Discussion Guide: Identifying a BATNA and Reservation Price Your primary role as the discussion leader is to get your team talking about why and how the concepts can be leveraged in the context of their situations. Please consider the following when using this guide: Use the questions in the Guiding the Discussion column, as well as any of your own design, to encourage your team members to share their challenges, experiences, and points of view. It will also be helpful to introduce your own perspective and experiences to highlight a key point, lesson learned, or best practice. The Points to Highlight column provides examples of question responses you may want to add to the discussion. Please note that the accompanying slides can be leveraged during the discussion, but are not necessary for an effective discussion. The slides can be helpful when leading a distributed group discussion via teleconference. Working through this guide can take up to 45 minutes. If you prefer a shorter 15- or 30minute session, you may want to focus only on those concepts and activities most relevant to your situation. Guiding the Discussion Points to Highlight INTRODUCTION Today, we’re going to talk about how you can identify your BATNA (your best alternative to a negotiated agreement) and reservation price (the least favorable point at which you’d accept a deal) while preparing for a negotiation. © Copyright 2010 Harvard Business School Publishing. All rights reserved. 1 Discussion Guide: Identifying a BATNA and Reservation Price Guiding the Discussion IDENTIFYING YOUR BATNA (20 MINUTES) Points to Highlight To identify your BATNA, we’ll select a negotiation to work with as an example. It could be an upcoming negotiation our team is facing, or one that you’ve handled in the past where you didn’t identify your BATNA and reservation price. We’ll then brainstorm alternatives to a negotiated agreement for our example deal and select the best alternative. And we’ll talk about ways to strengthen your BATNA. Note: You may opt to preselect a particular negotiation for the team to use in discussing these skills. So, let’s pick an example negotiation to work with. Does anyone have ideas they want to suggest? Note: The example negotiations your team members suggest (upcoming ones or negotiations they’ve worked on in the past) will vary widely, depending on the team’s function within the organization. For illustrative purposes, the example responses provided in the rest of this guide are from a fictional team in a company that provides marketing consulting services to clients. The team is preparing to negotiate a monthlong assignment with a potential client, PowerTech. Now let’s brainstorm a list of what our alternatives would be if the negotiation were to end without agreement. Example responses: o If the deal with PowerTech doesn’t work out, we could spend that month © Copyright 2010 Harvard Business School Publishing. All rights reserved. 2 Discussion Guide: Identifying a BATNA and Reservation Price Guiding the Discussion Who’d like to offer ideas? Points to Highlight developing those marketing studies we promised BigTech. That work would pay us $15,000. o We could use that month to focus on developing leads with other potential new clients. That could generate future business. o If we don’t get PowerTech, we could take time to tackle some challenges we’ve put on the back burner for a while — like clarifying our strategy and improving some business processes. Of all the alternatives we’ve listed, which of them strikes you as the best? Why? Example response: o Spending the month developing the marketing studies we promised BigTech seems the best alternative, because it’s guaranteed money in the bank. Our cash flow hasn’t been great lately, so it would be good to keep the money coming in. So you’ve identified your BATNA. But it’s always good to ask whether your BATNA is as strong as it can be. The stronger your BATNA, the more you can negotiate for even more favorable terms, because you know you have something even better to fall back on if a deal can’t be arranged. So let’s take a moment to talk about whether your BATNA might be strengthened at all. Who’d like to offer an opinion on this? Example response: o We’ve got a pretty good BATNA: $15,000 of guaranteed revenue from BigTech that we can turn to if negotiations with PowerTech don’t go anywhere. But maybe we could expand the BigTech work. We could call them and offer to increase the scope of the studies to include analyses of their two leading competitors’ products. For that additional work, we’d propose a slight increase in the fee, say, $5,000. If we got the go ahead from BigTech to expand the project, our BATNA would be $20,000 instead of $15,000. © Copyright 2010 Harvard Business School Publishing. All rights reserved. 3 Discussion Guide: Identifying a BATNA and Reservation Price Guiding the Discussion DETERMINING Y OUR RESERVATION PRICE (20 MINUTES) You’ve got a strong BATNA. Now let’s talk about your reservation price — the least favorable point at which you’d accept a deal. If the deal’s only about money, your reservation price will be similar to your BATNA. But if the deal’s about more than money, you’ll want to consider other forms of value in arriving at your reservation price. Points to Highlight Note: Consider providing an example from your experience that demonstrates the importance of having a reservation price. So, what’s this deal about — just money? Or are there other kinds of value possibly on the table, too? Who’d like to share some thoughts about this? Example responses: o Well, it’s not really just about money. There are other things to consider as well. Making a deal with PowerTech could lead to repeat business from them later. o PowerTech’s a well-respected company. If we did some work for them, we could list them in our client roster. That could help us attract other big-name firms. If there are other forms of value that are important to you, what’s the least favorable point where you’d accept a deal in this negotiation? Example response: o Our BATNA’s $20,000. We might be willing to do a project with PowerTech for as little as $14,000 if we could be pretty confident we’d get repeat business from them as well as be able © Copyright 2010 Harvard Business School Publishing. All rights reserved. 4 Discussion Guide: Identifying a BATNA and Reservation Price Guiding the Discussion Points to Highlight to attract other clients. NEXT STEPS Take a moment to consider some of the things you might do as a result of our discussion today. For example: Think back to several negotiations you were involved in previously, for which you didn’t identify your BATNA or reservation price. Imagine that you’re just now preparing for those negotiations. Practice identifying a BATNA and reservation price for each of those deals. As you prepare for upcoming negotiations that weren’t featured in today’s discussion, work with your colleagues to determine BATNAs and reservation prices for those deals. Use the Worksheet for Identifying and Improving Your BATNA and the Worksheet for Determining Your Reservation Price as you prepare. © Copyright 2010 Harvard Business School Publishing. All rights reserved. 5