Strategy and Tactics of

Distributive Bargaining

Negotiation is an interpersonal decision-making process by which two or more people agree how to allocate scarce resources

Two Main Types of Negotiation:

1.Adversarial (Win-Lose): Negotiation is a contest. Each side pursues its own interests – at the expense of the other, if necessary.

2.Cooperative (Win-Win): Negotiation is a collaboration. Both sides work together for mutual satisfaction.

Distributive Bargaining: Slicing the Pie

• also known as competitive, adversarial, or win-lose bargaining

• the goals of one party are usually in fundamental and direct conflict with the goals of the other party

• resources are fixed & limited, and both parties want to maximize their share of the resources

• one party tries to give information to the other party only when it provides a strategic advantage

• negotiation power depends on the information one can gather about the other party

• negotiating parties focus much on their differences that they ignore what they have in common

• 3 Reasons to Understand Distributive Bargaining:- See Board

• 3 Situations When Distributive Bargaining is Effective: See Board

The Distributive Bargaining The Distributive Bargaining SituationSituation

Preparation—set aPreparation—set a Target point, aspiration pointTarget point, aspiration point Walkaway, resistance pointWalkaway, resistance point Asking price, initial offerAsking price, initial offer

The Role of Alternatives to The Role of Alternatives to a Negotiated Agreementa Negotiated Agreement

Alternatives give the negotiator power Alternatives give the negotiator power to walk away from the negotiation to walk away from the negotiation If alternatives are attractive, negotiators If alternatives are attractive, negotiators

can:can: Set their goals higherSet their goals higher Make fewer concessionsMake fewer concessions

If there are no attractive alternatives:If there are no attractive alternatives: Negotiators have much less bargaining powerNegotiators have much less bargaining power

BATNA –Best alternative to a negotiated BATNA –Best alternative to a negotiated agreementagreement

Basic Concepts

Target Point – the point at which a negotiator would like to conclude negotiations; his optimal goal or aspiration

Buyer’s Target Point (BT) – the optimal (lowest) price buyers would like to pay

Seller’s Target Point (ST) – the optimal (highest) price sellers would like to set

Resistance (or Reservation) Point – the negotiator’s bottom line

Buyer’s Resistance Point (BR) –the highest price buyers are willing to pay

Seller’s Resistance Point (SR) – the lowest price sellers are willing to set

Asking Price – the initial price set by the seller; seller’s opening bid

Initial Offer – the first price that the buyer will quote to the seller; buyer’s opening bid

Settlement Point – the price that both buyer and seller will agree upon

Bargaining Range – the spread between the resistance points; a.k.a. settlement range or zone of potential agreement

Bargaining Range Absolute Value – the difference between the buyer’s & seller’s resistance points

Positive Bargaining Range – when the buyer’s resistance point is above the seller’s; negotiation is possible

Buyer’s Bargaining Range

Seller’s Bargaining Range

Positive Bargaining Zone

Buyer’s Target Point (BT)

Seller’s Resistance Point (SR)

Seller’s Target Point (ST)

Buyer’s Resistance Point (BR)

Negative Bargaining Range – when the seller’s resistance point is above the buyer’s; negotiation is impossible

Buyer’s Bargaining Range

Seller’s Bargaining Range

Negative Bargaining Zone

Buyer’s Target Point (BT)Buyer’s Resistance Point (BR)

Seller’s Target Point (ST)

Seller’s Resistance Point (SR)

Negotiator’s Surplus – the positive difference between the settlement point and the negotiator’s resistance point

Buyer’s Bargaining Range

Seller’s Bargaining Range

Seller’s Surplus

BT SR STBRSettlement Point

Buyer’s Surplus

Illustrative Case: Larry and Monica

Larry wanted to move closer to where he works. After some time, he found a house that met his requirements. The seller, Monica, set the asking price at $145,000, which was $10,000 above what Larry hoped to pay but $5,000 below the most he would be willing to pay. Larry knew that the more he paid for the house, the less he would be able to make some very desirable alterations, buy draperies and some new furniture, and hire a moving company.

Monica already had attractive drapes in the house. She was moving to a new house; if she could not use the drapes in the new house, Larry might be able to purchase them or ask Monica to include them with the sale. The same might be true for several rugs, hall tables and other items.

Note:

Assume further that the seller’s resistance point is 20% below the asking price

Identify the following elements:

1. Larry’s target point

2. Larry’s resistance point

3. Monica’s asking price

4. Monica’s resistance point

5. Bargaining range

6. Bargaining range absolute value

7. Settlement point (seller’s surplus is 65%)

8. Settlement point (buyer’s surplus is 90%)

Answers:

1. Larry’s target point: $135,000

Monica’s asking price, $145,000, was $10,000 above what Larry hoped to pay:

$145,000 - $10,000 = $135,000

2. Larry’s resistance point: $150,000

Monica’s asking price, $145,000, was $5,000 below the most Larry would be willing to pay:

$145,000 + $5,000 = $150,000

3. Monica’s asking price: $145,000

Monica’s asking price was already explicitly stated in the case

4. Monica’s resistance point: $116,000

The seller’s resistance point was assumed to be 20% below the seller’s asking price:

($145,000)(0.20) = $29,000

$145,000 - $29,000 = $116,000

5. Bargaining range: $116,000 - $150,000

This is simply the spread between the buyer’s and seller’s resistance points

6. Bargaining range absolute value: $34,000

The difference between the buyer’s & seller’s resistance points:

$150,000 - $116,000 = $34,000

7. Settlement point (if the seller’s surplus is 65%): $138,100

The difference between the buyer’s & seller’s resistance points (bargaining range absolute value):

$150,000 - $116,000 = $34,000

Seller’s surplus is 65% of the bargaining range absolute value:

($34,000)(0.65) = $22,100

Settlement point (SR + seller’s surplus):

$116,000 + $22,100 = $138,100

Buyer’s Bargaining Range

Seller’s Bargaining Range

Seller’s Surplus (65%)

BT SR STBRSettlement Point

Buyer’s Surplus

$116,000 $150,000$138,100

$22,100

$34,000

8. Settlement point (if the buyer’s surplus is 90%): $119,400

The difference between the buyer’s & seller’s resistance points (bargaining range absolute value):

$150,000 - $116,000 = $34,000

Buyer’s surplus is 90% of the bargaining range absolute value:

($34,000)(0.90) = $30,600

Settlement point (BR - buyer’s surplus):

$150,000 - $30,600 = $119,400

Buyer’s Bargaining Range

Seller’s Bargaining Range

Selle

r’s

Su

rplu

s

BT SR STBRSettlement Point

Buyer’s Surplus (90%)

$116,000 $150,000$119,400

$30,600

$34,000

Fundamental Strategies

1. Push for settlement near opponent’s resistance point

2. Get the other party to change their resistance point

3. If settlement range is negative, either:-Get the other side to change their

resistance point-Modify your own resistance point

4. Convince the other party that the settlement is the best possible

Keys to the StrategiesKeys to the Strategies

The keys to implementing any of the The keys to implementing any of the four strategies are:four strategies are:

Discovering the other party’s Discovering the other party’s resistance pointresistance point

Influencing the other party’s Influencing the other party’s resistance pointresistance point

4 Tactical Tasks relating to 4 Tactical Tasks relating to targets, resistance points and targets, resistance points and

costs of terminating negotiationscosts of terminating negotiations

1.1. Assess other party’s Target, Assess other party’s Target, Resistance Point and the costs of Resistance Point and the costs of termination for the other partytermination for the other party

2.2. Manage the other party’s Manage the other party’s impressionsimpressions

3.3. Modify the other party’s perceptionsModify the other party’s perceptions

4.4. Manipulate the actual costs of delay Manipulate the actual costs of delay or terminationor termination

1/ Assess Outcome Values and 1/ Assess Outcome Values and the Costs of Termination for the Costs of Termination for

the Other Partythe Other Party IndirectlyIndirectly

Determine information opponent used to Determine information opponent used to set:set:

TargetTarget Resistance pointsResistance points

DirectlyDirectly Opponent reveals the informationOpponent reveals the information

2/ Manage the Other 2/ Manage the Other Party’s ImpressionsParty’s Impressions

Screen your behavior:Screen your behavior: Say and do as little as possibleSay and do as little as possible

Direct action to alter impressionsDirect action to alter impressions Present facts that enhance one’s Present facts that enhance one’s

positionposition

3/ Modify the Other Party’s 3/ Modify the Other Party’s PerceptionsPerceptions

Make outcomes appear less Make outcomes appear less attractiveattractive

Make the cost of obtaining goals Make the cost of obtaining goals appear higherappear higher

Make demands and positions appear Make demands and positions appear more or less attractive to the other more or less attractive to the other party –whichever suits your needsparty –whichever suits your needs

4/ Manipulate the Actual 4/ Manipulate the Actual Costs of Costs of

Delay or TerminationDelay or Termination Plan disruptive actionPlan disruptive action

Raise the costs of delay to the other partyRaise the costs of delay to the other party Form an alliance with outsidersForm an alliance with outsiders

Involve (or threaten to involve) other parties Involve (or threaten to involve) other parties who can influence the outcome in your favorwho can influence the outcome in your favor

Schedule manipulationsSchedule manipulations One party is usually more vulnerable to One party is usually more vulnerable to

delaying than the otherdelaying than the other

Positions Taken During Negotiation:

• Opening Offer

• Opening Stance

• Initial & Subsequent Concessions

• Final Offer

Guidelines for Making Concessions:

1. Give yourself enough room to make concessions.

2. Try to get the other party to start revealing their needs and objectives first.

3. Be the first to concede on a minor issue but not the first to concede on a major issue.

4. Make unimportant concessions and portray them as more valuable than they are.

5. Make the other party work hard for every concession you make.

6. Use trade-offs to obtain something for every concession you make.

7. Generally, concede slowly and give a little with each concession.

8. Do not reveal your deadline to the other party.

9. Occasionally say “no” to the other negotiator.

10. Be careful trying to take back concessions even in “tentative” negotiations.

11. Keep a record of concessions made in the negotiation to try to identify a pattern.

12. Do not concede “too often, too soon, or too much.”

Establishing a Commitment:

• Public Pronouncement

• Linking with an Outside Base

• Increase the Prominence of Demands

• Reinforce the Threat or Promise

Closing the Deal:

• Provide Alternatives

• Assume the Close

• Split the Difference

• Exploding Offers

• Sweeteners

Hardball Tactics – designed to pressure negotiators to do things they would not otherwise do; work best against poorly-prepared negotiators

Dealing with Hardball Tactics:

• Ignore Them

• Discuss Them

• Respond in Kind

• Co-opt the Other Party

Typical Hardball Tactics:

• Good Cop/Bad Cop

• Lowball/Highball

• Bogey

• The Nibble

• Chicken

• Intimidation

• Aggressive Behavior

• Snow Job

SummarySummary

Negotiators need to:Negotiators need to: Set a clear target and resistance pointsSet a clear target and resistance points Understand and work to improve their Understand and work to improve their

BATNABATNA Start with good opening offerStart with good opening offer Make appropriate concessionsMake appropriate concessions Manage the commitment processManage the commitment process