OBS220 Chapter 2 Negotiations Tutorial Slides PDF

4 OCTOBER 2024 TUTORIAL - OBS220 Chapter 2 Negotiations  EXERCISE SHED ALERT Markos Vinchezo wants to sell his Portable Shed inclusive of all his equipment. He still owes R 50 000 on the payment of the shed. He wou...

4 OCTOBER 2024 TUTORIAL - OBS220 Chapter 2 Negotiations  EXERCISE SHED ALERT Markos Vinchezo wants to sell his Portable Shed inclusive of all his equipment. He still owes R 50 000 on the payment of the shed. He would like to ultimately buy a food truck which costs R165 000. His cousin Alfredo has offered him R45 000 for the Shed. ABSA is willing to finance the Food truck for Markos for an amount of R140 000, provided, that he pays off his current debt on the Shed. Susan, a local entrepreneur, is interested in the shed and has R70 000 saved up and an offer from Standard Bank to finance any of her business requirements for up to R120 000. If Susan cannot buy the Shed, she will consider buying a container from Andile who is selling his current container for R100 000.  EXERCISE Markos has posted an advert for the Shed, in which he charged R140 000. Susan has offered Markos R 75 000 for shed. Markos has decided that if he cannot sell the shed, he will continue his food selling business from the Shed until he can pay off his debt. QUESTIONS 1. What is Marko’s target price? (1) 2. What is Susan’s target price? (1) 3. What is Marko’s reservation price? (2) 4. What is Susan’s reservation price? (2) 5. What is the bargaining zone? (2) 6. What is Marko’s BATNA? (1) 7. What is Susan’s BATNA? (1)  THEORY 1. Target Price (Easiest to calculate): This is the price the buyer or seller is aiming for in the negotiation. 2. Reservation Price (What they can AFFORD): For the seller, this is the lowest price they can accept and still have enough to buy a replacement item. For the buyer, it’s the highest price they can afford, factoring in both their savings and any debt they might take on. 4. Bargaining Zone: The range between the seller’s reservation price and the buyer’s reservation price. 3. BATNA (Best Alternative to a Negotiated Agreement): This is the best option available if the negotiation doesn't succeed. The keyword here is "BEST.”  EXERCISE SHED ALERT Markos Vinchezo wants to sell his Portable Shed inclusive of all his equipment. He still owes R 50 000 on the payment of the shed. He would like to ultimately buy a food truck which costs R165 000. His cousin Alfredo has offered him R45 000 for the Shed. ABSA is willing to finance the Food truck for Markos for an amount of R140 000, provided, that he pays off his current debt on the Shed. Susan, a local entrepreneur, is interested in the shed and has R70 000 saved up and an offer from Standard Bank to finance any of her business requirements for up to R120 000. If Susan cannot buy the Shed, she will consider buying a container from Andile who is selling his current container for R100 000.  EXERCISE Markos has posted an advert for the Shed, in which he charged R140 000. Susan has offered Markos R 75 000 for shed. Markos has decided that if he cannot sell the shed, he will continue his food selling business from the Shed until he can pay off his debt. QUESTIONS 1. What is Marko’s target price? (1) 2. What is Susan’s target price? (1) 3. What is Marko’s reservation price? (2) 4. What is Susan’s reservation price? (2) 5. What is the bargaining zone? (2) Between the answers of Q3 and Q4. 6. What is Marko’s BATNA? (1) 7. What is Susan’s BATNA? (1)  ANSWERS & EXPLANATION 1. Markos’s target price: R140 000 Target price is the ideal price the seller hopes to achieve. Markos posted an advert asking for R140 000 for the shed, indicating that this is his target price. 2. Susan’s target price: R75 000 Target price is the amount the buyer wants to pay. Susan offered R75 000 for the shed, which is her target price. 3. Markos’s reservation price: R75 000 Reservation price is the lowest price the seller is willing to accept. To calculate Markos’s reservation price, we need to consider his debt and financing needs: He owes R50 000 on the shed. ABSA is willing to finance R140 000 for the food truck, but only if he pays off his debt of R50 000. After paying the debt, the remaining value needed for the truck is R165 000 - R90 000 (R140 000 minus the R50 000 debt repayment), which equals R75 000. Therefore, Markos’s reservation price is R75 000.  ANSWERS & EXPLANATION 4. Susan’s reservation price: R190 000 Reservation price is the maximum amount the buyer is willing to pay. Susan has R70 000 in savings and Standard Bank is willing to finance up to R120 000. Together, this gives her R70 000 + R120 000 = R190 000, meaning her reservation price is R190 000. 5. Bargaining zone: Between R75 000 and R190 000 The bargaining zone is the overlap between the seller’s lowest acceptable price (reservation price) and the buyer’s highest acceptable price (reservation price). In this case, Markos’s reservation price is R75 000, and Susan’s reservation price is R190 000. Therefore, the bargaining zone is between R75 000 and R190 000. 6. Markos’s BATNA: Continuing his food selling business from the shed BATNA (Best Alternative to a Negotiated Agreement) is the next best option if the deal falls through. If Markos doesn’t sell the shed, his best alternative is to continue his food business from the shed until he can pay off his debt. This makes continuing his food business his BATNA.  ANSWERS & EXPLANATION 7. Susan’s BATNA: Buying the container from Andile Susan’s BATNA is to buy the container from Andile for R100 000 if she cannot reach a deal with Markos. Therefore, her BATNA is to buy the container. ANSWERS 1. What is Marko’s target price? (1) R140 000 2. What is Susan’s target price? (1) R75 000 3. What is Marko’s reservation price? (2) R75 000 4. What is Susan’s reservation price? (2) R190 000 5. What is the bargaining zone? (2) Between R75 000 and R190 000 6. What is Marko’s BATNA? (1) Marko’s BATNA is he will continue his food selling business from the shed. 7. What is Susan’s BATNA? (1) Susan’s BATNA is she will buy the container from Andile.  THANK YOU ALL THE BEST FOR YOUR SEMESTER TESTS!