planning
  2. Definition of ground rules
  3. Clarification and justification
  4. Bargaining and problem solving
  5. Closure and implementation

Wet Paint Biz and Ninja Corporation are starting to get organized for the big negotiation meeting that will be held at the local town office.

Preparation and Planning

Preparation and planning is the first step in the negotiation process. Here, both parties will organize and accumulate the information necessary to have an effective negotiation. Ninja Corporation and Wet Paint Biz both need to prepare fully for the negotiation. Information can be powerful in negotiations and help add validity to claims. Both companies should investigate each other's history and try and figure out what the opening offer will be for the paint job. Wet Paint Biz needs to uncover the highest amount Ninja Corporation is willing to pay for the factory paint job, while Ninja Corporation needs to figure out the lowest Wet Paint Biz will take for the job.

Definition of Ground Rules

The second step in negotiation is the definition of ground rules. In this step, rules and procedures will be established for the planned negotiation. Consideration will be given to questions, such as:

  • Where will negotiations take place?
  • Will time constraints exist?
  • Will there be any issues that are off limits?
  • What happens if there's not any agreement?

In addition, both parties will try and figure out what price should be the starting point for the negotiation. Also, demands and expectations should be disclosed up front. Lastly, the bottom line, which is the lowest price that Wet Paint Biz will provide services to Ninja Corporation for, will need to be uncovered by Ninja Corporation. Ninja will start the negotiations with an opening offer, or starting price, suggesting a price of $25,000 for the job. Both parties also agreed that the negotiations would last one day and if a price for the job was not agreed upon, then Ninja Corporation would consider a different vendor.

Clarification and Justification

Now that the rules have been established, a discussion needs to take place regarding the specifics of the job price. In the third negotiation step, clarification and justification, the positions of both parties are discussed at length. Each side will get a chance to explain, justify and support their original request. This part of the negotiations should not be argumentative, but instead, it should provide the opportunity for each side to educate and inform each other about their position. Ninja Corporation feels that the factory job should only take $25,000 to complete. They provide documentation to Wet Paint Biz to show them what the previous vendor charged them and adjusted for inflation.

Wet Paint Biz understands the $25,000 request, but offers to complete the job for $42,000. Wet Paint Biz provides documentation to support the price increase. The company explains that the paint has increased in price, and new laws require them to hire certified technicians to disassemble certain parts of the factory for cleaning. This is an added cost that the previous vendor did not have to incorporate into their price.

Bargaining and Problem Solving

Now that both parties are aware of each other's positions, intense negotiations need to occur to come to an agreement. The fourth step of the negotiation is bargaining and problem solving. In this step, the parties will discuss at length a conflict or issue, and a give-and-take must occur to come to a solution. Concessions will have to be made for both parties to be happy with the end result. In the lesson example, Ninja Corporation really wants to use Wet Paint Biz, due to their excellent reputation and professionalism.

Wet Paint Biz really wants this huge corporate job, as it will increase their overall success at gaining other local companies' business. Both parties ended up negotiating the cost to an agreed price of $33,800. Wet Paint had to drop their price, and also promise to complete the job in a two-month time frame with no overtime. Ninja Corporation had to pay more for the factory project and provide documentation that the factory would be emptied by a specific date, in order for the paint company to start the job in time. Ninja Corporation would also recommend Wet Paint to other business owners if they were happy with the end result.

Closure and Implementation

The last step finalizes the details and ensures completion of the project. The final negotiation step is closure and implementation. In this last step, both parties will acknowledge the formalized agreement through either a handshake, written/signed document or contract. The parties will also discuss how, when and where the implementation will occur. In Ninja Corporation's situation, both parties signed a detailed contract regarding the factory paint cleaning. The companies agreed upon a start date of June 30th. A deposit was forwarded to Wet Paint Biz to begin acquiring supplies for the project.

Lesson Summary

Companies have to negotiate in numerous areas of organizational conflict. Negotiation is an open process for two parties to find an acceptable solution to a complicated conflict. There are five steps to the negotiation process:

  1. Preparation and planning
  2. Definition of ground rules
  3. Clarification and justification
  4. Bargaining and problem solving
  5. Closure and implementation
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