Most people think negotiation is a one step process, which entails going into a discussion and getting the other side to agree (partly or wholly) to what you want. This could not be further from the truth. In fact, negotiation is a 4-step process, which involves planning your negotiation strategy, actual negotiation using appropriate tactics, closing the deal through a contract and lastly performing and evaluating the net result i.e. the outcome of the contract.
Planning the negotiating strategy is perhaps the most important and involves answering the below questions:
- What questions should I ask to complete my analysis?
- What are my BATNA (Best Alternative to Negotiated Agreement) and ZOPA (Zone for potential agreement)?
- How can I use a decision tree to complete my BATNA analysis?
It is important to establish the overall goal of reaching an agreement before actually sitting into a negotiation discussion. We need to identify the issues that are important and its importance with reference to identified objectives
Understanding the best alternative to a negotiated solution and reservation price, which is acceptable, are two vital points to note. Thereafter, we need to know the stretch goal, and the most likely price.
So how does this work? Lets take an example -assume that I want to sell off my existing car and buy a new one.
The car dealer is offering an exchange discount of INR 150,000. I feel that a well maintained car like mine couldget a price of INR 250,000 if I am able to connect with a genuine buyer directly (without involving a broker). The same is validated by prices quoted if I try to buy a similar car. Let’s say that broker charges 10% of the sales value as commission, and if I were to advertise online it would take some of my time and money that I estimate to be worth INR 10,000.
My overall goal is to sell the car, and issue important to me is the price since I would need to make a down payment for the new car.
My BATNA (Best Alternative to Negotiated Agreement) is INR 150,000 i.e. the price the car dealer is willing to offer.
My minimum reservation price is INR 161,000 in case of direct sale or INR 168,000 if a dealer is involved. My stretch price is INR 250,000 – anything more would impact my credibility as a genuine seller, and my most likely price would be around INR 200,000.
With this information at hand, I am ready to negotiate with any buyer, and my aim would be to discover his BATNA and reservation price i.e. the price mentioned above which he would walk away from the discussion. The price range between my reservation price and that of the other party would be the zone for potential agreement (ZOPA).
A decision tree eliminates bias by adopting a mathematical approach using probability of the likely outcomes and the net impact on the value attached to each outcome.
Tag: Strategic negotiation; negotiation tactics; BATNA, ZOPA