chapter 3 negotiation

Chapter 3

Distributive Bargaining


Defined:

“A negotiation method in which two parties strive to divide a fixed pool of resources, each trying to

maximize its share of the distribution”


Also commonly known as:A “fixed-sum” processA “zero-sum” process“Win-lose” bargaining“Hard bargaining”

Why?

Because many situations are perceived as single issue – money – and each dollar “gained” by one party is “lost” by the other party

Easily identified example: the negotiated sale of a big-ticket item (house, car) between a seller and a buyer

Three Components of a Distributive Bargaining Model

1. The parties view each other as adversaries

2. The objective of both parties is to maximize their self-interest, or share of “the pie”

3. The parties are only concerned about the content of the current negotiation and act as if they expect no future relationship

Five Negotiation Skills

Skill 3.1: Recognize a distributive bargaining situation’s three key components

Skill 3.2: Determine a reservation priceSkill 3.3: Use bracketing of the other party’s offerSkill 3.4: Recognize and use social norms to evaluate offers

Skill 3.5: Learn the framing of offers to influence how they are perceived

Chapter Case: Buying a Work of Art

Successful California artist Chris Comte has a painting titled “Sunday” on display in her studio

A vacationing couple from Texas admire the painting one day, and return the next to offer Chris $7,500. The listed price is $12,500 and Chris tells them it is one of her best works

Why is this a distributive bargaining situation?

Classic Distributive Bargaining Model

Sale of an itemBuyer and seller do not know each otherBuyer and seller do not expect to have any meaningful future relationship

Only issue to be negotiated is the priceGoals

Buyer = Minimize the priceSeller = Maximize the price


Reservation Price – Absolute minimum price that the seller will accept or the absolute maximum price that the buyer is willing to pay

s = seller’s reservation price (min. price)b = buyer’s reservation price (max. price)

If b > s = Zone of Possible Agreement (ZOPA) (Bargaining Range or Settlement Range)


0_____s________x________b_______$$

s = seller’s reservation price (min. price)b = buyer’s reservation price (max. price)x = negotiated price or final agreementZOPA = Zone Of Possible Agreement = s-b (bargaining range or settlement range)

ZOPA

“The Negotiation Dance”

Inexperienced negotiators often use the classic distributive bargaining model

They start with opening offers and then “dance around” with counteroffers until one near “x” is agreed upon

Why is this often NOT a good strategy?

Getting Distinct Advantage

Getting to know the others reservation priceThe opening offerSkill of the negotiator (Improvisation)

The Importance of Information

Skilled negotiators utilize information to support

their offers or diffuse other offers Three types of information:Relational: Facts, beliefs, and feelings about the relationships between the parties

Example: “How can you trust this is your best price?”

Substantive: Use of facts, reason, and logicExample: “Our price is based on the bank’s approval loan

limit”

The Importance of Information

Procedural: Open discussion of the negotiation process that helps understand and manage the process.

Example: “We will engage in discussions after we receive certain information”

Opening Offers

The most critical step in negotiationsYet… successful negotiators are split on strategy:Many prefer to make the opening offer while

others prefer to receive the opening offer!

Opening Offers (cont.)

Anchoring = the first number on the table may “anchor” the entire negotiation

(Common human tendency to rely too heavily on the first piece of information offered (the "anchor") when making decisions.)

Why? People often fixate on it

Opening Offers (cont.)

Three types of opening offers which can anchor the negotiationsFactsExtreme OfferPrecedent

Inexperienced negotiators may easily let the opening offer anchor the deal

BracketingDefined: The logical process of moving toward a middle point between the opening offers Example: Seller’s listed price = $15,000; buyer desires

to pay $13,000, thus opens with $11,000

Thus, a negotiator may “bracket” the other party’s opening offer by setting their own opening offer the same distance away from the desired value

Two-Party, Single-Issue Negotiation: A Work of Art

Traps to Avoid: Responses to an “Extreme” Opening Offer

Recognize it: as a “tactic,” not an insultLabel it: “Outrageous” or “Ridiculous”Follow up: with your own opening offer anchored by facts, precedent, and other information

Social Norms

After opening offers, how can parties distribute the possible gain available to both sides?

Negotiators often frame their offers by utilizing social norms:Relational: desire to maintain a positive relationshipFairness: four variationsEquality: “50-50” or “split the difference”Equity: proportional effort, inputsNeed: proportional needsStatus quo: keep current situation

Reciprocity: respond to the change from a previous offer with an equal change in your next counter

Good faith: meet and discuss options; favor offers; use information

Social Norms

Does a Social Norm Provide the “Fairest” Settlement?

“The Consistency Principle”: people need consistency and fairness in the negotiation process

The fairness norms may be the most commonly utilized

Which settlement values between $7,500 and $12,500 is “fairest”? “best”? “right”?

How Norms May Affect Counteroffers

CounteroffersFraming: a key negotiation skill Defined: The wording or context of an offerWhy framing is a key skill

“While facts and numbers are important, people attach significant meaning to words, which affects their views of a proposal”--Theodore Kheel, The Keys to Conflict Resolution

Tactics for Success: “Wait to Counter”

When receiving an offer wait a respectful period before responding

Why?A quick response implies you did not seriously consider the

offerThe other party will feel better about the process Gives you time to develop a positive response: “We considered your offer and appreciate the movement on your

part. We ask that you seriously consider our counteroffer…”

Four Types of Frames(applied to the Chapter Case)

Reframing: “This work is a solid investment – the only other Ireland piece by this artist just sold at auction for $20,000”

Focus framing: “This is the only painting of a lake the artist has done, and he’ll probably never get back to Ireland to paint another”

Four Types of Frames(applied to the Chapter Case)

Contrast framing: “If you pay for it over 24 months, the cost per month is less than the price of four tickets to a first-run play, but you will enjoy the painting for many years”

Negative framing: “You can wait to decide – but another couple looked at it earlier today and said they would be back”

Four Types of Frames Applied to Chapter Case

Reframing Offer

William Ury, Getting Past No, suggests that negotiators never say no or reject an offer instead they reframe by using questions:Ask why: “Why did you select that exact number?”Ask why not: “Why not ask for an estimate from a

professional appraiser?”Ask what if: “What if we agree to your price, but you paid for

delivery and warranty?”Ask for advice: “How would you suggest I present this offer

to my boss when she has rejected that price?”

Reframing Personal Attacks

Personal attacks have become a common tactic –don’t let emotions take over strategy

How?Prepare: Expect personal attacks, control your emotionsRecognize: The other party needs to “blow off steam”Reframe: Ignore the attack on you, reframe it on the

problemSilence: Communicates your displeasure and can be a

powerful tool

Final Negotiated Price

Shaking hands and exchanging a product for money ends many negotiations

Contingency contracts should be used if future event may alter the agreement or keep it from being signed

Negotiated Settlement

Chapter Case “Buying a Work of Art”Opening offers: Buyers = $7,500

Seller =$12,500Reservation prices: Buyers = $11,000

Seller = $8,000

(ZOPA) = $8,000 - $11,000Seller’s 1st counteroffer = $11,000 (framed by citing the number of hours invested = need norm; similar to three others sold = equity norm)

Buyer’s 1st counteroffer = $9,250

Negotiated Settlement

Seller’s 2nd counteroffer = $10,000 ($1,000 concession)

Buyers acceptNegotiated price = X = $10,000Seller’s gain = $2,500 over buyer’s opening offerBuyers’ gain = $2,500 less than seller’s listed price

Negotiation Settlement: A Work of Art

chapter 3 negotiation

Documents