Strategy and Tactics of Distributive Bargaining

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Strategy and Tactics of Distributive Bargaining
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• Negotiation is an interpersonal decision-making
  process by which two or more people agree how to
  allocate scarce resources
• Two Main Types of Negotiation
• Adversarial (Win-Lose) Negotiation is a contest.
  Each side pursues its own interests at the
  expense of the other, if necessary.
• Cooperative (Win-Win) Negotiation is a
  collaboration. Both sides work together for
  mutual satisfaction.

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• 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

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• 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

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The Distributive Bargaining Situation

• Preparationset a
• Target point, aspiration point
• Walkaway, resistance point
• Asking price, initial offer

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The Role of Alternatives to a Negotiated Agreement

• Alternatives give the negotiator power to walk
  away from the negotiation
• If alternatives are attractive, negotiators can
• Set their goals higher
• Make fewer concessions
• If there are no attractive alternatives
• Negotiators have much less bargaining power
• BATNA Best alternative to a negotiated agreement

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Basic Concepts Target Point the point at which
a negotiator would like to conclude negotiations
his optimal goal or aspiration Buyers Target
Point (BT) the optimal (lowest) price buyers
would like to pay Sellers Target Point (ST)
the optimal (highest) price sellers would like to
set
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Resistance (or Reservation) Point the
negotiators bottom line Buyers Resistance
Point (BR) the highest price buyers are willing
to pay Sellers Resistance Point (SR) the
lowest price sellers are willing to set
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Asking Price the initial price set by the
seller sellers opening bid Initial Offer the
first price that the buyer will quote to the
seller buyers opening bid Settlement Point
the price that both buyer and seller will agree
upon
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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
buyers sellers resistance points
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Positive Bargaining Range when the buyers
resistance point is above the sellers
negotiation is possible
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Negative Bargaining Range when the sellers
resistance point is above the buyers
negotiation is impossible
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Negotiators Surplus the positive difference
between the settlement point and the negotiators
resistance point
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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.
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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 sellers
resistance point is 20 below the asking price
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• Identify the following elements
• Larrys target point
• Larrys resistance point
• Monicas asking price
• Monicas resistance point
• Bargaining range
• Bargaining range absolute value
• Settlement point (sellers surplus is 65)
• Settlement point (buyers surplus is 90)

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• Answers
• Larrys target point 135,000
• Monicas asking price, 145,000, was 10,000
  above what Larry hoped to pay
• 145,000 - 10,000 135,000
• 2. Larrys resistance point 150,000
• Monicas asking price, 145,000, was 5,000
  below the most Larry would be willing to pay
• 145,000 5,000 150,000

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3. Monicas asking price 145,000 Monicas
asking price was already explicitly stated in the
case 4. Monicas resistance point 116,000 The
sellers resistance point was assumed to be 20
below the sellers asking price (145,000)(0.20)
29,000 145,000 - 29,000 116,000
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5. Bargaining range 116,000 - 150,000 This
is simply the spread between the buyers and
sellers resistance points 6. Bargaining range
absolute value 34,000 The difference between
the buyers sellers resistance points
150,000 - 116,000 34,000
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7. Settlement point (if the sellers surplus is
65) 138,100 The difference between the
buyers sellers resistance points (bargaining
range absolute value) 150,000 - 116,000
34,000 Sellers surplus is 65 of the
bargaining range absolute value (34,000)(0.65)
22,100 Settlement point (SR sellers
surplus) 116,000 22,100 138,100
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8. Settlement point (if the buyers surplus is
90) 119,400 The difference between the
buyers sellers resistance points (bargaining
range absolute value) 150,000 - 116,000
34,000 Buyers surplus is 90 of the bargaining
range absolute value (34,000)(0.90)
30,600 Settlement point (BR - buyers surplus)
150,000 - 30,600 119,400
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• Fundamental Strategies
• Push for settlement near opponents resistance
  point
• Get the other party to change their resistance
  point
• If settlement range is negative, either
• -Get the other side to change their resistance
  point
• -Modify your own resistance point
• Convince the other party that the settlement is
  the best possible

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Keys to the Strategies

• The keys to implementing any of the four
  strategies are
• Discovering the other partys resistance point
• Influencing the other partys resistance point

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4 Tactical Tasks relating to targets, resistance
points and costs of terminating negotiations

• Assess other partys Target, Resistance Point and
  the costs of termination for the other party
• Manage the other partys impressions
• Modify the other partys perceptions
• Manipulate the actual costs of delay or
  termination

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

• Indirectly
• Determine information opponent used to set
• Target
• Resistance points
• Directly
• Opponent reveals the information

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2/ Manage the Other Partys Impressions

• Screen your behavior
• Say and do as little as possible
• Direct action to alter impressions
• Present facts that enhance ones position

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3/ Modify the Other Partys Perceptions

• Make outcomes appear less attractive
• Make the cost of obtaining goals appear higher
• Make demands and positions appear more or less
  attractive to the other party whichever suits
  your needs

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4/ Manipulate the Actual Costs of Delay or
Termination

• Plan disruptive action
• Raise the costs of delay to the other party
• Form an alliance with outsiders
• Involve (or threaten to involve) other parties
  who can influence the outcome in your favor
• Schedule manipulations
• One party is usually more vulnerable to delaying
  than the other

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• Positions Taken During Negotiation
• Opening Offer
• Opening Stance
• Initial Subsequent Concessions
• Final Offer

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• Guidelines for Making Concessions
• Give yourself enough room to make concessions.
• Try to get the other party to start revealing
  their needs and objectives first.
• Be the first to concede on a minor issue but not
  the first to concede on a major issue.
• Make unimportant concessions and portray them as
  more valuable than they are.

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1. Make the other party work hard for every
   concession you make.
2. Use trade-offs to obtain something for every
   concession you make.
3. Generally, concede slowly and give a little with
   each concession.
4. Do not reveal your deadline to the other party.
5. Occasionally say no to the other negotiator.

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1. Be careful trying to take back concessions even
   in tentative negotiations.
2. Keep a record of concessions made in the
   negotiation to try to identify a pattern.
3. Do not concede too often, too soon, or too much.

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• Establishing a Commitment
• Public Pronouncement
• Linking with an Outside Base
• Increase the Prominence of Demands
• Reinforce the Threat or Promise

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• Closing the Deal
• Provide Alternatives
• Assume the Close
• Split the Difference
• Exploding Offers
• Sweeteners

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• 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

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• Typical Hardball Tactics
• Good Cop/Bad Cop
• Lowball/Highball
• Bogey
• The Nibble
• Chicken
• Intimidation
• Aggressive Behavior
• Snow Job

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Summary

• Negotiators need to
• Set a clear target and resistance points
• Understand and work to improve their BATNA
• Start with good opening offer
• Make appropriate concessions
• Manage the commitment process