QBook UNIT 4 Distributive Bargaining

QBook INTRODUCTION  During a basketball game, every time one team scores two points, the other team falls behind.  There is no way for both sides to gain points at the same time.  As one side wins, the other side loses.  This kind of competition is called win-lose.  In negotiation, win-lose is also called distributive bargaining.  Every time one side gains something, the other side loses something.

QBook DIALOG (Personal Distributive Bargaining)  Fred and Jane negotiating over a slice of pizza  Jane: There is only one slice of leftover pizza, and there is nothing else in the refrigerator.  Fred: It has been a really busy day today, and I’m really hungry.  Jane: Well, I’m hungry too.  Fred: To tell you the truth, I haven’t eaten all day.  Jane: Frankly, I don’t see how this one slice can satisfy you.  Fred: You know I love pizza.  Jane: Yes, but I kind of like it too.  Fred: You are being uncooperative.  Jane: You are being inflexible.

QBook DIALOG (Business Distributive Bargaining)  Alex and Fred are negotiating and both don’t want to give anything (distributive bargaining).  Alex: Our price of USD per unit is firm.  Fred: Unless you lower your price, we can’t agree.  Alex: This is our bottom line. There is no flexibility on this issue.  Fred: To be honest, we cannot sell this product in the market at this price.  Alex: Because of our emphasis on quality, we don’t have any space to maneuver. This is the lowest we can offer.

QBook DIALOG (Business Distributive Bargaining)  Fred: We cannot make progress if you don’t agree to a 20 percent discount. This is the highest we can offer.  Alex: There is simply no way we can give you a discount.  Fred: If you are so unyielding, this negotiation will reach a deadlock.  Alex: If you don’t accept this offer, we will have to withdraw the package.  Fred: That is an ultimatum we cannot accept. If you cannot give us a discount, we will have to find another supplier.  Alex: There is no reason to become hostile. The price really is our final offer.

QBook DIALOG (Business Distributive Bargaining)  Fred: We can agree on the need to wrap up this deal, so we will offer 21. We cannot make this offer again.  Alex: The implication of this price is that we lose 4.50 on each unit. Although I would like to give you what you want, we cannot take a loss on this deal.  Fred: This is pointless. Our customers simply won’t pay more.

QBook VOCABULARY  Deadlock (n): Negotiations stop because both sides will not change their demands.  Final Offer (n): The last offer; Often used to pressure the other side; The bottom line.  Firm (adj): Unchangeable; An offer or part of an offer that cannot be changed.  Hostile (adj): Not friendly; A negotiator who is strongly against something.  Maneuver (v): The negotiator’s flexibility to compromise, Changing options in the negotiation.  Pointless (adj): A negotiation or an offer that is not helpful; an offer that is not useful.  Take a loss (phrase): Losing money on the offered deal; A way to reject an offer that is not favorable.

QBook VOCABULARY  Ultimatum (n): A final demand that cannot be refused or negotiation will end.  Uncooperative (adj): A negotiator or team that will not compromise.  Unyielding (adj): A negotiator who does not give in; A negotiation position that is not changed.  We cannot make this offer again (phrase): Giving pressure to the opposition through a time limit; After some time, the current offer will be cancelled.

QBook FOLLOW UP  In distributive bargaining, the goals of both sides are in conflict.  Resources are fixed, like a pizza. If Fred takes one slice of pizza, that means Jane will get one slice less.  If Fred wants more and Jane wants more, someone will win and someone will lose.

QBook FOLLOW UP  For the buyer, a distributive negotiation begins with what the best deal is (the target point) and the worst deal that is still acceptable (the resistance point).  A target point is the actual desired result, while anything beyond the resistance point cannot be accepted. Both the target point and the resistance point are secret and should not be told to the seller.

QBook FOLLOW UP  The seller has a public price the buyer can see, which may be the list price.  At the start of the negotiation, one value is public (everyone can see it), while two values are secret.

QBook FOLLOW UP  The first step if for the buyer to decide how much the first offer (initial offer or starting offer) should be.  The first offer should be lower than the target point. Since the seller will try to raise the price, the buyer should begin under his/her target so as to increase the chance of getting close to the desired target.

QBook FOLLOW UP  If the buyer’s first offer is too low for the seller, the seller will not want to sell.  This means the first offer must be higher than the seller’s resistance point.  This point, however, is secret and the buyer must try to guess that it is.  All negotiation must fit between the two resistance points. This is called the bargaining zone.

QBook FOLLOW UP  The Buyer’s View  If the price is too low for the seller, he/she will walk away from the negotiation.  If the price is too high for the buyer, he/she will walk away from the negotiation.

QBook FOLLOW UP  Each side must have their own goals clear and guess what the other side’s secrets.  The buyer’s first offer must not be below the seller’s resistance point (too low), while also trying not to go above the seller’s target point.  Higher than the seller’s target point, the seller will agree to the offer quickly.

QBook FOLLOW UP  A buyer’s first offer would be best if it is above the seller’s resistance point while also below the seller’s target point.  Starting out below the buyer’s own target point is also a good idea, because the price will rise during negotiation.

QBook FOLLOW UP  The Buyer’s View