Negotiation, Part 2

Last week, we spoke about negotiations as being the ultimate expression of communication skills. Entering into such a discussion is nothing to be taken lightly. Planning is the key to getting a good outcome, and there are four things that must be carefully thought through BEFORE you begin your talks if you plan to meet your objectives:

1) BATNA (Best Alternative to a Negotiated Agreement) – This term was developed by leaders of the Harvard Program for Negotiation and appears again in the book “Getting to Yes” by Roger Fisher and William Ury. It simply means “what are your options if you fail to reach an agreement”. Let’s take a simple example; a pending job offer. If you are exclusively considering salary, then your BATNA is you current job’s salary. That is, if you can’t come to an agreement on the offer, then your best alternative is to continue earning your current salary. You may see reasons why you should consider things other than salary (i.e., stability of your current job, length of commute, attractiveness of duties, benefits, etc.). We’ll cover those “alternative sources of value” at #4 below.

2) Reservation Price – This is the least value you’ll accept and still come to an agreement. Also called the “walk-away” price. This is sometimes the same as the BATNA IF price is the only consideration in the negotiation.

3) Zone of agreement – Remember that the other side has a BATNA and Reservation Price too. If your reservation and theirs overlap favorably, you have a Zone of Agreement. For example, you are willing to pay $55,000 for a friend’s boat and they are willing to take $50,000 IF you can take possession tomorrow (or if you buy it “as is” or if you also assume their contract for dock rental). You have to decide the relative value of paying $55,000 for the boat only vs. the risk of the “as is” clause or the potential exposure of the dock rental contract.

4) Alternative Value Sources – Last week, we spoke about the advantages of integrative negotiations. Those were negotiations in which we introduced creative ways to add value in order to end with a “win-win” agreement. In #1 above, we spoke about some of the alternative value sources that accompany job changes; in #3 above, some alternative value sources that could accompany a boat purchase.

The BATNA is your understanding of what you’ll do if the deal doesn’t materialize. This is where negotiations begin to distinguish themselves as advocacy rather than collaboration. You would NOT want your counterpart to know what your BATNA is (unless it is very strong) and you would very much want to know what your counterpart’s BATNA is if you could be relatively sure that the information was sound. It is, therefore, very important to:

1) Develop the strongest BATNA you can.
2) Research to discover what your counterpart’s BATNA SHOULD be.
3) Think through what your counterpart probably thinks your BATNA is.

This speculation about BATNA should be done with great caution because it has been demonstrated many times in various studies that it is difficult to estimate your counterpart’s BATNA objectively. When supplied with identical balance sheets, business information, and income statements, negotiators that want to BUY something tend to estimate its value to be low, while those SELLING it will estimate its value as high. This is true even in studies when the parties are instructed to ignore who will be buying and who will be selling. Disinterested (neutral) control groups in the same studies will set the value in-between.

The Reservation Price is derived from the BATNA and these may be the same if price is the only consideration. More on this in the example below.

The Zone of Agreement is easy to see. If you are buying and I am selling, and you are willing to pay a price higher than my reservation price, there is a zone of agreement. If that situation is reversed, and there is a GAP between our reservation prices, then there is no amount of negotiation that will achieve our objective UNLESS we can find alternative sources of value that “sweeten the deal” for both of us. Alternative sources of value are usually things that are more valuable to one party than the other.

EXAMPLE: Let’s say I am an amateur book collector and so are you. I have a book by William F. Buckley that is worth $100 to most collectors if they can find a copy in good condition like mine. I have no other way to set the price except by its usual value (also called comparable value or “comp value”), and offer it for sale at $100. You indicate to me that you would like to buy it. If price is the only important detail, then we can make a deal now. But let’s say I discover that you have a collection of books by Buckley and that this one completes your collection. I might rightly decide that it is worth MORE to you than other collectors because a complete collection is worth more than a partial one. That is the value of me knowing your BATNA; it’s not just about the book for you, it is about the COLLECTION. So I reset my price at $200. Let’s say that you know that I especially love first editions and you have one by Sir Arthur Conan Doyle. I might see that as such a desirable thing that I would offer a straight trade with no cash exchange at all. That is an example of you exploiting an alternative source of value; my love for first editions blinds me and I am willing to give you something you value very much that I don’t really care about in exchange for something I value highly that means relatively little to you. A good deal for both of us and an example of “win-win”.

Insist on great business results! Go to Pathfinder Communication