negotiation distributive bargaining (continued). distributive bargaining (recap) this type of...
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Distributive Bargaining (recap) This type of negotiation is called distributive bargaining. There is a fixed amount and you must negotiate.
Know when you’re in a distributive bargaining situation.
Gather information, develop BATNA
Make the first offer, be aggressive
Know your reservation point and DO NOT go beyond it.
Engage in tit-for-tat concession-making.
Anchors Set the tone in a negotiation
Can be a random number (e.g., used car activity) or based on some piece of information (e.g., Kelly blue book)
Does it have to be a reliable piece of information?
From Ch 3: How did Peter Ueberroth use anchoring to make the 1984 Olympics profitable?
Reference points
What do we do in the absence of credible reference points?
◦ 1984 Olympics◦ Japanese baseball players◦ Libel case
Key Concepts Best alternative to a negotiated agreement (BATNA) – aka “best outside option” or “plan b”
Reservation Point (RP) – indifference point◦ Your bottom-line, walking away point◦ Your BATNA +/- things that make you want this deal
Target price or aspiration point◦ Sometimes people have two: “optimistic” and “realistic” – could focus on one: “ambitious yet imaginable”
Zone of potential agreement (ZOPA) or bargaining zone◦ Space between two party’s RP’s; can be negative.
BATNA Pawn Shop (Buyer)
◦ BATNA is not buying the item ◦ But their business depends on buying/pawning and selling, so they want to make deals
Seller◦ Not selling/pawing the item. Different for each seller.◦ Some want/need to sell the item to make money
Target Price Pawn Shop
◦ A low amount, they want to make money selling the item
Seller◦ A high amount◦ Some times unreasonable, or inflated by their sentimental value
Reservation Point Pawn Shop (Buyer)
◦ They need to make money selling the item. ◦ Their RP is based on what they feel the item will sell for minus the profit they want to make selling it.◦ Desired Profit = (Retail Price) – (Reservation Point)◦ $300 = $1000 - 700
Seller◦ Usually set their RP beforehand◦ May just be a number they feel the item is worth◦ Might be the money they need to buy something else
Zone Of Potential Agreement The area between the two RP’s
If the Pawn Shop is willing to take an item for as high as $500 and the seller will sell for as low as $300, then they will negotiate a price between $300-500.
◦ An agreement can be made
If the Pawn Shop is only willing to buy for as high as $1000, and the seller won’t take less than $1500, then they can’t negotiate
◦ Walk away, no deal
Bargaining Zone – ZOPA Example
Pawn Shop’s aspiration range
Seller aspiration range
Pawn Shop’s
aspiration level:
$200
Seller reservation
point:$300
Pawn Shop’s
reservation point:$500
Settlement range
Seller aspiration
level:
$800
Negative ZOPA
Pawn Shop’s aspiration range
Seller aspiration range
Pawn Shop’s
aspiration level:
$700
Pawn Shop’s
reservation point:$1000
Seller reservation
point:$1500
Settlement range
Seller aspiration
level:
$2000
Pawn Stars – Concepts to watch for
Anchors◦ First offer, New information
Reservation Point◦ Do people stick to it?
ZOPA◦ Does one exist? Can we make a deal?
More on Negotiation Haggling 101
Art of the Deal
Take away from Pawn Stars Develop a reservation point, stick to it. Be prepared to walk away if you can’t get it.
Sentimental value usually means nothing to the person you’re negotiating with.
Do your research on alternatives and value.
Make a strong, but reasonable, first offer (set an anchor).
Setting anchors is a skill