1. Distributive Negotiation: Slicing the Pie
Chapter 6
Dr. Senem SÖNMEZ SELÇUK

2. The entire process of making an opening offer and then reaching a mutually agreeable settlement is known as the negotiation dance.
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3. The Bargaining Zone & the Negotiation Dance
Typically, negotiators' target points do not overlap: The seller wants more for the product or service than the buyer is willing to pay.
However, it is often (but not always) the case that negotiators' reservation points do overlap, meaning that the most the buyer is willing to pay is more than the least the seller is willing to accept.
Under such circumstances, a mutual settlement is profitable for both parties.
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4. The bargaining zone, or zone of possible agreements (ZOPA) is the region between each party's reservation point.
The final settlement of a negotiation will fall somewhere above the seller's reservation point and below the buyer's reservation point.
Every negotiator should know certain important principles when it comes to slicing the pie.
First, it is important to realize that the bargaining zone can be either positive or negative.
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5. - Positive Bargaining Zone
In a positive bargaining zone, negotiators' reservation points overlap, such that the most the buyer is willing to pay is greater than the least the seller will accept.
This overlap means that mutual agreement is better than resorting to BATNAs.
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6. Exhibit 6-1: Positive Bargaining Zone

7. - Negative Bargaining Zone
The negative bargaining zone offers no positive overlap between the parties' reservation points.
In this situation, negotiators should exercise their best alternatives to agreement.
Because negotiations are costly to prolong, it is in both parties' interests to determine whether a positive bargaining zone is possible.
If not, the parties should not waste time negotiating: instead, they should pursue other alternatives.
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8. Exhibit 6-2: Negative Bargaining Zone

9. Bargaining Surplus
Mutual settlement is possible when parties' reservation points overlap and impossible when parties' reservation points do not overlap.
Bargaining surplus is the amount of overlap between parties' reservation points.
It is a measure of the size of the bargaining zone (what we refer to in this chapter as "the pie").
The bargaining surplus is a measure of the value that a negotiated agreement offers to both parties over the alternative of not reaching settlement. Sometimes it is very large: other times it is very small.

10. Negotiator's Surplus
The positive difference between the settlement outcome and the negotiator's reservation point is the negotiator's surplus.
Notice that the total surplus of the two negotiators adds up to the size of the ZOPA or bargaining surplus.
Negotiators want to maximize their surplus in negotiations; surplus represents resources in excess of what is possible for negotiators to attain in the absence of negotiated agreement.
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11. Exhibit 6-3: Negotiator’s Surplus

12. Pie-Slicing Strategies
Strategy 1: Assess your BATNA and improve it
Strategy 2: Determine your reservation point, but do not reveal it
Strategy 3: Research the other party’s BATNA and estimate the reservation point
Strategy 4: Set high aspirations (be realistic, but optimistic)
Strategy 5: Make the first offer (if you are prepared)
Strategy 6: Immediately reanchor if the other party opens first
Strategy 7: Plan your concessions
Pattern, magnitude (GRIT model), and timing of concessions
Strategy 8: Support your offers with facts
Strategy 9: Appeal to norms of fairness
Strategy 10: Do not fall for the “even split” ploy

13. Strategy 1: Assess your BATNA and improve it
Nothing can help a negotiator get a bigger slice of the pie than having a great BATNA.
The risk a negotiator takes from not accurately assessing his or her BATNA prior to negotiation is that the negotiator will be unduly influenced by the opponent negotiator.
Negotiators should spend a considerable amount of time attempting to improve upon their BATNA before entering into a negotiation.
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14. Strategy 2: Determine your reservation point, but do not reveal it
Unless you are willing to settle for your reservation point, do not reveal your BATNA or your reservation price during the course of negotiation, even in the friendliest of situations.
If you do, the other party will simply offer you your reservation price and you will not have any surplus for yourself.
Further, your threats to "hold out" won't work because the other negotiator will know that rationally, you are better off accepting the offer.
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15. In only two circumstances, it is appropriate to truthfully reveal your reservation price:
Situation 1: You have exhausted your time to negotiate and are about to walk out without a deal and you sense that the bargaining zone may be very small or perhaps negative. Prior to stepping on the plane or leaving the meeting, you could reveal your reservation price.
Situation 2: You have a great BATNA and consequently, an aggressive reservation price, and you would be happy if your opponent matched or barely exceeded your reservation point. In this sense, negotiators "signal" their BATNA.
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16. Strategy 3: Research the other party’s BATNA and estimate the reservation point
Even though determining the other party's BATNA may be easier said than done, negotiators often fail to do sufficient research, which reduces their power more than anything.
Negotiators can use a variety of ways to garner information that may reveal something about the opponent's alternatives.
Be careful when the other party discloses, however. When a negotiation opponent discloses his or her BATNA at the outset of the negotiation, negotiators actually make less demanding offers, disclose more truthful information, and settle for less profit than when the opponent does not disclose a BATNA.

17. Strategy 4: Set high aspirations (be realistic, but optimistic)
Your aspiration, or target point, defines the upper limit on what you can ever expect to get in a negotiation.
Because you will never get more than your first offer, your first offer represents the most important anchor point in the negotiation.
Stated simply, negotiators who set high aspirations end up with more of the pie than those who set lower aspirations. And, negotiators whose aspirations exceed those of their opponents get more of the bargaining zone.
Thus, it pays to set your aspirations high during a negotiation.
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18. However, this generalization does not mean asking for the outrageous
However, this generalization does not mean asking for the outrageous. To be sure, sometimes the "outrageous offer" will pay off.
Setting specific, challenging, and difficult goals results in greater profit than does setting easy or nonspecific goals.
Negotiators who focus on "ideals" rather than "oughts" do better in terms of slicing the pie.
However, the negotiator who focuses on ideals does not feel as satisfied as the negotiator who focuses on his reservation point or BATNA.
Do not let your reservation point drive your aspiration point: the two should be separate.
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19. Negotiators must avoid the winner's curse in which your first offer is immediately accepted by the other side because it is too generous.
This outcome signals that you did not set your aspirations high enough.
Negotiators must also avoid a strategy known as boulwarism. Boulwarism is named after Lemuel Boulware, former CEO of General Electric, who believed in making one's first offer one's final offer.
As you might expect, this strategy is not very effective, and it often engenders hostility from the other side.
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20. Strategy 5: Make the first offer (If you are prepared)
Whichever party —buyer or seller— makes the first offer, that person obtains a better final outcome.
Negotiators need to think about a number of factors when making an opening offer. First and foremost, an opening offer should not give away any part of the bargaining zone, which puts a negotiator at a pie-slicing disadvantage.
Second, many people worry that they will "insult" the other party if they open too high (if they are selling) or too low (if they are buying).
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21. Distinct advantages are associated with making the first offer in a negotiation. The first offer that falls within the bargaining zone can serve as a powerful anchor point in negotiation.
Making the first offer protects negotiators from falling prey to a similar anchoring effect when they hear the opponent's offer.
Once you put an offer on the table, be patient. It is time for your opponent to respond. In certain situations, patience and silence can be important negotiation tools. Do not interpret silence on the other person's part to be a rejection of your offer. Always wait for a response before making a further concession.
Your first offer should not be a range. By stating a range, you are giving up precious bargaining ground. Your opponent will consider the lower end of the range as your target and negotiate down from there.

22. Strategy 6: Immediately reanchor if the other party opens first
If your opponent makes an offer, then the ball is in your court. It is wise to make a counter offer in a timely fashion.
This move does two things.
It diminishes the prominence of the opponent's initial offer as an anchor point in the negotiation.
It signals a willingness to negotiate.
It is an essential part of preparation that you plan your opening offer before hearing the other party's opening —otherwise you risk being anchored by the other party's offer.

23. Strategy 7: Plan your concessions
Concessions are the reductions that a negotiator makes during the course of a negotiation.
First offers are "openers". It is rare (but not impossible) for a first offer to be accepted.
Negotiators need to consider three things when formulating counteroffers and concessions:
the pattern of concessions,
the magnitude of concessions,
the timing of concessions.
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24. - Pattern of Concessions
Unilateral concessions are concessions made by one party: in contrast, bilateral concessions are concessions made by both sides.
Negotiators who make fewer and smaller concessions are more effective in terms of maximizing their slice of the pie, compared to those who make larger and more frequent concessions.
Wait for a concession on the opponent's part before making further concessions.
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25. - Magnitude of Concessions
A second consideration when making concessions is to determine how much to concede.
The usual measure of a concession is the amount reduced or added (depending upon whether one is a seller or buyer) from one's previous concession.
It is unwise to make consistently greater concessions than one's opponent.
The graduated reduction in tension (GRIT) model is a method in which parties avoid escalating conflict so as to reach mutual settlement within the bargaining zone.
The GRIT model, based on the reciprocity principle, calls for one party to make a concession and invites the other party to reciprocate by making a concession.

26. - Timing of Concessions
By timing of concessions, we mean whether concessions are immediate, gradual, or delayed.
In an analysis of buyer-seller negotiations, sellers who made immediate concessions received the most negative reaction from the buyer —who showed least satisfaction and evaluated the object of sale most negatively.
In contrast, when the seller made gradual concessions, the buyer’s reaction was most positive —high satisfaction.
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27. Strategy 8: Use an objective-appearing rationale to support your offers
The way in which an offer is presented dramatically affects the course of negotiations.
Ideally, present a rationale that appears to be objective and invites the opponent to buy into your rationale.
If your proposals are labeled as "fair", "even splits" or "compromises" they carry more impact.
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28. Strategy 9: Appeal to norms of fairness
Fairness is a "hot button" in negotiation because most negotiators view themselves as fair, or wanting to be fair.
The ideal pie-slicing strategy is to determine which norms of fairness would be appropriate for the situation and then use these norms to argue for your own target point.
As a negotiator, you should be aware that fairness is subjective and therefore egocentric, meaning that a variety of norms of fairness exist, and negotiators usually focus on norms of fairness that serve their own interests.
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29. Strategy 10: Do not fall for the “even split" ploy
A common focal point in negotiation is the "even split" between whatever two offers are currently on the negotiation table.
The concept of the even split has an appealing, almost altruistic flavor to it.
To many of us, it seems unreasonable to refuse to compromise or meet the other person halfway. So what is the problem with even splits?
The problem is that they are based on arbitrarily arrived-at values.
Often, the person who suggests the even split is in an advantageous position. Before accepting or proposing an even split, make sure the anchors are favorable to you.

30. Avoiding Problems through Wise Pie-Slicing
Consistency
Simplicity
Effectiveness
Justifiability
Consensus
Generalizability
Satisfaction
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31. - Consistency
One of the hallmarks of a good pie-slicing heuristic is consistency or invariance acrosssettings, time, and respect to the enforcer of the procedure.
For example, most of us would be outraged if those managers up for performance review did better if the meeting was scheduled in the morning versus the afternoon.
This example represents a clear bias of the interviewer.
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32. - Simplicity
Pie-slicing procedures should be clearly understood by the individuals who employ them and those who are affected by them.
Group members should be able to easily articulate the procedure used to allocate resources.
This allows the procedure to be implemented with full understanding and the outcomes of the procedure to be evaluated against a clear criterion.
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33. - Effectiveness
Pie-slicing policies should produce a choice, meaning that the allocation procedure should yield a clear decision.
If the procedure does not produce such a decision, then conflict may erupt among group members who try to identify and implement a decision post hoc.
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34. - Justifiability
Pie-slicing procedures should be justifiable to other parties.
A fairness rule may be consistent, simple, and effective, but if it cannot be justified, it is not likely to be successful.
For example, suppose that a manager of an airline company decides that raises will be based upon hair color: Blondes get big raises, brunettes do not. This policy is consistent, simple, and effective, but hardly justifiable.
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35. - Consensus Group members should agree upon the method of allocation.
Effective pie-slicing procedures are often internalized by group members, and norms act as strong guidelines for behavior and decision making in groups.
Because social justice procedures often outlive current group members, new members are frequently indoctrinated with procedures that the group found useful in the past.
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36. - Generalizability
The pie-slicing procedure should be applicable to a wide variety of situations.
Procedures and norms develop when intragroup conflict is expected, enduring, or recurrent, and effective policy therefore specifies outcome distribution across situations.
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37. - Satisfaction
The pie-slicing procedure should be satisfying to negotiators in order to increase the likelihood they will follow through with their agreements.
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38. The Most Commonly Asked Questions
Should I reveal my reservation point?
Should I lie about my reservation point?
Should I try to manipulate the other party’s reservation point?
Should I make a “final offer” or commit to a position?
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