This is the first game that we play in a group. It was Valentin, Frederik, Anthony and Adriana and me playing as one person. We could all either play X or Y and depending on the comination of the four outcomes we would win or lose points.
When there were bonus rounds playing together would made us each win points. However if one was to derive from the mutual strategy he could gain more and make us lose. In the first bonus round (*3) we playied together and everyone won. For the second bonus round however Anthony and Frederik did play in their own interest ad made many points while Valentin and Adriana and me lost. We blamed them and so in the last bonus round (*10) we did not trust them any more which made us all lose many points.
We ended up with a group result of -39 points as where ideally when playing together each of the rounds we could have gotten an overall result of 100 points.
While the game promises long term gains that are much higher when cooperating than when playing on your own, the fact that in the short run the gain of one person can be quite high on the expense of the others is very tempting. That is actually the prisonner's dilemma of game theory.
The person playing on his/her own will not be able to do that repeatedly, since trust will be lost. This game shows how important trust is when negotiation as a group. And also how easily trust can be lost and diffically built up again.
How do we build trust?
I think we build trust by doing what we announce to do. By doing so the other person knows what to expect and that he/she can rely on what is said. A measure to build trust in this game would have been to take away all the X cards so that every one could be sure that the others would really play Y.
How to repair trust?
Repairing trust is much more difficult. I think the person who abused the trust before needs to make a great effort and repeatedly demonstrate that he/she can be trusted again. However when negotiation the lack of trust can be very costly.
Montag, 30. Oktober 2017
The Cinnamon Game
The today’s role play was about the purchase of quality cinnamon used for the production of baby food by a well known enterprise. I was the owner of the enterprise producing the baby food and was negotiation with Frederic, the owner of Mahek Masala selling 1000 kg of quality cinnamon.
Facts known to me in advance:
my reservation price: 600 Rs/kg
my BATNA: buy only 70% of the high quality cinnamon from Mahek Masala
my perceived ZOPA between 380 and 600 Rs / kg
With this information and the aim of negotiating the lowest possible purchase price I entered the negotiation. However I had no idea about Frederik’s price nor if there were other buyers in the game.
3-4 rounds of negotiation
Frederik made the first offer proposing 550 Rs arguing that this his cinnamon was of very good quality and that it would fit well with my company which has a good reputation too. Also he told me that he knew about the trouble we had with the government because of recent quality issues. I did not feel good about him knowing that, it actually was weakening my position. I told him that precisely to address this issue we were seeking to work with him, however that the price he proposed was too high. He also revealed that he had another possible buyer offering 390 Rs.
Before making him a counter offer I told him about the deal we’ve just made with the government that is supplying baby food to the government-run children’s homes and that this would give him a great publicity and reputation at the government too if he was supplying the cinnamon for our baby food. I did not mention the fact that I delivered them free of charge in order to be able to get the subsidy. Based on these arguments I told him that I would offer him the same as the other possible buyer. At that moment tough I was not sure if such a buyer actually existed and if this was the price he would really get. But for me 390 Rs would still be a good deal.
Frederik refused my proposal of 390 Rs. He knew about the 10% government subsidy and made an offer of 450 Rs claiming that with the subsidy my actual costs were around the price that I had proposed before, the 390 Rs. He was undoubtedly right about this, even more given that my actual subsidy was 27% and not 10% but he did not know that and I had no intention to let him know. Further he informed me about the fact that the price of the 2nd best cinnamon was around 320 Rs. He was saying that the price gap between the best and the second best cinnamon needs to be higher in order to stimulate the market. Honestly, I don’t remember what the point was of this argument of his.
Anyway, 450 Rs would have already been not too bad of a deal for me but I wanted to know if I could lower it a bit more. So I offered 430 Rs and told him that as he might know we had a good reputation for being very prompt in our payments and that I would pay him by the end of the month. Since I thought he would maybe propose 440 Rs I added that we were interested in a long term partnership as we are keen to keep quality standards high and because we plan to increase our manufacturing capacity in the future. He then agreed on 430 Rs.
I felt very satisfied about the outcome. And I think Fredrik was happy too. However, I would have liked to ask more questions. Instead, I was mostly arguing and trying to have the better arguments in order to convince him to accept a lower price. At some point I thought of introducing the argument that I would only buy 70% of his stock but then again the price was not too bad for me so I decided to go for the whole amount of 1000 kg. Only when debriefing I found out that the other possible buyer would only have bought 70% of the cinnamon. So my negoiation power could actually have been stronger, given that his BATNA was worse than I tought.
This negotiation went much better then the one last week. We were negotiation during more rounds and I had the impression that the arguments were more well-grounded.
Facts known to me in advance:
- Our company’s image was damaged after the government had discovered some quality issue with one of our drug formulations
- The government announces a price subsidy of 10% for manufacturers of baby foods using high quality cinnamon
- Mahek Masala has 1000 kg of high quality cinnamon on sale and we estimate a price of 380 Rs per kg. The seller has no idea of my estimation
- An alternative supplier is offering cinnamon of lower quality than Masala’s for a price of 310 Rs per kg
- Using 70% of the high quality cinnamon and 30% of the alternative cinnamon would still meet the government’s standards in order to get the subsidy.
- Our company agrees on a deal with the government: we provide baby food to government-run children’s homes free of cost in return for an additional 17% of subsidy (so a total subsidy of 27% on production)
- Given that this a great opportunity for our company and that this way we can go ahead with the planning of increasing the the manufacturing capacity our reservation price is 600 Rs per kg. That way we would still make of profit 230 Rs par kg.
my reservation price: 600 Rs/kg
my BATNA: buy only 70% of the high quality cinnamon from Mahek Masala
my perceived ZOPA between 380 and 600 Rs / kg
With this information and the aim of negotiating the lowest possible purchase price I entered the negotiation. However I had no idea about Frederik’s price nor if there were other buyers in the game.
3-4 rounds of negotiation
Frederik made the first offer proposing 550 Rs arguing that this his cinnamon was of very good quality and that it would fit well with my company which has a good reputation too. Also he told me that he knew about the trouble we had with the government because of recent quality issues. I did not feel good about him knowing that, it actually was weakening my position. I told him that precisely to address this issue we were seeking to work with him, however that the price he proposed was too high. He also revealed that he had another possible buyer offering 390 Rs.
Before making him a counter offer I told him about the deal we’ve just made with the government that is supplying baby food to the government-run children’s homes and that this would give him a great publicity and reputation at the government too if he was supplying the cinnamon for our baby food. I did not mention the fact that I delivered them free of charge in order to be able to get the subsidy. Based on these arguments I told him that I would offer him the same as the other possible buyer. At that moment tough I was not sure if such a buyer actually existed and if this was the price he would really get. But for me 390 Rs would still be a good deal.
Frederik refused my proposal of 390 Rs. He knew about the 10% government subsidy and made an offer of 450 Rs claiming that with the subsidy my actual costs were around the price that I had proposed before, the 390 Rs. He was undoubtedly right about this, even more given that my actual subsidy was 27% and not 10% but he did not know that and I had no intention to let him know. Further he informed me about the fact that the price of the 2nd best cinnamon was around 320 Rs. He was saying that the price gap between the best and the second best cinnamon needs to be higher in order to stimulate the market. Honestly, I don’t remember what the point was of this argument of his.
Anyway, 450 Rs would have already been not too bad of a deal for me but I wanted to know if I could lower it a bit more. So I offered 430 Rs and told him that as he might know we had a good reputation for being very prompt in our payments and that I would pay him by the end of the month. Since I thought he would maybe propose 440 Rs I added that we were interested in a long term partnership as we are keen to keep quality standards high and because we plan to increase our manufacturing capacity in the future. He then agreed on 430 Rs.
I felt very satisfied about the outcome. And I think Fredrik was happy too. However, I would have liked to ask more questions. Instead, I was mostly arguing and trying to have the better arguments in order to convince him to accept a lower price. At some point I thought of introducing the argument that I would only buy 70% of his stock but then again the price was not too bad for me so I decided to go for the whole amount of 1000 kg. Only when debriefing I found out that the other possible buyer would only have bought 70% of the cinnamon. So my negoiation power could actually have been stronger, given that his BATNA was worse than I tought.
This negotiation went much better then the one last week. We were negotiation during more rounds and I had the impression that the arguments were more well-grounded.
Sonntag, 22. Oktober 2017
Summary of Negotiation Analysis: An Introduction
For sucessful negotiation it is important to be well prepared and to develop a coherent strategic framework analyzing a very different sets of issues. There are seven basic questions that anyone should ask before entering a negotiation:
1. BATNAs: What will the respective parties do if they don’t come to agreement?
The BATNA is your Best Alternative To a Negotiated Agreement, it is what one will do if agreement is not reached. The concept sounds simple but its application can be difficult. Your BATNA is your preferred course of action which does not only depend on what you could get from a competing bidder but also it depends on other factors such as ease of consummating the deal, time pressure, relationships etc. Walkaways should thus take into account all of your various interests.
A rigid bottom line can be dangerous. Firstly because it could lead you to a result close to your minimum and secondly it can blind you to creative solutions (for example favorable interest rates). The power of creative alternatives and weighing their relative value should not be underestimated. Common failure when evaluating BATNAs include over-optimism, particularly in in lawsuits when both parties feel they are in the right.
Only by considering the perceived BATNAs of both the potential buyer and seller one can see if agreement is really possible. The bargaining range is then called the zone of possible agreement, short ZOPA. Any price within the ZOPA leaves both parties better off than to walkaway. However, there is no correct figure or equilibrium. Single-issue negotiations (such as those over price) are often called „distributive“ because the gain of one party is a corresponding loss for the other.
In practice it is hard to know the other party’s BATNA. Such information is almost always incomplete and subject to interpretation. The familiar dance of offers and counteroffers is a way of simultaneously testing the true dimensions of the ZOPA.
Determining BATNAs and walkaways is a cornerstone of negotiation analysis.
2. PARTIES: Who are the real parties in the negotiation?
This might seem evident, however, there may be influential players who are not immediately visible at the bargaining table. A familiar example is the case of buying a new car. Consumer negotiate with the salesman who will have to have the deal approved by the manager. The manager is distant and intimidating which leads to an asymmetry in favor of the dealer.
Identifying the real parties is very important as it can redefine the whole endeavour. It might rise other important questions and can expose potential pitfalls and opportunities. For example: Are we talking to the right person? Would getting the support of party A increase or decrease the subsequent chances of getting party B on board? Instead of passively reacting to whatever deals happen to arise, negotiators can instead shape the environment in order to foster opportunities that best serve their needs.
3. INTERESTS: What are their fundamental needs and priorities?
Even if the only interest was financial, getting the highest nominal price might not net the most money. Careful deal structuring might for example legitimately reduce tax obligations. Moreover, balancing near-term needs for liquidity for example against long-term capital appreciation might be wise. Another important point for the buyer for instance might be timing.
Identify underlying interests therefore is crucial. If negotiators lose sight of their interests or misstate them, they have little chance of maximizing the potential value of their deals. On needs to keep in mind to focus on interest, not position.
Assessing interests is important before and during negotiation and even at the end when agreements are being redefined and implemented. Interests can evolve and strategy should therefore adapt to changing goals and circumstances.
4. VALUE: How can value be created - and who il likely to get it?
The potential for value-creation ultimately depends on how the other paries’ interests compare with your own. While the difference in valuation sometimes foreclose one particular deal, it can open the opportunity for another. Differences are the core for value creation in negotiation and often there are more issues at stake than simply price. That means more dimensions on which the parties can differ, and hence, enhance value. Value is generated in negotiations by capitalizing on differences, not necessarily by finding common ground.
Some key negotiation lessons from the two-dimensional ZOPA:
Only then parties can identify a range of items and issues that can be crafted into a package that maximises benefit. This process should be continued until a point is reached where one party’s well-being cannot be further improved without hurting the other’s. Such a point is called „Pareto optimal“.
5. BARRIERS: What obstacles might prevent agreement (or the maximization of joint value) and how can they be overcome?
The existence of ZOPA and the opportunities for joint gain do not guarantee agreement. There are several barriers standing in the way:
The bargaining power is not simply the strength or weakness of your BATNA. Power sometimes turns upside down in negotiation and people in a position where they have little to lose can be hard to negotiate with.
It is useful to identify ways in which you can favorably change the basic architecture of a negotiation. That could involve redefining the set of parties or setting deadlines. Another way could be to attack the other party’s BATNA and trying to worsen the consequences of refusing your offer. Caution however, because such attacks invite retaliation, especially if the other party would lose face by backing down publicly.
Bargaining power is a manifestation of complex situational factors, but it also is a matter of perception. Moreover it is a reflection of both knowledge and skill. Skillful negotiations make the very best of whatever hand they are dealt.
7. ETHICS: What is the right thing to do?
Negotiation involves other people and organizations and thus principles to guide how to behave towards them. There are five categories that negotiations should address in order to act responsibly.
RECAP
1. BATNAs: What will the respective parties do if they don’t come to agreement?
The BATNA is your Best Alternative To a Negotiated Agreement, it is what one will do if agreement is not reached. The concept sounds simple but its application can be difficult. Your BATNA is your preferred course of action which does not only depend on what you could get from a competing bidder but also it depends on other factors such as ease of consummating the deal, time pressure, relationships etc. Walkaways should thus take into account all of your various interests.
A rigid bottom line can be dangerous. Firstly because it could lead you to a result close to your minimum and secondly it can blind you to creative solutions (for example favorable interest rates). The power of creative alternatives and weighing their relative value should not be underestimated. Common failure when evaluating BATNAs include over-optimism, particularly in in lawsuits when both parties feel they are in the right.
Only by considering the perceived BATNAs of both the potential buyer and seller one can see if agreement is really possible. The bargaining range is then called the zone of possible agreement, short ZOPA. Any price within the ZOPA leaves both parties better off than to walkaway. However, there is no correct figure or equilibrium. Single-issue negotiations (such as those over price) are often called „distributive“ because the gain of one party is a corresponding loss for the other.
In practice it is hard to know the other party’s BATNA. Such information is almost always incomplete and subject to interpretation. The familiar dance of offers and counteroffers is a way of simultaneously testing the true dimensions of the ZOPA.
Determining BATNAs and walkaways is a cornerstone of negotiation analysis.
2. PARTIES: Who are the real parties in the negotiation?
This might seem evident, however, there may be influential players who are not immediately visible at the bargaining table. A familiar example is the case of buying a new car. Consumer negotiate with the salesman who will have to have the deal approved by the manager. The manager is distant and intimidating which leads to an asymmetry in favor of the dealer.
Identifying the real parties is very important as it can redefine the whole endeavour. It might rise other important questions and can expose potential pitfalls and opportunities. For example: Are we talking to the right person? Would getting the support of party A increase or decrease the subsequent chances of getting party B on board? Instead of passively reacting to whatever deals happen to arise, negotiators can instead shape the environment in order to foster opportunities that best serve their needs.
3. INTERESTS: What are their fundamental needs and priorities?
Even if the only interest was financial, getting the highest nominal price might not net the most money. Careful deal structuring might for example legitimately reduce tax obligations. Moreover, balancing near-term needs for liquidity for example against long-term capital appreciation might be wise. Another important point for the buyer for instance might be timing.
Identify underlying interests therefore is crucial. If negotiators lose sight of their interests or misstate them, they have little chance of maximizing the potential value of their deals. On needs to keep in mind to focus on interest, not position.
Assessing interests is important before and during negotiation and even at the end when agreements are being redefined and implemented. Interests can evolve and strategy should therefore adapt to changing goals and circumstances.
4. VALUE: How can value be created - and who il likely to get it?
The potential for value-creation ultimately depends on how the other paries’ interests compare with your own. While the difference in valuation sometimes foreclose one particular deal, it can open the opportunity for another. Differences are the core for value creation in negotiation and often there are more issues at stake than simply price. That means more dimensions on which the parties can differ, and hence, enhance value. Value is generated in negotiations by capitalizing on differences, not necessarily by finding common ground.
Some key negotiation lessons from the two-dimensional ZOPA:
- It is possible to reach agreements that create gain for both parties
- The creation of mutual gains does not necessarily mean that they will be evenly divided. Most or all of the gain may go to one party
- Expanding the pie and dividing it are part of the same process
Only then parties can identify a range of items and issues that can be crafted into a package that maximises benefit. This process should be continued until a point is reached where one party’s well-being cannot be further improved without hurting the other’s. Such a point is called „Pareto optimal“.
5. BARRIERS: What obstacles might prevent agreement (or the maximization of joint value) and how can they be overcome?
The existence of ZOPA and the opportunities for joint gain do not guarantee agreement. There are several barriers standing in the way:
- Strategic behaviour: too hard bargaining which in the end make both parties lose a potentially desirable deal. The same can occur for value-creating opportunities. Drawing a firm line on what is acceptable may increase your chances of getting a fair share of value, but involves the risk that your demand will exceed what the other party is willing to accept.
- Psychological or interpersonal barriers: Parties can lack trust or have trouble communicating. Also, emotions can run high in negotiations and issues of perceived power and status may come into play. Feelings can easily escalate to a point where people lose sight of their substantive objectives. These obstacles can largely addressed through skillful management of the negotiation process itself.
- Institutional obstacles: such as need for policy back at corporate headquarters or legal constraints. Overcoming these barriers may require crafting new policies which turn out to be the catalyst for broader innovations in deal making and dispute resolution.
The bargaining power is not simply the strength or weakness of your BATNA. Power sometimes turns upside down in negotiation and people in a position where they have little to lose can be hard to negotiate with.
It is useful to identify ways in which you can favorably change the basic architecture of a negotiation. That could involve redefining the set of parties or setting deadlines. Another way could be to attack the other party’s BATNA and trying to worsen the consequences of refusing your offer. Caution however, because such attacks invite retaliation, especially if the other party would lose face by backing down publicly.
Bargaining power is a manifestation of complex situational factors, but it also is a matter of perception. Moreover it is a reflection of both knowledge and skill. Skillful negotiations make the very best of whatever hand they are dealt.
7. ETHICS: What is the right thing to do?
Negotiation involves other people and organizations and thus principles to guide how to behave towards them. There are five categories that negotiations should address in order to act responsibly.
- Candor: What do negotiators owe the other parties in the way of candor? When for example asked what your walkaway price is, there are morally valid reasons to evade answering such a question directly. There may be a valid distinction between overt misstatements and mere silence.
- Fairness: A set of moral questions relate to the equity of agreements that are reached, about distributional fairness. There exist different points of view from „buyer beware“ over „everyone looks after his or her own wellbeing“ to „no one should get rich ont other people’s expense“.
- Force: Another set of moral issues include the potential use of force in negotiation. While it is commonly accepted that the use of physical force is wrong, what about economic pressure? Popular opinion is very inconsistent on such issues. It is helpful to consider whether the parties have plausible alternatives. Another factor my be what responsibility a person bears for putting himself or herself in a apposition of need.
- Impact on bystanders: This argument is close to the fairness issue, but with the difference that not all of the impacted parties are at the table.
- Principal-agents conflict: Difficult moral issues might arise when one is negotiation on behalf of others. Must individuals abandon their own personal values and standards when they accept corporate jobs?
RECAP
- Effective negotiation requires a coherent framework linking means and ends
- Identify BATNAs and fundamental interests as the source of potential value-creating trades
- Recognizing possible barriers and rearrange them in advance if possible
- Develop a conceptual framework
- Strategy must be implemented with skill and insight
- The ability to listen and persuade as well as patience are highly valuable
- Success also contingent on your counterparts’ attitudes and creativity ability.
- Your own negotiation strategy should encourage constructive behavior from other people with whom you will deal
Dienstag, 10. Oktober 2017
Role Play Salt Harbour
The issue: There were two parties negotiating about a piece of land in the picturesque sea side village of Salt Harbor. Party one is Brims, a coffee shop chain who wants to open a store in Salt Harbor and party two is Easterly. I was representing Easterly, a successful bed-and-breakfast inn located just next to the piece of land in question. If there were something built on it, this would block the view for our guests and in consequence the inn would significantly lose value. The other option to negotiation is going to court. However, according to our lawyers our chances to win the case and to stop the building of a house is only a bit higher than 50% and moreover legal costs would at least be $25.000.
Info known to me:
The fact that I made the first offer was maybe not very beneficial for me since that way the other party got an idea on my negotiation possibilities immediately, while I didn’t. On the other hand my first offer was much lower of what I was expecting and willing to pay.
Recap: Recapping the negotiation after de deal was closed, I learned that Brims’ reservation price was getting at least $110.000 out of the deal and my walk-away price was paying $350.000 at most. So we hat a large zone of possible agreement (ZOPA). The middle would have been $220.000, we were not far from it. However we had too few discussion and rounds of negotiation in order to find out the other party’s reservation price and to understand where I’m at.
Lessons learnt from this role play
Info known to me:
- Brims paid $100.000 for the piece of land in question.
- After my estimations, Brims could get a comparable site in the village of Salt Harbor for $200.000
- The value of the inn diminishes by $350.000 (plus minus 10%) when something is built on the piece of land in question
- Legal costs would be at least $25.000 with a chance of winning of only about 50%
- My first offer will be: $100.000 (the price for which they bought the land)
- The very best price I realistically hope for: $150.000-$200.000
- My walk-away price is $350.000 (the possible loss of value of the inn)
- My BATNA: going to court (bad BATNA, since outcome of a lawsuit are very unknown)
- Target: buying the land
- I made the first offer of $100.000, which Marina, the other party, denied.
- We discussed that a more central location in the village would be more beneficial for Brims and that the view is important for my inn. Marina revealed to me that she had to pay more than $100.000 for the piece of land she bought and taken into consideration that paying for the land plus the difference between the two possible pieces of land for her coffee shop would result in an amount of $200.000 approximately, I decided to offer her $200.000.
- We finally agreed on the $200.000 plus the agreement that Brims would become the coffee supplier of our inn (even if this was not hors-sujet of the instructions of this game).
The fact that I made the first offer was maybe not very beneficial for me since that way the other party got an idea on my negotiation possibilities immediately, while I didn’t. On the other hand my first offer was much lower of what I was expecting and willing to pay.
Recap: Recapping the negotiation after de deal was closed, I learned that Brims’ reservation price was getting at least $110.000 out of the deal and my walk-away price was paying $350.000 at most. So we hat a large zone of possible agreement (ZOPA). The middle would have been $220.000, we were not far from it. However we had too few discussion and rounds of negotiation in order to find out the other party’s reservation price and to understand where I’m at.
Lessons learnt from this role play
- Being surprised by the amount proposed and to react surprised is not good. You should always remain cold during negotiations. If the amount put forward surprises you it’s probably because your calculations are wrong.
- Ask questions in order to try to find out the reservation price of the other party.
- The good price is around the middle of the ZOPA
- You represent a company that wants to make profit, so you are not going to sell for less if you can have more.
Freitag, 6. Oktober 2017
Summary of the Key Concepts of Negotiations
People negotiate only when they believe it is to their advantage to do so. A successful negotiation must have a fundamental framework based on knowing the following four concepts:
Know your BATNA
Weak BATNA: then you’re in a weak bargaining position and it is difficult to reject any proposal. If moreover the other party knows you have a weak BATNA, you have very little power to negotiate.
Improving your position:
Applying your BATNA it is not that simple: most negotiations involve many variables, some of which cannot be quantified or compared. To make it easier you can sign a monetary value to the various features. However price is not always the focal point of negotiated deals, qualitative issues also matter.
Know your Reservation Price
The reservation price, also called walk-away, is the least favorable point at which one will accept the deal. It should be derived from your BATNA. However, there might be a difference between the BATNA and your reservation price if the two options do not have the same features.
Know your ZOPA
The zone of possible agreement is the range in which a deal that satisfies both parties can take place. It’s the set of agreements that potentially satisfy both parties. The reservation prices of the two parties define the two ends of the zone. It might be that there is no ZOPA at all, then no deal will be concluded. In such a case, thanks to information sharing there might be the possibility that other elements will be considered, which will create value in integrative negotiations (see next point).
Value Creation Through Trades
Parties can improve their positions by trading the values at their disposal, that occurs in the context of integrated negotiations. Each party gets something it wants in return for something it values much less. It’s about creating value, not only about claiming it. By trading these values the parties lose little but gain greatly.
Examples: for supplier: extended delivery period; for a customer: three months of free repair services if needed; for another department in your company: two high-powered workstations that your people rarely if ever use; for an employee: the opportunity to work from a home office.
Know your BATNA
- BATNA = best alternative to a negotiated agreement, thus the preferred course of action in the absence of a deal.
- Always know your BATNA before entering into any negotiation, otherwise you don’t know whether a deal makes sense or when to walk away.
- Your BATNA determines the point at which you can say no to an unfavorable proposal.
Weak BATNA: then you’re in a weak bargaining position and it is difficult to reject any proposal. If moreover the other party knows you have a weak BATNA, you have very little power to negotiate.
Improving your position:
- Improve your BATNA: Anything that can be done to improve your BATNA will strengthen your negotiation position, try to improve your alternative to the max. Let the other side discreetly know that you’re negotiating from a strong position.
- Identify the other side’s BATNA: that way you know how far you can go. It its alternative to a deal strong or weak relative to yours? How can you know the other party’s BATNA? By asking questions during the negotiation, contacting sources within the industry, checking potentially relevant business publications, reviewing annal reports, asking questions informally of the negotiator or others in the company, imagining what your interests, needs and preferences would be if you were in their position. Get as much information about them as you can!
- Weaken the other party’s BATNA: Anything that weakens the other side’s alternative to a deal will improve your relative position.
Applying your BATNA it is not that simple: most negotiations involve many variables, some of which cannot be quantified or compared. To make it easier you can sign a monetary value to the various features. However price is not always the focal point of negotiated deals, qualitative issues also matter.
Know your Reservation Price
The reservation price, also called walk-away, is the least favorable point at which one will accept the deal. It should be derived from your BATNA. However, there might be a difference between the BATNA and your reservation price if the two options do not have the same features.
Know your ZOPA
The zone of possible agreement is the range in which a deal that satisfies both parties can take place. It’s the set of agreements that potentially satisfy both parties. The reservation prices of the two parties define the two ends of the zone. It might be that there is no ZOPA at all, then no deal will be concluded. In such a case, thanks to information sharing there might be the possibility that other elements will be considered, which will create value in integrative negotiations (see next point).
Value Creation Through Trades
Parties can improve their positions by trading the values at their disposal, that occurs in the context of integrated negotiations. Each party gets something it wants in return for something it values much less. It’s about creating value, not only about claiming it. By trading these values the parties lose little but gain greatly.
Examples: for supplier: extended delivery period; for a customer: three months of free repair services if needed; for another department in your company: two high-powered workstations that your people rarely if ever use; for an employee: the opportunity to work from a home office.
Donnerstag, 5. Oktober 2017
Two Dollar Game - Round 2
In the second round of the two dollar game there was no amount given that we were supposed to get. Instead each person had a role. Mine was a person who has a reputation to loose. I had to act fair, with decency and graciousness. When negotiating I had to bear in mind that my partner could make public everything I'd say. While negotiating I came up with the fact that I had a charity organization supporting the victimes of Mexico’s recent earthquake and that they needed the money more than us. Anasthassia however was in need of the money too, as she is living under the poverty line and has a child with allergies. She claimed she needed the money to buy food for her and her child. I repeated that the Mexicans were more in need of the money than we do. However this argument was getting weak when facing a person so deeply in need here (bearing in mind that I had a reputation to loose). I came up with the story, that I knew her parents and that I knew they would help her out any time. In the end we agreed on $1.30 for Mexico, $0.70 for Anasthassia plus dinner for her and her child at my house that evening.
Lessons learnt from round 2
Lessons learnt from round 2
- Enlarging the parameters: trying to make everyone happy by including other parameters. That’s the „if… then…“ technique.
- Instructions about trust and cooperation: if ever you meet someone super competitive you’ll become very competitive yourself. Unless you are a super big company you cannot be only competitive, you should also be cooperative to get somewhere.
- In every negotiation there are objective criteria and emotions involved: It’s never only about getting or supplying the product. It’s about people. Sometimes you face very competitive people and sometimes too cooperative people.
- Preparation is crucial.
Two Dollar Game - Round 1
In the first round of the two dollar game I was supposed to get $1.60 out of the negotiation, my partner Camille $1.30. We ended up with a deal of 1$ each. I tried to argue for the fact that she owed me money but it was not that easy and she countered every of my arguments immediately. We both tried to come up with arguments why we needed the money more urgently. She proposed to split, I rejected the idea whereon she blackmailed me saying that she would denounce me at the police. With that threat I ended up giving in and we each took 1$. Analysing this first round, I think one of my mistakes was that I came up with too many different arguments as I desperately tried to get as close to the $1.60 as possible.
Lessons learnt from round 1
Lessons learnt from round 1
- Always try to find a compromise: No compromise is worse than a negotiation that is not satisfying. A common mistake is to leave the money on the table.
- Only if you both leave the negotiation satisfied then it’s a good deal: If you or your partner feel bad after a negotiation then it was a bad negotiation for you. Because if ever you will negotiate again, the partner will be much tougher and more competitive and the partner will not believe what you say.
- The targets evolve during the negotiation: You might see that the figure you had in mind will not be feasible. An anchor needs to be defined before negotiation. It’s not about playing it nice but about playing it wise.
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