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This document discusses key concepts and strategies for effective negotiation. It begins by defining negotiation as a process where parties with interdependent interests come to agreement on allocating scarce resources. Common negotiation problems include leaving money on the table, winner's curse, hubris, and agreement bias. Effective negotiators understand important principles like BATNA, reservation price, bargaining zone, and aspiration level. They strategically use first offers, concessions, and persuasion to reach an optimal agreement within the bargaining zone.
This document discusses key concepts and strategies for effective negotiation. It begins by defining negotiation as a process where parties with interdependent interests come to agreement on allocating scarce resources. Common negotiation problems include leaving money on the table, winner's curse, hubris, and agreement bias. Effective negotiators understand important principles like BATNA, reservation price, bargaining zone, and aspiration level. They strategically use first offers, concessions, and persuasion to reach an optimal agreement within the bargaining zone.
This document discusses key concepts and strategies for effective negotiation. It begins by defining negotiation as a process where parties with interdependent interests come to agreement on allocating scarce resources. Common negotiation problems include leaving money on the table, winner's curse, hubris, and agreement bias. Effective negotiators understand important principles like BATNA, reservation price, bargaining zone, and aspiration level. They strategically use first offers, concessions, and persuasion to reach an optimal agreement within the bargaining zone.
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) Common Problems in Negotiation
Absence of relevant and diagnostic feedback Search for confirming information Egocentrism
Satisficing Versus Optimizing
Self-reinforcement Fear of change and experimentation Why Are People Ineffective Negotiators?
Good negotiators are born, not made
Experience is a great teacher
Good negotiators are risk-takers
Good negotiators rely on intuition Myths
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. 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 Relevant Facts 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 Key Negotiation Principles Know your BATNA Do not think of your BATNA in aggregate terms
Improve your BATNA before you negotiate Fall in love with three rule
You want your counterpart to think you have a good BATNA BATNA Tips Best Alternative To a Negotiated Agreement (BATNA) Reservation price Bargaining zone Aspiration level Key Negotiation Principles 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 issues that make you want to do the deal e.g., opportunity costs, switching costs, ego, miscellaneous preferences
Define your reservation price before negotiating
Learn your opponents reservation price, if possible 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 Should You Reveal your BATNA and Reservation Price? Best Alternative To a Negotiated Agreement (BATNA) Reservation price Bargaining zone Aspiration level Key Negotiation Principles The Negotiation Bargaining Zone Buyers Reservation Price (B R ) (e.g., $25M) Buyers Target Price Sellers Reservation Price (S R ) (e.g., $17M) Sellers Target
The bargaining zone is the space between the buyers reservation price (B R ) and the sellers reservation price (S R ) that is, the zone of possible agreement. If B R > S R , then a Positive Bargaining Zone exists. The zone of agreement is from S R to B R (e.g., $8M). A Negative Bargaining Zone
Sellers Reservation Price (S R ) (e.g., $25M) Buyers Reservation Price (B R ) (e.g., $17M) If B R < S R , then there is no zone of possible agreement. Best Alternative To a Negotiated Agreement (BATNA) Reservation price Bargaining zone Aspiration level Key Negotiation Principles Aspiration Level $20.5 $21.0 $21.5 $22.0 $22.5 $23.0 $23.5 Final Price (in millions) Buyer focused on BATNA Buyer focused on aspiration level First offers
Concessions
Persuasion Distributive Bargaining Tactics
Who made the first offer?
How did the first offer affect the negotiation? First Offers First Offers in Synertech-Dosagen $17 $18 $19 $20 $21 $22 $23 $24 $25 Final Price (in millions) Buyer made first offer Seller made first offer 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 3 rd 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 The First Offer 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 Concessions & Persuasion 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
Watch how you are making concessions
Prepare objective rationale for your arguments Distributive Negotiation Strategies