Negotiation
INTRODUCTION
Definition
How would you define negotiation?
Why do we negotiate?
Distributive Bargaining
Used Car
Read instructions (5 minutes)
Negotiate over the car (10 minutes)
Discussion Questions (next slide)
Used Car - Discussion
Did you reach an agreement in this negotiation? If so, how satisfied are you with the price? If
not, are you satisfied that you did not agree? Why?
If you reached a settlement, how does the settlement price compare to your target price, to the
buyer’s opening offer, and to the lowest (highest) price that you were willing to accept?
Who made the first offer? Does it matter who puts out the first number? Do you want to be the
person making the first offer, or the person hearing the first offer? Why? Under what
circumstances might your answer be different?
Who made the first offer?
◦ Buyer or seller
What was the first offer?
Final price of the car?
Key Concepts
Best alternative to a negotiated agreement (BATNA) – aka “best outside option” or “plan b”
Reservation Point (RP) – indifference point
◦ Your bottom-line, walking away point
◦ Your BATNA +/- things that make you want this deal
Target price or aspiration point
◦ Sometimes people have two: “optimistic” and “realistic” – could focus on one: “ambitious yet imaginable”
Zone of potential agreement (ZOPA) or bargaining zone
◦ Space between two party’s RP’s; can be negative.
Used Car
What was your reservation point?
◦ Buyer, Seller
What was your BATNA?
◦ Buyer, Seller
Are these two points equal?
What separates these two points?
Used Car
Buyer
◦ BATNA: $3800 Malibu
◦ RP: $4700 money you have
Seller
◦ BATNA: $4400 dealer trade-in
◦ RP: $4400
ZOPA: area between two RP
◦ $4400 - $4700
Salary Negotiation
New Hire (you)
◦ What is the BATNA in salary negotiations?
◦ What is the reservation point?
◦ What is the target or aspiration point?
Employer
◦ What is the BATNA?
◦ What is the reservation point?
◦ What is the target or aspiration point?
Salary Negotiation – Scenario 1
New Hire (you)
◦ BATNA: Another job offer, salary $60,000
◦ This is the lowest you’ll go
◦ What is the reservation point?
◦ What is the target or aspiration point?
Employer
◦ BATNA: Another employee, budget restriction, $65,000
◦ This is the highest they’ll go
◦ What is the reservation point?
◦ What is the target or aspiration point?
Bargaining Zone – ZOPA
Employer’s aspiration
range
Settlement range
Your aspiration range
Employer’s
aspiration
level:
$55,000
Your
reservation
point:
$60,000
Employer’s
reservation
point:
$65,000
Your
aspiration
level:
$70,000
Salary Negotiation – Scenario 2
New Hire (you)
◦ BATNA: Another job offer, salary $65,000
◦ This is the lowest you’ll go
◦ What is the reservation point?
◦ What is the target or aspiration point?
Employer
◦ BATNA: Another employee, budget restriction, $60,000
◦ This is the highest they’ll go
◦ What is the reservation point?
◦ What is the target or aspiration point?
Negative ZOPA
Employer’s aspiration
range
Settlement range
Your aspiration range
Employer’s
aspiration
level:
$55,000
Employer’s
reservation
point:
$60,000
Your
reservation
point:
$65,000
Your
aspiration
level:
$70,000
BATNA
Distinguishing reservation point (indifferent point) from target point
(aspiration level)
BATNA
◦ Best Alternative To Negotiated Agreement
◦ Should equal reservation point
How do you determine your BATNA?
How do you use BATNA in negotiations?
What about the other party’s BATNA?
Take away
Distributive Bargaining
This type of negotiation is called distributive bargaining. There is a fixed amount and you must
negotiate to distribute between the two or more parties
Know when you’re in a distributive bargaining situation.
Gather information, develop BATNA
Make the first offer, be aggressive,
Know your reservation point and DO NOT go beyond it.
Engage in tit-for-tat concession-making.