10 Questions
What is the fixed pie bias in negotiation?
Assuming that one's gain must be at the expense of the other party
What is the primary goal of Principled Negotiation?
To create value for all parties involved
What is the BATNA in negotiation?
Best Alternative To a Negotiated Agreement
What is the purpose of asking 'Why?' in negotiation?
To explore the other party's interests and needs
What is the advantage of building trust in negotiation?
It increases the chances of reaching a mutually beneficial agreement
What is the concept of 'reservation price' in negotiation?
The maximum price a seller is willing to accept
What is the purpose of identifying transaction costs in negotiation?
To minimize the transaction costs
What is the benefit of shifting from single- to multi-issues in negotiation?
It increases the chances of reaching a mutually beneficial agreement
What is the purpose of asking 'What if?' in negotiation?
To explore creative solutions and possibilities
What is the role of the station manager in the context of sailing?
To sponsor the sailing trip
Study Notes
Reservation Point (RP)
- RP quantifies BATNA (Best Alternative to the Negotiated Agreement) within a deal
- RP = BATNA + Transaction Costs
- RP is the objective walk-away point, bottom line, or final price
- At RP, a negotiator is ambivalent between accepting the deal and going to BATNA
- If 1¢ above RP, it is rational to accept the deal
BATNA
- BATNA is the best alternative course of action if the negotiation fails
- BATNA is the "Plan B" or the fallback position
Distributive Strategies
- Aspiration Target: the best outcome you can imagine (even if unlikely)
- RP (Reservation Price): the bottom line or final price
- Transaction Costs: costs associated with walking away from the deal
- BATNA: the best alternative course of action if the negotiation fails
Structure of a Negotiation
- Distributive Bargaining: win/lose, single issue
- Integrative Bargaining: win/win, multiple issues
- Congruent Bargaining: identical preferences
Claiming Value (Distributive Bargaining)
- Claiming value is necessary in any negotiation
- Cues of a purely distributive negotiation: single issue, no future relationship, no side deals, and money is lump sum
Profits
- Profits = Net Above BATNA
- Net Above BATNA is the profit made above the best alternative course of action
Key Takeaways for Negotiation
- Beware of the fixed pie bias
- Shift from single- to multi-issues
- Build Trust
- Ask "Why?" and "What if?" to create value
- Principled Negotiation: responsible for creating value
Test your understanding of BATNA, Reservation Point, and their roles in negotiation strategies. Learn how to quantify and use them to make informed decisions. Practice your negotiation skills with this quiz!
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