CHAPTER TWOStrategy and Tactics of Distributive Bargaining INB 350 Lecture By: Ms. Adina Malik (ALK)
The Distributive Bargaining • Distributive Bargaining occurs when the goals of one party are in fundamental and direct conflict with the goals of the other party. • It is also called Competitive, or Win-Lose Bargaining • Both parties want to Maximize the Valueobtained in a single deal.
The Distributive Bargaining Situation • Conflicting Goals • Resources are fixed and limited • Time is limited • Relationship is not important • Maximizing one’s own share of resources is the goal • A conflict situation • Every party has to use this strategy during claiming value stage
The Distributive Bargaining Situation Things to know: • Target point (aspiration point, optimal goal, preferred price) • Walk-away (bottom line, resistance point, reservation price) • Asking price (seller) • Initial offer (buyer)
The Distributive Bargaining Situation Mr. Rahim (Buyer) wants to buy a 55 inch LED TV. His target price is TK. 135,000. His resistance point, the price beyond which Mr. Rahim won’t go, is TK. 150,000. So TK. 150,000 is the reservation point or bottom line –the most he will pay as a buyer and the least amount for which the seller will settle for. Now Mr. Helal (The Seller) is selling a 55 inch LED TV and his asking price is TK. 145,000
The Distributive Bargaining Situation Party A - Helal- Seller Walkaway Point Target Point Asking Price TK 145,000 Initial Offer Target Point Walkaway Point TK 135,000 TK 150,000 Party B – Rahim- Buyer
The Distributive Bargaining Situation • Deciding Initial Offer of the Buyer (Rahim): • Mr. Rahim cannot open negotiation at his target point (135,000 TK). He has to make lower initial offer to make room for making concession. • If Rahim open negotiation at his target point afterward when he has to make concessions then he will move more closer to the resistant point. • However if the buyer (Rahim) makes the first offer too low (TK 100,000) the seller might break off negotiation believing the buyer is not interested*.
The Distributive Bargaining Situation Party B – Rahim- Buyer Party A - Helal- Seller R- Initial P R- Target Point H- Initial P R- Res. P 145,000 135,000 130,000 133,000 140,000 150,000
The Distributive Bargaining Situation • Both parties have starting, target and resistance points. • Starting points* are disclosed in the opening statement. (133,000 – Mr. Rahim) • Target points are usually learned or inferred as negotiations proceeds, however , it is not usually disclosed at first. • Reservation points should always be kept secret. ( 150,000 – Mr. Rahim)
The Distributive Bargaining Situation Party A - Helal- Seller Party B – Rahim- Buyer H- Res P inferred R- Initial P Public R- Target Point Private H- Target P inferred H- Asking P public R- Res. P private Tk. 145,000 Tk. 130,000 Tk. 133,000 Tk. 135,000 Tk. 140,000 Tk. 150,000
The Distributive Bargaining Situation: Bargaining Range • The spread between the resistance points (150-130) called the Bargaining Range/Settlement Range/Zone of Potential Agreement. • If the buyer’s resistance point is above the seller then there is a positive bargaining range (130 - 150) • If the seller’s resistance point is above the buyer then there is a negative bargaining range (130-125) *This thing can be resolved only if one or both parties are persuaded to change their resistance points
The Role of Alternatives to a Negotiated Agreement • Alternatives give the negotiator power to walk away from the negotiation: BATNA • If alternatives are attractive, negotiators can: • Set their goals higher • Make fewer concessions • If there are no attractive alternatives: • Negotiators have much less bargaining power • Negotiators need to have clear understanding of their BATNA. Good bargainers always try to improve their alternatives. BATNA clarifies what the negotiators will do if the agreement is not reached
The Role of Alternatives to a Negotiated Agreement Party A - Helal- Seller Party B – Rahim- Buyer H- Res P inferred R- Initial P Public R- Target Point Private H- Target P inferred H- Initial P public R- Res. P private 145,000 130,000 133,000 135,000 140,000 150,000 H- Alternative Private R- Alternative Private 142,000 134,000
Settlement Points • The fundamental process of distributive bargaining is to reach a settlement within a positive bargaining range. • The agreement should be the best possible result both the parties could get - both the parties should be satisfied with the outcome. • Both parties should belief that the settlement is the best they can get (although it might be less desirable than their preference).
Bargaining Mix • In almost all negotiations, agreement is necessary on several issues: • Price • Closing Date* of the sale • Other items related to the agreement • The package of issues for negotiation is the bargaining mix. Each item in the mix has its own starting, target and resistance points.
Fundamental Strategies The prime objective of distributive bargaining is to maximize the value of the current deal. There are four fundamental strategies: • Push for settlement near opponent’s resistance point • Get the other party to change their resistance point • If settlement range is negative, either: • Get the other side to change their resistance point • Modify your own resistance point • Convince the other party that the settlement is the best possible
Keys to the Strategies The keys to implementing any of the four strategies are: • Discovering the other party’s resistance point • Information is the life force of negotiation • Influencing the other party’s resistance point • The value the other attaches to a particular outcome • The cost the other attaches to delay or difficulty in negotiation • The cost the other attaches to having the negotiation aborted
Tactical Tasks of Negotiators Tactics: • Assess the other party’s target, resistance point, and the costs of terminating negotiation • Manage the other party’s impressions • Modify the other party’s perceptions • Manipulate the actual costs of delay or termination
Tactical Tasks of Negotiators Assess the other party’s target, resistance point, and the costs of terminating negotiation • Indirect Assessment: Determining what information an individual likely used to set target and resistance points and how he or she interpreted this information. • Direct Assessment: Opponent reveals the accurate information when pushed to the absolute limit and in need of a quick settlement (time shortage).
Tactical Tasks of Negotiators Manage the Other Party’s Impressions • Important Tactical Task- conceal and control information (target and resistance points) sent to other party. • Screening activities are more important at the beginning of the negotiation, and direct action is more useful later on. • Screen your behavior: • Say and do as little as possible. ‘Silence is golden.’ • Direct action to alter impressions: • Present facts that enhance one’s position • Negotiators should justify their case through selective presentation- presenting facts necessary to support their cases.
Direct action to Alter Impressions • Displaying emotional reactionto facts, proposals, and possible outcome is another form of direct action- • A loud, angry outburst or an eager response; disappointment or enthusiasm-> important issue • Casual acceptance; boredom or indifference-> trivial issue or unimportant • Presentation of Information • Elaborate-> important • Concise-> trivial
Positions Taken During Negotiations • At the beginning of the negotiation each party takes a position. • Changes in position will occur as new information concerning the other’s intention, the value of outcomes, concessions, and likely zone for settlement will come fore. • Opening offer • Where will you start? • Too Low • Too High • Modest
Positions Taken During Negotiations • Opening stance • What is your attitude? • Competitive? Moderate? • A reasonable bargaining position is usually coupled with a friendly stance • An exaggerated bargaining position is usually coupled with a tougher more competitive stance
Positions Taken During Negotiations • Final offer (making a commitment) • “This is all I can do” or ‘’This is as far as I can go’’
Commitment • Commitment is an agreement or pledge to do something in the future. • It removes ambiguity about the actor’s intended course of action. • However it also limits the option and sometimes interpreted as threat to other party.
Commitments: Tactical Considerations • Establishing a commitment • Three properties:A high degree of Finality, a high degree of Specificity & a clear statement of Consequences. For example: • We need a raise or there will be trouble (less powerful) • We must have 10% raise in our salary or we will go for strike from next month (more powerful)
Summary Strategies for Distributive Negotiation: Stg-1: Assess your BATNA and improve it Stg-2: Determine your reservation point but do not reveal it. Stg-3: Research other party’s BATNA and estimate their reservation point Stg-4: Set high Aspiration: but do not pursue lowball/highball tactics *Unrealistically low/high estimate (bid)
Summary Stg-5: Make the first offer • if you are prepared and have sufficient information make the first offer because it act an anchor point. Stg-6: Appear to norm of fairness Stg-7: Plan your concessions Stg-8: Try not to exceed your reservation point