1. Negotiations and Distributive Negotiations

2. Agenda Negotiation Distributive negotiation
Tools for distributive negotiation
Debrief BioPharm-Seltek
First offers

3. Negotiation A social process in which conflict is resolved
Results in an allocation of resources or an agreement on how individuals will work together in the future
Five characteristics of negotiation
Two or more parties
You anticipate a better outcome as a result of the negotiation
The parties involved prefer mutual agreement to other outcomes
The parties involved understand that there will be give and take
Tangible and intangible components are involved in the negotiation

4. When negotiating makes sense
When you need the help of others
When others can give you more than what you can get on your own
When you are willing to give up resources valued by others
When working with another party can help you overcome challenges with other parties

5. The largest private equity deal of all time…
Read this article:
Emphasize that the management just wanted the price to be as high as possible (focus on a single issue) so it became a bidding war.
The largest private equity deal of all time…

6. Why did this become a bidding war?
Read this article:
Emphasize that the management just wanted the price to be as high as possible (focus on a single issue) so it became a bidding war.
Why did this become a bidding war?

7. Distributive negotiation
Competitive
Win-lose
Focus on claiming value
Negotiators’ goals are in direct conflict
Resources are limited
Instrumental concerns only: do not care about the relationship with the other party
Pulled from 4th edition, pg 27
On instrumental concerns, note that they don’t care about the relationship with the other party

8. What are examples of distributive negotiation?
Pulled from 4th edition, pg 27
On instrumental concerns, note that they don’t care about the relationship with the other party

9. Tools for distributive negotiations
BATNA- Best Alternative To a Negotiated Agreement
What would you pursue if this negotiation doesn’t work?
Reservation value
What your BATNA is valued at in the negotiation
Can be dollars, points, land, flying pigs, etc…
Aspiration value
The value you aspire to in the negotiation
Pulled from 4th edition, pg 27
On instrumental concerns, note that they don’t care about the relationship with the other party

10. Zone Of Possible Agreement
The set of all possible deals that would be acceptable to both parties
Seller’s reservation value
Buyer’s reservation value
Pulled from 4th edition, pg 27
On instrumental concerns, note that they don’t care about the relationship with the other party
Bargaining Zone

11. Zone Of Possible Agreement
Aspiration values help a negotiator know how far they might try to stretch their outcome beyond the ZOPA
Seller’s aspiration value
Buyer’s aspiration value
Pulled from 4th edition, pg 27
On instrumental concerns, note that they don’t care about the relationship with the other party
Bargaining Zone

12. What was the Zone Of Possible Agreement in BioPharm-Seltek?
Pulled from 4th edition, pg 27
On instrumental concerns, note that they don’t care about the relationship with the other party

13. What is BioPharm’s BATNA?
Buy a plot of land and build a new plant. Land will cost $500,000. Building will cost $25 million and will take 12 months.
For each month BioPharm is not producing product, it will lose $1million in profits. Note this is not a very strong BATNA
What is BioPharm’s reservation price?
Given the cost of building a new plant is $25 million that could be considered its BATNA.
However, factoring in lost profits, the FDA approval, and experienced workforce of Seltek, one could construct a reservation price closer to the $40 million available for investment.
What is Seltek’s BATNA?
Reconfigure the plant for general manufacturing. This would cost $3 million and will take 6 months.
Doing so will give the plant an appraised value of $10 million. Note this is also not a very strong BATNA.
What is Seltek’s reservation price?
$7 million = $10 million (appraised value) minus $3 million (cost of reconfiguration)

14. BioPharm-Seltek $11 M $25 M $17 M $11 M $15 M $29.8 M $13 M $16 M
Watch this video clip if time at the end about Pawn stars and haggling.
$23 M
$12 M

15. Sale Price
MEAN: 19.8
SD:

16. Sale Price SALE PRICE FIRST OFFER Above average = 62% were sellers
Below average = 67% were buyers
Correlation of First Offer and Final Offer = 77*​

17. Initial Offers
He who speaks first: set anchors and adjustments are made from them
How much? ALMOST 50% of variance ( ) SO
MAKE THE FIRST OFFER???

18. Targets
Biopharm reservation point?
Seltek reservation point?

19. First offers in negotiation
First offers can
Anchor a distributive negotiation
Help to define the ZOPA
Extreme first offers can let you make concessions (thus aggressive offers do not necessarily make you aggressive)….but it also can backfire
Make a first offer only when you have sufficient information about your own and the other party’s aspirations and walk away points
See galinsky’s article.

20. First offers in negotiation
What if they make the first offer????
Re-anchor with a counter offer
Typically sale price is at the mean of the two offers
Concessions are different when dealing with an extreme offer – make smaller concessions to give the impression that you are reaching your reservation point
See galinsky’s article.

21. Making & breaking a first offer
Ignore other anchors
Rely on information, not influence
Have a strong first offer, then allow for moderation
Avoid allowing your own or others’ emotions to interfere with the negotiation
See pg in genius

22. Common information Getting to yes: Objective standards
Buyers: pick the standard that implies the lowest price (8M)
Sellers: (20 – appraised value of 4)
Could you convince the other of your view of the objective standard?
Fairness?
Individuals select information that is more favorable and view it as more relevant and more plausible vs. the other side

23. Compaitble Issues
The work force?
How did you use it?
Risks?

24. Lets Negotiate!!!

25. Texoil Two-person negotiation
Station owner
Texoil representative
Trying to negotiate the sale of a gas station
Outcome
Sale price
See pg in genius

26. Texoil - logistics 15 minutes to prepare & break
REMEMBER: YOUR ROLE IS CONFIDENTIAL!
Remainder of class to negotiate
Deliverable
Outcome form with names, roles, and detail of the agreement

27. Station Owner
Texoil

28. Next Wek: Critical Negotiation Analysis
Bad news: First big assignment! (counts toward half your negotiation reflections grade ie. 10% of total grade)
Good news: This is work you will do mostly during class time

29. Assignment Details
Video: On the next day of class, you and your negotiation partner will be expected to record your negotiation and use that recording as a self-assessment tool.
Upload it to Google drive (please share your video with esblockgmail.com) titled Lastname_Lastname_NewRecruit
Failure to upload the video by September 15th/21st will result in a 25% reduction of your final grade on the paper.
Video Watching: During the second half of this module (Sept 20th/21st) you will rotate and watch the videos of two other teams.
This will provide you with the opportunity to compare your strategies and performance in the negotiation with others.
This portion of the class can be done in the space of your choosing, but must be done during the class time (note: the videos will only be available to you during class time).
Assignment: Provide a critical assessment of your performance in the negotiation
Do not summarize what you did without analysis
Consider your strengths and weaknesses (substantively)
List goals for improvement
Use course concepts linked with specific examples to illustrate your points
No more than 5 pages
I expect your writing to be clear and demonstrate a high level of critical thought. You will be graded on the quality of your analysis, not your actual performance in the negotiation.

30. Buyer
Seller

31. Buyer Seller Team
Video 1
Video 2