Negotiation Distributive Bargaining (Continued)
Distributive Bargaining (recap) • This type of negotiation is called distributive bargaining. There is a fixed amount and you must negotiate. • Know when you’re in a distributive bargaining situation. • Gather information, develop BATNA • Make the first offer, be aggressive • Know your reservation point and DO NOT go beyond it. • Engage in tit-for-tat concession-making.
RP and BATNA • Are the Reservation Point and Best Alternative the same? • When might they not be?
Anchors • Set the tone in a negotiation • Can be a random number (e.g., used car activity) or based on some piece of information (e.g., Kelly blue book) • Does it have to be a reliable piece of information? • From Ch 3: How did Peter Ueberroth use anchoring to make the 1984 Olympics profitable?
Reference points • What do we do in the absence of credible reference points? • 1984 Olympics • Japanese baseball players • Libel case
Key Concepts • Best alternative to a negotiated agreement (BATNA) – aka “best outside option” or “plan b” • Reservation Point (RP) – indifference point • Your bottom-line, walking away point • Your BATNA +/- things that make you want this deal • Target price or aspiration point • Sometimes people have two: “optimistic” and “realistic” – could focus on one: “ambitious yet imaginable” • Zone of potential agreement (ZOPA) or bargaining zone • Space between two party’s RP’s; can be negative.
BATNA • Pawn Shop (Buyer) • BATNA is not buying the item • But their business depends on buying/pawning and selling, so they want to make deals • Seller • Not selling/pawing the item. Different for each seller. • Some want/need to sell the item to make money
Target Price • Pawn Shop • A low amount, they want to make money selling the item • Seller • A high amount • Some times unreasonable, or inflated by their sentimental value
Reservation Point • Pawn Shop (Buyer) • They need to make money selling the item. • Their RP is based on what they feel the item will sell for minus the profit they want to make selling it. • Desired Profit = (Retail Price) – (Reservation Point) • $300 = $1000 - 700 • Seller • Usually set their RP beforehand • May just be a number they feel the item is worth • Might be the money they need to buy something else
Zone Of Potential Agreement • The area between the two RP’s • If the Pawn Shop is willing to take an item for as high as $500 and the seller will sell for as low as $300, then they will negotiate a price between $300-500. • An agreement can be made • If the Pawn Shop is only willing to buy for as high as $1000, and the seller won’t take less than $1500, then they can’t negotiate • Walk away, no deal
Bargaining Zone – ZOPA Example Pawn Shop’s aspiration range Settlement range Seller aspiration range Pawn Shop’s aspiration level: $200 Seller reservation point: $300 Pawn Shop’s reservation point: $500 Seller aspiration level: $800
Negative ZOPA Pawn Shop’s aspiration range Settlement range Seller aspiration range Pawn Shop’s aspiration level: $700 Pawn Shop’s reservation point: $1000 Seller reservation point: $1500 Seller aspiration level: $2000
Pawn Stars – Concepts to watch for • Anchors • First offer, New information • Reservation Point • Do people stick to it? • ZOPA • Does one exist? Can we make a deal?
More on Negotiation • Haggling 101 • Art of the Deal
Take away from Pawn Stars • Develop a reservation point, stick to it. Be prepared to walk away if you can’t get it. • Sentimental value usually means nothing to the person you’re negotiating with. • Do your research on alternatives and value. • Make a strong, but reasonable, first offer (set an anchor). • Setting anchors is a skill