The Role of Bargaining Strength in Negotiation PDF

The Role of Bargaining Strength in Negotiation Paul W. Fulbright, MBA, JD, LLM Assistant Professor of Business Law © 2018-2025 Law Office of Paul W. Fulbright, PLLC  Overvie w 1. HOW do Increas weour BARGAINING e STRENGTH in Negotiation? A Closer Look: Ba...

The Role of Bargaining Strength in Negotiation Paul W. Fulbright, MBA, JD, LLM Assistant Professor of Business Law © 2018-2025 Law Office of Paul W. Fulbright, PLLC  Overvie w 1. HOW do Increas weour BARGAINING e STRENGTH in Negotiation? A Closer Look: Bargaining Strength. 2 The BATNA v. The Market Value. Approach. Approach The Market Value Approach: An Example. 2  HOW do we increase our BARGAINING STRENGTH in a Negotiation? Let’s start with some terms… What IS “Bargaining Strength?” Def.: Bargaining Strength is: (a) the ability of a party (b) to achieve its desired terms (such as price) (c) in a negotiated agreement (d) due to situational factors (that is, factors other than its negotiation preparation and technique). Situational: Typically, if you are viewed as having greater “bargaining strength” than your counterparty, it is because you are in a situation in which you would be expected to be able to negotiate terms (such as price) that are closer to what you desire despite your counterparty’s desires for a different result. Surprise – Bargaining Strength is Often Dictated by Each Party’s “Plan B”: The bargaining strength of A and B are often dictated by the alternatives available to them. Actual v. Apparent (Perceived): You (Party A) might have greater bargaining strength than Party B and not even know it! Example: Acme Inc. is interviewing you for a job. You don’t know it, but Acme just learned that Ed Employee is quitting and he’s leaving in a week. Ed is a critical contributor to “Project Moonshot” and you’re the only candidate they’ve located to replace him. You don’t know it, but Acme is desperate. Acme has no  HOW do we increase our BARGAINING STRENGTH in a Negotiation? The negotiator’s vocabulary… Party: A contract is typically entered into by 2 or more persons or companies (often called “A” and “B” or “Party A” and “Party B”). These players are called the “parties”. Each one is called a “party”. Counterparty: As stated above, both you and the company on the other side of the table (opposing you on the other side of the negotiation) are “parties”. However, we also sometimes call the individual or company on the other side of the table (opposing you on the other side of the negotiation) your “counterparty”. Third Parties: Also, sometimes, in contracts, you are referred to as the “first party”, your counterparty is referred to as the “second party”, and all other people and companies outside the contract (not signing the contract) are referred to as “third parties”. You are Dick’s Sporting Goods. You’re a “party”. You’re the “first party” in the negotiation. You’re in a negotiation now with Nike, a potential supplier of athletic shoes. Nike is also YOU and NIKE are negotiating 4  HOW do we increase our BARGAINING STRENGTH in a Negotiation? The Key Determinant of Your Bargaining Strength: Your BATNA. You BATN is your “Best Alternative to Negotiated r WhatA willAgreement”. you do if you are unable to reach agreement?: You should think long and hard about this question. Many beginning negotiators find it uncomfortable to imagine the deal not getting done. Another problem: Sometimes it IS hard to come up with a good “Plan B”. However, the SINGLE GREATEST THING you can do to strengthen your hand in a negotiation is to develop (improve) your BATNA (your “Plan B”) and (most preferably) to do it BEFORE the negotiation even begins. Example #1 – Job Offer: Sam & Sabrina are unemployed. Each interviews with Beta Corp. Sam has no other offers in hand and no other interviews scheduled. Sabrina has received offers from Gamma and Delta last week, and the offer from Gamma is a really good one. Which person will be in the best position psychologically during their negotiations with Beta? Clearly, Sabrina will. If the offer from Beta is only fair, Sabrina will feel comfortable proposing a counter-offer, because she can always  A Closer Bargaining Look: Strength. The Key Determinant of Your Bargaining Strength: Your BATNA. Your BATNA isA your Definition: BATNA“Best the Alternative o one or to Negotiated genuine availabl to Agreement”. is party if it is unable to best secure f amore negotiatedalternatives e agreement. It is occasionallya referred to as a party’s “Plan B” (with the negotiated agreement being “Plan A”). Example #2 – Painting Job: Both Benny and Bob need their offices painted. Benny is meeting with Shelby (a local painter) at 1 pm. Bob is meeting with Shelby at 3 pm. Benny has already obtained bids from 2 other painters (bids: $2,000; $2,400). Bob hasn’t obtained any other bids. In fact, he has no idea how much the job would / should cost. Which person, Benny or Bob, will be in the best position during his negotiations with Shelby? Clearly, Benny will. If Shelby tenders a $3,000 bid, Benny can press him to explain why his bid is “high”. Benny doesn’t need to disclose his other bids to Shelby, but he could do so if he wanted to (if he thought it might further pressure Shelby to lower his bid). Bob will likely be negotiating “in the dark” compared to Benny. Trivia: In the negotiation literature, it’s common for the hypothetical party have “Sam paying theSeller” negotiating cash to be given awith name“Bob Buyer” with beginning (or just “B”Shelby (as the buyer) and 6for  The BATNA Approach v. The Market Value Approach The BATNA Approach v. The “Market Value” Approach The BATNA : The BATNA approach to negotiation is based on trying to Approach best value relative obtain to a theparty’s. possible The “Market Value” BATNA : The “market value” approach is based on trying to Approach best value relative to the obtain “market the value” of being possible Def.: The “fair the itemvalue” of an item is usually defined market negotiated. as the average value that an item would command under then-existing market conditions after an ordinary-course fair negotiation between a willing seller and a willing buyer. Only God knows the “TRUE” FMV. Every other FMV you hear about is an Estimated FMV. It may be accurate. It may not. Approach ALL Estimated FMVs with caution and skepticism. “Fair Market Value” approaches are common, but they do not work as consistently well, or in as many different situations, as the BATNA Approach. Warning: Over-Reliance on the “Market Value” Approach: The “Market Value” Approach explains the outcome of many negotiations that occur in ordinary-course negotiations that are not affected by time or unusual circumstances. The danger is always using in When the “Fair Market Novice hearsValue” (“FMV”) a FMV: (S)heApproach, evenI in thinks, “Well, time-limited guess or that’s the unusual a situations where it can lead to bad outcomes. When Negotiator Experienced price.” hears a FMV: (S)he thinks, “I Can Beat 7  BATNA v. Market Value: An Example. The BATNA Approach v. The “Market Value” Approach Example #3 – Used Car: Ben negotiates a possible purchase of Sam’s used car. A search reveals many cars of the same make, model, mileage, and condition selling for (a Fair Market Value (FMV) of) approximately $7,500. Neither Sam nor Ben are in a rush. Result: If both are typical (untrained) negotiators, and neither is rushed / otherwise pressured, Sam will find it difficult to sell his car for much more than $7,500, and Ben will find it difficult to convince Sam to sell it for much less than $7,500. The deal will likely close near this value. Example #4 – Used Car: Same facts as above, except that Sam is moving to Iowa in one week where the car has a FMV of $6,000. If he sells it this week in Texas, he can likely get approx. $7,500. If he sells it next week in Iowa, he can likely get only $6,000. Result: If Sam avoids disclosing his need to sell quickly, he may be able to close near $7,500. However, let’s say that, after several offers & counteroffers, Ben makes a final offer of $7,000. Sam should be careful about rejecting this offer based onsold only FMV.8Yes, cars,the heoffer mightis quickly below FMV, but, agree to if a Sam lowerrejects it, he Price. On may Sep only obtain 5, however, $6,000 he’s week in Iowa. In this time-sensitive case, Sam should consider basing his 8 nextagain. tough