Professional Documents
Culture Documents
Negotiations
Negotiation: A process by which two or more people come to agreement on how to allocate scarce resources.
Parties are interdependent; neither has complete power to choose The process is a decision, not a contest of wills
Leaving money on the table (lose-lose negotiation) Settling for too little (winners curse) Walking away from the table (hubris) Settling for terms that are worse than your current situation (agreement bias)
Satisficing
Versus Optimizing
Self-reinforcement
Myths
Relevant Facts
Dosagen bought the plant 3 years ago for $15 M (but sellers was distressed)
Plant appraised 2 years ago at $19 M with 5% real estate decline since then Similar but newer plant sold for $26 M nine months ago
Reservation price
Bargaining zone
Aspiration level
Bargaining zone
Aspiration level
BATNA Tips
Best Alternative To a Negotiated Agreement (BATNA) Reservation price Bargaining zone Aspiration level
Reservation Price
The point at which you are indifferent to whether you achieve a negotiated agreement or walk away. Beyond the reservation price, you prefer no agreement.
Reservation Price is equal to your BATNA +/- other issues that make you want to do the deal
Define your reservation price before negotiating Learn your opponents reservation price, if possible
Do not reveal your reservation price!!! One of the critical pieces of information in a negotiation is the other partys reservation point. If it becomes known to one party, the negotiator can push for a resolution that is only marginally acceptable to the other party. Do not state ranges Reveal your BATNA only when:
You are nearing an impasse You have a strong BATNA You want to make an agreement in the current negotiation
Reservation price
Bargaining zone
Aspiration level
Sellers Target
The bargaining zone is the space between the buyers reservation price (BR) and the sellers reservation price (SR) that is, the zone of possible agreement. If BR > SR, then a Positive Bargaining Zone exists. The zone of agreement is from SR to BR (e.g., $8M).
Bargaining zone
Aspiration level
Aspiration Level
Final Price (in millions)
$23.5 $23.0 $22.5 $22.0 $21.5 $21.0 $20.5 Buyer focused on BATNA Buyer focused on aspiration level
First offers
Concessions
Persuasion
First Offers
Who made the first offer? How did the first offer affect the negotiation?
There is a high correlation between the first offer and the final price Counteroffers and later concession behavior less predictive of final price
How high should the first offer be? As high as you can go without embarrassing yourself in front of a respected 3rd party (Fisher & Ury, 1991)
Only let the other party make the first offer when You have no information
Allow yourself room to make concessions Dont go in with a first and final offer Make bi-lateral, not uni-lateral concessions Make your concessions smaller as you approach your goal Use objective rationale to support your argument Again, learn the market
Know your BATNA Strengthen your BATNA whenever possible Know your reservation price Do not reveal your reservation price