1. CHAPTER TWO Strategy and Tactics of Distributive Bargaining
INB 350 Lecture
By: Ms. Adina Malik (ALK)

2. The Distributive Bargaining
Distributive Bargaining occurs when the goals of one party are in fundamental and direct conflict with the goals of the other party.
It is also called Competitive, or Win-Lose Bargaining
Both parties want to Maximize the Value obtained in a single deal.

3. The Distributive Bargaining Situation
Conflicting Goals
Resources are fixed and limited
Time is limited
Relationship is not important
Maximizing one’s own share of resources is the goal
A conflict situation
Every party has to use this strategy during claiming value stage
Goals of one party are in fundamental, direct conflict to another party
Resources are fixed and limited
Maximize the value obtained in a single deal
Long term relationship not important
Distributive bargaining strategies and tactics are useful when negotiators are in the claiming value stage of negotiation.
One important strategy is to guard information:
Only provide information that provides strategic advantage
Getting information is highly desirable as it improves the negotiation power.

4. The Distributive Bargaining Situation
Things to know:
Target point (aspiration point, optimal goal, preferred price)
Walk-away (bottom line, resistance point, reservation price)
Asking price (seller)
Initial offer (buyer)
Target point- the point at which negotiator would like to conclude negotiations-the optimal goal, often referred to as the negotiator’s aspirations.
Resistance Point- a negotiator’s bottom line, the most a buyer will pay and the least a seller will settle for.
Asking price- initial price set by the seller;
Initial offer-the first number that a buyer will quote to the seller as a counter to the seller’s asking price.

5. The Distributive Bargaining Situation
Mr. Rahim (Buyer) wants to buy a 55 inch LED TV. His target price is TK. 135,000. His resistance point, the price beyond which Mr. Rahim won’t go, is TK. 150,000. So TK. 150,000 is the reservation point or bottom line –the most he will pay as a buyer and the least amount for which the seller will settle for. Now Mr. Helal (The Seller) is selling a 55 inch LED TV and his asking price is TK. 145,000

6. The Distributive Bargaining Situation
Party A - Helal- Seller
Walkaway Point Target Point Asking Price
TK 145,000
Initial Offer Target Point Walkaway Point
TK 135,000
TK 150,000
Party B – Rahim- Buyer

7. The Distributive Bargaining Situation
Deciding Initial Offer of the Buyer (Rahim):
Mr. Rahim cannot open negotiation at his target point (135,000 TK). He has to make lower initial offer to make room for making concession.
If Rahim open negotiation at his target point afterward when he has to make concessions then he will move more closer to the resistant point.
However if the buyer (Rahim) makes the first offer too low (TK 100,000) the seller might break off negotiation believing the buyer is not interested*.
3. A low initial offer: the seller might think that the buyer is unreasonable and foolish.

8. The Distributive Bargaining Situation
Party B – Rahim- Buyer
Party A - Helal- Seller
Rahim would be willing to pay Tk. 150,000 for the TV, that is listed at Tk. 145,000 (by the seller).
Rahim can speculate that Helal may be willing to accept something less than Tk. 145,000 and might well regard Tk. 140,000 as a desirable figure.
What Rahim does not know (but would dearly like to know) is the lowest figure that Helal would accept. Is it Tk. 140,000? Tk. 135,000? Rahim assumes it to be Tk. 130,000.
Helal has no idea about of Rahim’s resistance point.
R- Initial P
R- Target Point
H- Initial P
R- Res. P
130,000
133,000
135,000
140,000
145,000
150,000

9. The Distributive Bargaining Situation
Both parties have starting, target and resistance points.
Starting points* are disclosed in the opening statement. (133,000 – Mr. Rahim)
Target points are usually learned or inferred as negotiations proceeds, however , it is not usually disclosed at first.
Reservation points should always be kept secret.
( 150,000 – Mr. Rahim)
Starting Point : The seller’s listing price and the buyer’s first offer. Starting points are often in the opening statements each party makes.

10. The Distributive Bargaining Situation
Party A - Helal- Seller
Party B – Rahim- Buyer
H- Res P inferred
R- Initial P
Public
R- Target Point
Private
H- Target P inferred
H- Asking P
public
R- Res. P
private
Tk. 130,000
Tk. 133,000
Tk. 135,000
Tk. 140,000
Tk. 145,000
Tk. 150,000

11. The Distributive Bargaining Situation: Bargaining Range
The spread between the resistance points ( ) called the Bargaining Range/Settlement Range/Zone of Potential Agreement.
If the buyer’s resistance point is above the seller then there is a positive bargaining range ( )
If the seller’s resistance point is above the buyer then there is a negative bargaining range ( )
*This thing can be resolved only if one or both parties are persuaded to change their resistance points
Anything outside the bargaining range will be rejected by the buyer and the seller.

12. The Role of Alternatives to a Negotiated Agreement
Alternatives give the negotiator power to walk away from the negotiation: BATNA
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
Negotiators need to have clear understanding of their BATNA. Good bargainers always try to improve their alternatives. BATNA clarifies what the negotiators will do if the agreement is not reached
Alternatives are important because they give negotiators power to walk away from any negotiation when the emerging deal is not very good.
Example of ‘no attractive alternative’: dealing with a sole supplier.

13. The Role of Alternatives to a Negotiated Agreement
Party A - Helal- Seller
Party B – Rahim- Buyer
H- Res P inferred
R- Initial P
Public
R- Target Point
Private
H- Target P inferred
H- Initial P
public
R- Res. P
private
If Rahim’s alternative is Tk. 142,000; then (no other factors into account), he should reject any price Helal asks above that amount.
But, price is not always the only determining factor.
130,000
133,000
135,000
140,000
145,000
150,000
H- Alternative
Private
R- Alternative
Private
142,000
134,000

14. Settlement Points
The fundamental process of distributive bargaining is to reach a settlement within a positive bargaining range.
The agreement should be the best possible result both the parties could get - both the parties should be satisfied with the outcome.
Both parties should belief that the settlement is the best they can get (although it might be less desirable than their preference).
Both parties in distributive bargaining know how they might have to settle less that what they would prefer (their target point), but they hope that the agreement will be better than their own resistance points.
This belief is important as dissatisfied negotiators might start to get out of the negotiation later.

15. Bargaining Mix
In almost all negotiations, agreement is necessary on several issues:
Price
Closing Date* of the sale
Other items related to the agreement
The package of issues for negotiation is the bargaining mix. Each item in the mix has its own starting, target and resistance points.
Closing date of sale is the date on which the ownership will be transferred to.

16. Fundamental Strategies
The prime objective of distributive bargaining is to maximize the value of the current deal.
There are four fundamental strategies:
Push for settlement near opponent’s 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
The buyer can push for a settlement close to the seller’s (unknown) resistance point, thereby yielding the largest part of the settlement range for the buyer.
The buyer can convince the seller to change his/her resistance point by influencing the seller’s belief about the value of the product/service concerned.
To create a positive settlement range or to create an overlap.
Ego satisfaction is often as important as achieving tangible objectives.

17. Keys to the Strategies
The keys to implementing any of the four strategies are:
Discovering the other party’s resistance point
Information is the life force of negotiation
Influencing the other party’s resistance point
The value the other attaches to a particular outcome
The cost the other attaches to delay or difficulty in negotiation
The cost the other attaches to having the negotiation aborted
The more you can learn about the other party’s target, resistance point, motives, feelings of confidence, and so on, the more you will be able to strike a favorable agreement. At the same time, you do not want the other party to have certain information about you that might portray a weak strategic position or an emotional vulnerability. Such issues should better be concealed. (Stein, 1996).
Central to planning the strategy and tactics for distributive bargaining is to locate the other party’s resistance point and the relationship of that resistance point to your own. Resistance point is determined by the product of the cost and worth of an outcome.

18. Tactical Tasks of Negotiators
Tactics:
Assess the other party’s target, resistance point, and the costs of terminating negotiation
Manage the other party’s impressions
Modify the other party’s perceptions
Manipulate the actual costs of delay or termination
These tactics are within the fundamental strategies of distributive bargaining concerned with targets, resistance points and the costs of terminating negotiations for a negotiator.

19. Tactical Tasks of Negotiators
Assess the other party’s target, resistance point, and the costs of terminating negotiation
Indirect Assessment: Determining what information an individual likely used to set target and resistance points and how he or she interpreted this information.
Direct Assessment: Opponent reveals the accurate information when pushed to the absolute limit and in need of a quick settlement (time shortage).
For example: In a real estate negotiation, how long a piece of property has been in the market, the financial health of the seller, how many potential buyers actually exist, how soon the buyer needs the property determines the target and resistance points of negotiators.
For example: If company executives believe that a wage settlement above a certain point will drive the company out of business, they may choose to state the absolute limit very clearly and go to considerable lengths to explain how it was determined.

20. Tactical Tasks of Negotiators
Manage the Other Party’s Impressions
Important Tactical Task- conceal and control information (target and resistance points) sent to other party.
Screening activities are more important at the beginning of the negotiation, and direct action is more useful later on.
Screen your behavior:
Say and do as little as possible. ‘Silence is golden.’
Direct action to alter impressions:
Present facts that enhance one’s position
Negotiators should justify their case through selective presentation- presenting facts necessary to support their cases.
Screening your behavior-‘Silence is golden’ when answering questions; words should be invested in asking the other negotiator questions instead. It reduces the likelihood of making verbal slips or presenting any clues that the other party could use to draw conclusions. Concealment is the most general screening activity. A look of disappointment or boredom, fidgeting and restlessness, or probing with interest all can give clues about the importance of the points being discussed.
Selectivity can be helpful in managing the other party’s impression of your preferences and priorities.

21. Direct action to Alter Impressions
Displaying emotional reaction to facts, proposals, and possible outcome is another form of direct action-
A loud, angry outburst or an eager response; disappointment or enthusiasm-> important issue
Casual acceptance; boredom or indifference-> trivial issue or unimportant
Presentation of Information
Elaborate-> important
Concise-> trivial
Length of time and amount of detail used in presenting
Casually accepting the other party’s arguments as true can convey the impression of disinterest

22. Positions Taken During Negotiations
At the beginning of the negotiation each party takes a position.
Changes in position will occur as new information concerning the other’s intention, the value of outcomes, concessions, and likely zone for settlement will come fore.
Opening offer
Where will you start?
Too Low
Too High
Modest
Effective distributive bargainers need to understand the process of taking positions during bargaining, including the importance of the opening offer and the opening stance, and the role of making concessions throughout the negotiation process.
Typically one party will change his or her position in response to information from the other party or in response to the other party’s behavior.

23. Positions Taken During Negotiations
Opening stance
What is your attitude?
Competitive? Moderate?
A reasonable bargaining position is usually coupled with a friendly stance
An exaggerated bargaining position is usually coupled with a tougher more competitive stance
Competitive: fighting to get best on every point
Moderate: willing to make concessions and compromises.

24. Positions Taken During Negotiations
Final offer (making a commitment)
“This is all I can do” or ‘’This is as far as I can go’’
No further room for movement.

25. Commitment
Commitment is an agreement or pledge to do something in the future.
It removes ambiguity about the actor’s intended course of action.
However it also limits the option and sometimes interpreted as threat to other party.
By making a commitment, a negotiator signals his or her intention to take this course of action, make this decision or pursue this objective.
Limit the option- constrained to the other party; reduced portfolio of choices.
Threat- if the other does not comply or give in, some set of negative consequences will occur.
Commitment can also involve future promises.
Commitment-if made, should be kept.
When one makes a commitment, one should also devise a graceful exit should it be needed. For the commitment to be effective, the contingency plans should be secret.

26. Commitments: Tactical Considerations
Establishing a commitment
Three properties: A high degree of Finality, a high degree of Specificity & a clear statement of Consequences. For example:
We need a raise or there will be trouble (less powerful)
We must have 10% raise in our salary or we will go for strike from next month (more powerful)

27. Summary Strategies for Distributive Negotiation:
Stg-1: Assess your BATNA and improve it
Stg-2: Determine your reservation point but do not reveal it.
Stg-3: Research other party’s BATNA and estimate their reservation point
Stg-4: Set high Aspiration: but do not pursue lowball/highball tactics
*Unrealistically low/high estimate (bid)

28. Summary Stg-5: Make the first offer
if you are prepared and have sufficient information make the first offer because it act an anchor point.
Stg-6: Appear to norm of fairness
Stg-7: Plan your concessions
Stg-8: Try not to exceed your reservation point