Negotiation DISTRIBUTIVE BARGAINING (CONTINUED)

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.

RP and BATNA Are the Reservation Point and Best Alternative the same? When might they not be?

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 = $ 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 $ ◦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