CHAPTER 2 Strategy and Tactics of Distributive Bargaining (DB)分配型

Learning Objective 1.Understand how DB works for a better deal (the dynamics): basic structure and some common strategies and tactics. 2.Manage DB situations proactively. 3.Apply DB skills/tactics properly at value claiming stage of any negotiation, e.g. integrative negotiation (IN).

Learning Objective 1.Understand how DB works for a better deal (the dynamics): basic structure and some common strategies and tactics. 2.Understand how to effectively manage distributive bargaining process, focusing on careful planning, strong execution, and constant monitoring of the other party’s reactions. 3.Apply distributive bargaining skills properly to value claiming stage of any negotiation, e.g. integrative negotiation.

Structure and process: distinctive features?

1. Distributive Bargaining (DB): Distinctive Features

1.1 Basic Structure Key steps Positions Taken during Negotiation. Commitment. Closing the Deal. The entire process of making an opening offer and then ending up with a mutually agreeable settlement is known as the negotiation dance (Raiffa 1982)

1.1 Basic Structure: Terms and Concepts Position: e.g. target/preferred/reservation points Offer: e.g. initial/opening/renewed/revised Concession Commitment Bargaining Zone (ZOPA)/Settlement Zone: Negotiated Agreement vs ZONA; Compromise Alternatives to a Negotiated Agreement: BATNA Settlement Point (p.37) Bargaining Mix (p.37): e.g. Multiple Equal Offers (MEOs) Pie= ZOPA?

1.2 Fundamental Strategies “Why don’t you tell us the very maximum that you are willing to pay, and we’ll see if we can shave off a bit” “Tell me the bare minimum you would accept from us, and I’ll see if I can throw in something extra.”

1.2 Fundamental Strategies: Bottom line The above humorous story illustrates the essence of negotiation: How do people make sure they reach agreement if the bargaining zone is positive but claim as much of the pie as possible? Q: Any rules of thumb? NEVER reveal your reservation point

1.2 Fundamental Strategies: the condo example e.g. The buyer’s 4 strategies available: (1) To push for a settlement close to the seller’s resistance point. (2) To convince the seller to change her resistance point. (3) If a negative settlement range exists, to convince the seller to reduce her resistance point. (4) To convince the seller to believe that this settlement is the best that is possible.

1.2 Fundamental Strategies: Basics! 1.Discovering the Other Party’s Resistance Point 2.Influencing the Other Party’s Resistance Point(p.38)

1.2 Fundamental Strategies: Discover…(how?) The more you can learn about the other party’s target, resistance point, motives, feelings of confidence, and so on, the more able you will be to strike a favorable agreement. To influence the other party’s perception, however, you must establish some points effectively and convincingly.

1.2 Fundamental Strategies: Influence… (how?) Factors are important in attempting to influence the other party’s resistance point: (1) the value the other attaches to a particular outcome; (2) the cost the other attaches to delay or difficulty in negotiations; (3) the cost the other attaches to having the negotiation aborted. A significant factor in shaping the other person’s understanding of what is possible is the other’s understanding of your own situation.

1.3 Tactical Tasks (p.40) Assess the other party’s target, resistance point, and cost of terminating negotiations Manage the Other Party’s Impressions Modify the Other Party’s Perceptions Manipulate the Actual Cost of Delay or Termination

2. Effective DB process management What do effective bargainers do?

2. Positions Taken during Negotiation (Positional bargaining) 2.1 Opening Offers 2.2 Opening Stance 2.3 Initial Concessions 2.4 Role of Concessions 2.5 Pattern of Concession Making 2.6 Final Offers

2.1 Opening Offers (pp.47-8) The fundamental question is whether the opening offer should be exaggerated or modest. There are at least two reasons that an exaggerated opening offer is advantageous. Two disadvantages of exaggerated opening offer are: ( 1) it may be summarily rejected by the other party; (2) it communicates an attitude of toughness that may be harmful to long-term relationships.

2.2 Opening Stance (pp.48-9) Will you be competitive or moderate? It is important for negotiators to think carefully about the messages that they wish to signal with their opening stance & subsequent concessions. To communicate effectively, a negotiator should try to send a consistent messages through both opening offer and stance. Box 2.3 The power of the first move (anchoring effect) (p.50)

2.3 Initial Concessions (p.49) First concession conveys a message, frequently a symbolic one to the other party that how you will proceed. Firmness may actually shorten negotiations; there is also the very real possibility, however, it will be reciprocated by the other. There are good reasons for adopting a flexible position.

2.4 Role of Concessions Concessions are central to negotiation. Which stance? take-it-or-leave-it VS progression of concession Reciprocity: “Since you have reduced your demand on X, I am willing to concede on Y.” Box 2.4 Four guidelines on how to make concessions (p.51)

2.5 Pattern of Concession Making (p.51) Figure 2.4 Pattern of Concession Making for Two Negotiators (p. 52) Concession Number Size of Concessions (in dollars) 0 =George’s concessions =Mario’s concessions

2.6 Final Offers (p.53) “This is all I can do.” “This is as far as I can go” VS “I went to my boss and got a special deal just for you.”

2.7 Commitment (pp.53-4) Commitment is the taking of a bargaining position with some explicit or implicit pledge regarding the future course of action. The purpose of commitment is to remove ambiguity about the actor’s intended course of action. A commitment is often interpreted by the other party as a threat.

2.7 Commitment 1.Tactical Considerations in Using Commitments 2.Establishing a Commitment 3.Preventing the Other Party from Committing Pre- maturely 4.Finding Ways to Abandon a Committed Position

2.7.1 Tactical Considerations in Using Commitments (p.54) Commitments exchange the flexibility for certainty of action, but they create difficulties if one wants to move to a new position. When one makes commitments one should also make contingency plans for a graceful exit should it be needed.

2.7.2 Establishing a Commitment (pp.54-6) A commitment statement has three properties: a high degree of finality, a high degree of specificity, and a clear statement of consequences. e.g. “We must have a 10% volume discount in the next contract, or we will sign with an alternative supplier next month.” Several ways to create a commitment: 1. make a public pronouncement 2. link with an outside base 3. increase the prominence of demands 4. reinforce the threat or promise

2.7.3 Preventing the Other Party from Committing Prematurely (pp.56-7) Approaches (How?): To deny his or her the necessary time. To ignore or downplay a threat by not acknowledging the other party’s commitment, or even by making a joke about it. e.g. “You don’t really mean that,” OR “I know you cannot be serious about really going through with that,” ….

2.7.4 Finding Ways to Abandon a Committed Position (pp.57-8) Four avenues/ways for escaping commitment: 1. Play a way out 2. Let it die silently 3. Restate the commitment 4. Minimize the damage

2.8 Closing the Deal (pp.58-9) Several tactics (How) for closing a deal: 1.Provide alternatives 2.Assume the close 3.Split the differences 4.Explode the offers 5.Offer sweeteners: “I’ll give you X if you agree to the deal.”

2.9 Hardball Tactics (pp.60-8) 强硬策略 Such tactics are designed to pressure negotiators to do things they would not otherwise do, and their presence usually disguises the user’s adherence to a decidedly distributive bargaining approach. 1 Dealing with typical hardball tactics (TBCed) 2 Typical hardball tactics (TBCed)

2.9.1 Dealing With Typical Hardball Tactics How best to counter ？ 1.Ignore them (p.60) 2.Discuss them (p.60) 3.Respond in kind (p.61) 正面回应，以同样的方式回 应对方 4. Co-opt the other party (p.61)

2.10 Lowball/Highball (pp.62-3) Risk: the other party will think negotiating is a waste of time and will stop negotiating. The best way to respond: ask for a more reasonable opening offer from the other party, but not “anchored” by the other’s first outrageous offer. Good preparation is a critical defense against this tactic.

2.11 Bogey (pp.63-4) Negotiators using the bogey tactic pretend that an issue of little or no importance to them is quite important. This tactic is fundamentally deceptive, and it can be a difficult tactic to enact. Bogeys occur more often by omission than commission. How to counter? Once again, good preparation is a critical defense against this tactic. Probe with questions about why TOS wants a particular outcome. Be cautious about sudden reversals in positions taken by TOS, especially late in a negotiation.

The Nibble (p. 64) Negotiators using the nibble tactic ask for a proportionally small concession on an item that hasn’t been discussed previously in order to close the deal. Risk: (TOS) potential to seek revenge in future negotiations. Two ways to combat the nibble (Landon, 1997). respond with the question “What else do you what?”; respond with your nibble on another issue/item.

A nibble case in a business context After a considerable amount of time has been spent in negotiation, when an agreement is close, one party asks to include a clause that hasn’t been discussed previously and that will cost TOS a proportionally small amount. This amount is too small to lose the deal over, but large enough to upset TOS. (p. 64)

Chicken (pp.64-5) (see Box 2.6 Playing Chicken in int ’ l relations, p.66) Negotiators using this tactic combine a large bluff with a threatened action to force the other party to “ chicken out ” and give them what they want. Weakness: It turns negotiation into a serious game in which one or both parties find it difficult to distinguish reality from postured negotiation positions.

Chicken (pp.64-5) Possible options: 1 Preparation and a thorough understanding of the situations of both parties help identify the boundary line. 2 Use of external experts to verify information or to help reframe the situation.

Intimidation (p.65-7) Many tactics under the label of intimidation all attempt to force TOS to agree by means of an emotional poly, usually anger or fear. Another form includes increasing the appearance of legitimacy. Guilt can also be used as a form of intimidation. How to deflate the effectiveness of intimidation? discuss the negotiation process with the other party; Ignore TOS’ attempts to intimidate you. use a team to negotiate with TOS.

Aggressive Behavior (p.67) Negotiators using this tactic is signaling a hard-nosed intransigent position and trying to force TOS to make many concessions to reach an agreement. e.g. “You can do better than that”, “Let’s not waste any time. What is the most that you will pay?”, “What is your cost breakdown for each item?” countermoves: halt the negotiations in order to discuss the negotiation process itself. Have a team to counter the tactic. Good preparation and understanding needs and interests relative to each party make the job easier.

6.2 Typical Hardball Tactics Snow Job (pp.67-8) 虚实相加，以假乱真 It occurs when negotiators overwhelm TOS with so much information that he or she has trouble determining which facts are real or important, and which are included merely as distractions. to counter this tactic: Not be afraid to ask questions. Instead of negotiators, technical experts discuss technical issues. Listen carefully to spot out incorrect and inconsistent information in a complete snow job package so as to question the accuracy of the whole presentation. Strong preparation counts.

3. Distributive Bargaining Skills Applicable to Integrative Negotiation (p.68) Many of the skills are also applicable to the latter stages of integrative negotiation when negotiators need to claim value, that is, to decide how to divide their joint gains. Care needs to be taken, however, not to seriously change the tone of those negotiations by adopting an overtly aggressive stance at this stage.

4 Teacher’s note Chinese Textbook Approach to IB Negotiation Prevalence of Strategy and Tactics (DB) 1 My own observation 2. Zhao(2000) Zhao, Jensen J., The Chinese Approach to International Business Negotiation, The Journal of Business Communication,37(3), July 2000: