1. Lodi Wine Grape Growers
Jim Olson January 9, 2017 Graduate School of Management University of California, Davis

2. What is negotiation?
Negotiation is a form of decision making in which two or more parties talk with one another in an effort to resolve their opposing interests. (Pruitt, 1981, p. xi)
A “win-win” decision-making process by which two or more parties are trying to find a mutually acceptable solution to a complex conflict.
NOT a “win-lose” process

3. The Science of Negotiation

4. Common Negotiation Process
Preparation
Strategy selection
Information Exchange
Explicit talking and listening
Agreement
Commitment

5. How to Practice “Principled” Negotiation
Separate the people from the problem
Focus on interests, not positions
Generate a variety of options before making a decision
Insist the result be based on some objective standard

6. Important Concepts in Principled Negotiation
Interests: Underlying desires, goals, needs
Issues: Tangible points of agreement that can help you achieve your interests
Positions: Specific values for the interests you define above. A range of values for acceptable agreements or just a starting position
BATNA: Best Alternative To a Negotiated Agreement (NOT A NUMBER!)
Reservation Price:
Price at which you are indifferent to whether a negotiation reaches agreement or doesn’t
Closely related to your BATNA

7. Important Concepts in Principled Negotiation
Interests: Underlying desires, goals, needs
Region prominence
Region affluence
Individual wealth and derivatives
Issues: Tangible points of agreement that can help you achieve your interests
Price
Length of contract
Yield
Variety
Farm plan
Brix
Other

8. Important Concepts in Principled Negotiation
Positions: Specific values for the interests you define above. A range of values for acceptable agreements or just a starting position
BATNA: Best Alternative To a Negotiated Agreement (NOT A NUMBER!)
Other customers
Other uses
Other products
Reservation Price:
Price at which you are indifferent to whether a negotiation reaches agreement or doesn’t
Closely related to your BATNA

9. Prepare 1. Answer the following questions:
What are my interests, what do I want to achieve?
What are the specific issues that will help me achieve these interests?
What are my target and bottom-line positions on each issue?
What are my opponent’s interests?
What are the specific issues that will help my opponent achieve those interests?
What are my opponent’s target and bottom-line positions on each issue?

10. Prepare 2. Develop several alternative agreements 3. Define your BATNA
Set aside time for creative brainstorming before the negotiation
Put together several agreements with various outcome positions for each issue
3. Define your BATNA
The more attractive your BATNA, the more power you have
The best alternative for you may be no agreement

11. Define your strategy and carry out tactics
Strategies can be based on:
Your desire/concern for OUTCOMES
Price, power, working conditions, etc
Your desire/concern for the RELATIONSHIP
Trust, friendship vs. distrust, antagonism
5 Basic Strategies
Collaborative
Competitive
Accommodating
Avoiding
Compromising

12. Negotiation Strategies
Accommodating
Lose to win
Collaborative
Win-win
Avoiding
Lose-lose
Competitive
Win-lose
Win at all costs
High
Importance of Relationship
Compromise
Split the difference
Low
Low
Importance of Outcomes
High

13. Distributive dimensions of negotiation
The goal of any negotiation is not just to reach an agreement, but to reach one that is better than what you could get without negotiating (Better than your BATNA)

14. Prescriptions for rational distributive bargaining
Define the interests, issues, positions, BATNAs, and reservation prices for you and your opponent
Determine the bargaining zone for quantitative issues (e.g. Price)
Bargaining Zone (or ZOPA – zone of potential agreement)
Quantitative range of settlements where both parties are better off than without the negotiation
Range of prices where both parties’ reservation prices overlap
Reservation Price:
Price at which you are indifferent to whether a negotiation reaches agreement or doesn’t
Closely related to your BATNA

15. Positive Bargaining Zone
Seller’s lowest price overlaps with buyer’s highest price
No bargaining zone is when there is no overlap in reservation prices
Positive bargaining zone
$20
$50
$75
$100
Buyer’s Target Price
Seller’s Reservation Price ($50)
Seller’s Target
Buyer’s Reservation Price ($75)

16. Seller’s Reservation Price ($50)
Make tables assessing potential outcomes at different settlement prices
Settlement price Seller interest satisfied Buyer interest satisfied
$50 $0 above reservation $25 below reservation
$60 $10 above reservation $15 below reservation
$70 $20 above reservation $5 below reservation
Positive bargaining zone
$20
$50
$75
$100
Buyer’s Target Price
Seller’s Reservation Price ($50)
Seller’s Target
Buyer’s Reservation Price ($75)

17. Consider the potential integrative dimensions of the negotiation
Determine if other issues exist besides price
Determine what interests price may represent (i.e. price may be a proxy for status)
Determine if other costs can be incorporated into the negotiation and treated as interests

18. Knight Excalibur Negotiation Exercise
In carrying out this negotiation, remember to think about:
Interests
Mine Counterpart’s
BATNA, Target and Reservation Price
Bargaining Zone (ZOPA)
Potential Trade-offs

19. Knight/Excalibur Positions, BATNAs, and Reservation Prices
Knight Positions
$500?
$470?
Knight BATNA
Buy from someone else?
No bid government deal?
Knight RP
$600
Excalibur Positions
$600?
$480?
Excalibur BATNA
Hank’s SM Tractor
Excalibur RP
$100
Knight
Excalibur RP
$100
$600

20. Impact of the First Offer
First offers often act as an anchor from which people fail to adjust appropriately
Final agreements are more strongly influenced by initial offers than by subsequent concessionary behavior
Initial offers provide an anchor
Re-anchor!!

21. How Do You Re-Anchor?
Make a quick counter-offer that is just as aggressive
Threaten to walk away
Ask the other person to try again
Ask them to explain their reasoning
Make a joke

22. Concessions Allow yourself room to make concessions
Develop a rationale around each of your concessions
Make bi-lateral, not uni-lateral concessions: Don’t reward obstinate behavior with concessions!!
Signal information in the size of your concessions
Make your concessions smaller as you approach your goal

23. A word about power, influence, and leverage
Power: A position or attribute that allows one to use influence to get individuals and groups to behave in desired ways
Influence: The processes used to affect the beliefs, perceptions, and motivations of individuals and groups to behave in desired ways
Leverage: A situational advantage based on the balance of needs and fears

24. The Art of Negotiation

25. Game Theory Game Theory
Branch of applied mathematics devised to analyze certain situations in which there is an interplay between parties that may have similar, opposed, or mixed interests. “Britannica”
Developed by John von Neumann and Oscar Morgenstern in their book The Theory of Games and Economic Behavior (1944)
Players try to outsmart one another by anticipating the others’ decisions or moves
A solution to a game prescribes the optimal strategy(s) for each player and predicts the average, or expected, outcome.
Simple to extremely complex applications and very useful in negotiations

26. Game theory in negotiations
Know as much about your opponent as possible
In addition to interests, positions, BATNAs and reservation prices…
Know what “makes them tick”
Order the “discussion agenda” to your maximum advantage

27. The “art” of agenda design
“I want a raise”
“I want a raise”
1. Let’s discuss my salary
2. We won a huge contract
3. We lost a medium contract
4. We know why and are going to win the next one
1. We lost a medium contract
2. We know why and are going to win the next one
3. We won a huge contract
4. Let’s discuss my salary

28. Movie and dinner “game”
You and your partner don’t care whether you go see Hunger Games (near the Chinese restaurant) or Star Wars (near the Italian restaurant)
But you definitely want Italian food for dinner
Your partner loves Chinese food
How do you order the agenda?

29. Business strategy as driver of negotiation strategy
Well defined interests, issues, BATNA of yourselves
Well understood interests, issues BATNA of your customers
What are your strategic and tactical alternatives?
Expanding the pie beyond your competitor’s reach
Identify and exercise sources of power, influence, and leverage
Marketing strategy – push
Social network marketing strategy – pull
Branding
Inglenook  Niebaum Coppola  Rubicon  Inglenook
More

30. Top Ten Key Success Factors
HUGE customer value proposition
LACK of competitor presence
HIGH barriers to entry/scale
SIGNIFICANT core competence
HUGE market and growth opportunity
HIGH revenue potential
HIGH profit potential
LOW cost of entry (for you!)
LOW business risk
HIGH long term strategic value
12/25/2018
WestShore Management Group Proprietary and Confidential

31. The Business Plan Outline
Business summary
“The problem”
The company solution
Customer/market opportunity
Product roadmap
Competition matrix
Marketing/distribution strategy
Manufacturing (if any) strategy
Business model/3-year financial plan
The team
Financing terms
Summary
12/25/2018
WestShore Management Group Proprietary and Confidential

32. The Lodi “problem” Every single business problem has a solution
A key part of the solution is solid negotiation strategy and tactics
Lasting solutions come from ”inside” knowledge, fresh “out-of-the-box”-thinking, patience, perseverance, trial and error, and execution
There is a Lodi “solution”

33. Lodi Wine Grape Growers
Jim Olson January 9, 2017 Graduate School of Management University of California, Davis