Building Blocks of Negotiation

What Is Negotiation?

  • Leigh Thompson: "An interpersonal decision- making process necessary whenever we cannot achieve our objectives single-handedly"
    • Ex Buying a car; buying a house; things at work
  • Most people are not great negotiators b/c of:
    • Faulty feedback
      • Confirmation bias
      • Ego-centrism
    • Satisficing - settling for less
    • Self-Reinforcing Incompetence

Myths of Negotiation

  1. Negotiations are fixed-sum
  2. You need to be either tough or soft
  3. Good negotiators are born
  4. Experience is a great teacher
  5. Good negotiators take risks
  6. Good negotiators rely on intuition

Preparation Is the Key

  • Situation & parties
  • Issues & bargaining mix
  • Interests
  • Goals
  • Bids & tactics
  • Limits & alternatives

BATNA

  • Best Alternative to a Negotiated Agreement (Fisher & Ury, 1981)
  • Good for:
    • Knowing when to walk away
    • Testing proposals
    • Accepting things that are superior to your BATNA and rejecting things that are inferior to your BATNA
  • Realistic, not idealistic
  • Not static
  • Stick to it

Example: Car Buying

How do you strengthen your BATNA?

What makes a dealer's BATNA stronger?

Car

$19,000=compromise

Example: Job Hunting

  • Your BATNA
    • How is it strengthened?
  • Recruiter's BATNA
    • How is it weakened?
    • How is it strengthened?

Reservation Point

  • Lowest point you can go
    • Ex: If BP offered you a job, what would Exxon- Mobile have to offer to match it?
    • Includes any relevant issues
  • Determines when you should walk away

Reservation Point – Job Hunting

Exxon's Offer?

shell salary offer $46,000 - BP salary offer $50,000

Target Point

Your ideal goal

ideal goal, rp-bp $50,000 - exxon's tip $52,000 - your tp $55,000 - exon's rp $57,000

Bargaining Range


Bargaining Range - rp-bp $50,000 - exxon's tip $52,000 - your tp $55,000 - exon's rp $57,000

Bargaining Zone

The range of negotiated outcomes that are acceptable to all parties

Bargaining Zone - rp-bp $50,000 - exxon's tip $52,000 - your tp $55,000 - exon's rp $57,000

Negative Bargaining Zone

Negative Bargaining Zone - exxon's tp $40,000 - exon's rp $45,000- your rp $50,000 - your tp $57,000

So What?

  • BATNA & Reservation Point
    • Judge agreements
    • Improve agreements
    • No raw deals
  • Target Point
    • Something to hsoot for
  • Bargaining Range
    • Determines flexibility in strategy & concessions
  • Bargaining Zone
    • Know if agreement is possible

Anchor Point

  • Reference point
    • Adjusted as appropriate
  • Can be arbitrary
  • Set your anchor first!…sometimes
    • (Make the 1st offer w/ a good anchor)

The big idea

Preparation is the key

No preparation = no success

Creative Commons License This text was adapted by Saylor Academy under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License without attribution as requested by the work's original creator or licensor.

Back to '5.2: Negotiations'