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
Common Problems in Negotiation
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)
Why Are People Ineffective Negotiators?
Absence of relevant and diagnostic feedback
Satisficing
Search for confirming information
Egocentrism
Versus Optimizing
Self-reinforcement
Fear of change and experimentation
Myths
Good negotiators are born, not made
Experience is a great teacher
Good negotiators are risk-takers
Good negotiators rely on intuition
Todays Negotiation: Synertech-Dosagen
Assign Roles Read ONLY your materials (do not look at your partners materials) You have 5 minutes to read, think, and prepare You have 15 minutes to negotiate and you can do this outside of the classroom. But come BACK in 20 minutes with the results of your negotiation on the handout.
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
Key Negotiation Principles
Best Alternative To a Negotiated Agreement
(BATNA)
Reservation price
Bargaining zone
Aspiration level
Key Negotiation Principles
Best Alternative To a Negotiated Agreement
(BATNA)
Reservation price
Bargaining zone
Aspiration level
BATNA Tips
Know your BATNA
Improve your BATNA before you negotiate
Do not think of your BATNA in aggregate
terms
Fall in love with three rule
You want your counterpart to think you
have a good BATNA
Key Negotiation Principles
Best Alternative To a Negotiated
Agreement (BATNA)
Reservation price
Bargaining zone
Aspiration level
Reservation Price
Reservation Price is your bottom line
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
Learn your opponents reservation price, if possible
Should You Reveal your BATNA and
Reservation Price?
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
Key Negotiation Principles
Best Alternative To a Negotiated
Agreement (BATNA)
Reservation price
Bargaining zone
Aspiration level
The Negotiation Bargaining Zone
Buyers Target Price
Buyers Reservation Price (BR)
(e.g., $25M)
Sellers Reservation Price (SR)
(e.g., $17M)
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).
A Negative Bargaining Zone
Sellers Reservation Price (SR) (e.g., $25M)
Buyers Reservation Price (BR)
(e.g., $17M)
If BR < SR, then there is no zone of possible agreement.
Key Negotiation Principles
Best Alternative To a Negotiated Agreement
(BATNA)
Reservation price
Bargaining zone
Aspiration level
Aspiration Level
Distributive Bargaining Tactics
First offers
Concessions
Persuasion
First Offers
Who made the first offer?
How did the first offer affect the negotiation?
First Offers in Synertech-Dosagen
There is a high correlation between the first offer and the final price Counteroffers and later concession behavior less predictive of final price
The First Offer
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) Whats embarrassing? Whats optimistic? Learn the market! Only let the other party make the first offer when You have no information
It is inappropriate to do so (e.g., job negotiations)
Immediately re-anchor if your counterpart makes the first offer
Concessions & Persuasion
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
Distributive Negotiation Strategies
Know your BATNA
Strengthen your BATNA whenever possible Know your reservation price Do not reveal your reservation price
Research the other partys BATNA/reservation price
Define your aspiration level and focus on that
Make first offers whenever possible
If they make the first offer, immediately re-anchor
