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

• 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.

Strong BATNA: then you can negotiate for more favorable terms, knowing that you have something better to fall back on.
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. 

When you have no alternatives: In this case the other party can dictate the terms, you then are the deal taker and the other the deal maker. You must create alternatives. Think about which type of alternative would most strengthen your hand.

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.