Negotiation Outcomes: The Impact of the Initial Offer, Time, Gender, and Team Size

By Min, Hokey; LaTour, Michael S. et al. | International Journal of Purchasing and Materials Management, Fall 1995 | Go to article overview

Negotiation Outcomes: The Impact of the Initial Offer, Time, Gender, and Team Size


Min, Hokey, LaTour, Michael S., Jones, Michael A., International Journal of Purchasing and Materials Management


BACKGROUND

Purchasing negotiation is the art of arriving at a mutual agreement with suppliers by means of bargaining on the essentials of a purchasing contract, such as specifications, quality assurance, price, payment terms, and delivery schedules.[1] As such, the effectiveness of purchasing negotiation depends largely on a buyer's ability to establish bargaining strength. The buyer's bargaining power, however, cannot be strengthened without knowing exactly what negotiation latitude he or she has to work with - and which variables constitute the basis of that latitude. Examples of those variables include the extent of competition, adequacy of cost/price analysis, thoroughness of preparation, tune constraints for negotiation, and the volume of business.[2]

Among these, the extent of competition is an exogenous variable that cannot be controlled by either negotiation party. Considering this, a buyer's effort to strengthen his or her bargaining position should concentrate on the controllable variables - for example, the adequacy of cost/price analysis. Thorough cost/price analysis is a prerequisite for successful negotiation because it helps a buyer clearly establish his or her minimum and maximum positions. And this decision clearly assists in the development of a reasonable opening offer and subsequent counteroffers to the supplier. In other words, a miscalculated initial offer resulting from inadequate cost/price analysis might lead to an unfavorable settlement for the buyer at an excessively high price, because such an offer may well reduce the bargaining room within which to work. This rationale is based on Stagner and Rosen's well-known model of negotiation.[3]

The major objective of this study is to determine how significantly the initial offer and the settlement time affect negotiation outcomes. Additionally, the study explores the impact that gender and varying team size may have on negotiation outcomes. While there certainly are a number of other factors that can affect negotiation outcomes,[4] the study's focus is on the influence of these four factors.

GENERATION OF THE STUDY DATA

The Participants

Two groups of participants were utilized in the study - (1) students and (2) practicing purchasing professionals. Student data were collected from role playing negotiation games conducted during the period of November 1993 through February 1994 with both undergraduate and graduate business (MBA) students at a major southeastern university. Since a majority of these students had little experience with real-world purchasing negotiations, data were also collected using the same role playing negotiation games, this time with professional industrial buyers as participants. The buyers were members of the National Association of Purchasing Management (NAPM), affiliated with chapters in Atlanta, Columbus, and Newnan, Georgia, and Montgomery, Alabama. The time period for this portion of the study was September through December 1994.

How the Data Were Obtained

Simulated negotiation experiments, however sophisticated, may not fully reflect the complexity of real-world negotiations. Nevertheless, they are widely used for research and training purposes and have proved to be a very useful learning tool.[5] As such, two separate role playing exercises were used in this study to examine the extent to which the negotiator's initial offer, negotiation time, gender bias, and team size influence negotiation outcomes.

The first simulation involved purchasing and selling a bank-repossessed backhoe.(*) Similarly, the second simulation involved purchasing and selling a one-of-a-kind used car/minivan.(**)

Both of these simulations were designed to give no advantage or negotiation leverage to either the buyer or the seller. Neither the buyer nor the seller had access to complete information, although the seller was contingently rewarded with a commission when he or she settled for a price above a stipulated amount. …

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