How to engage in Distributive Bargaining

 Definition of distributive bargaining  Contrast with integrative  Why use it  Terms used in Distributive bargaining  Strategies  Tactical Tasks  Positions  Commitment  Closing Agenda

Definition of Distributive Bargaining  Limited & fixed amount of resources  Goal conflict  Each maximizes getting share of resources available to oneself  No focus on relationship  Informational context  Each provides very little information while trying to extract the most from the other

Why learn about Distributive Bargaining?  Some situations demand it  Most people use it  Can be useful at the ‘end-stage’ of an integrative bargaining situation  Creating issues, creating value, claiming value

When to use Distributive Bargaining?  Single issue  e.g., this session’s exercise  Relationship is not important

Terms used in a Distributive Bargaining Situation Target point Resistance point Initial offer Bargaining range Zone of potential agreement (ZOPA) or settlement range –Implications of Positive & negative bargaining range Best Alternative to Negotiated Agreement Settlement point (the basics of distributive bargaining)

QUANTITATIVE STRUCTURE OF THE NEGOTIATION ZOPA = Zone of Potential Agreement. Buyer’s Target Buyer’s Resistance Price Seller’s Resistance Point Seller’s Target ZOPA Seller’s Initial Offer Buyer’s Initial Offer

On the basis of your role, and guessing things about the other role’s write out the following for each role on handout Target point Resistance point Opening offer Best Alternative to Negotiated Agreement Students write…..

Plan your side & guess other party’s side Target Point Opening Offer Resistance Point BATNA Your side Other party’s side

Based on your plan, write out the following for the upcoming negotiation on a line graph Target point Resistance point Opening offer Bargaining range Zone of potential agreement (ZOPA) or settlement range Best Alternative to Negotiated Agreement Settlement point Students write…..

Plan/Guess ZOPA & Settlement Points

Strategy –have a future long term relationship with the other party –How much and what kind of information you will share which will guide tactics of conceal vs. reveal Tactics –Short-term, dynamic –Specific behaviors types of questions used, listening behaviors, brainstorming options for mutual gain Strategy vs. Tactics

Push for settlement near other’s resistance point Make extreme offers and small concessions Convince other to change his/her resistance point Increase bargaining range Create a positive settlement range Convince other it was the best possible deal Not that it is all they can get, or they are incapable of getting anymore, or they are losing Strategies used in Distributive Bargaining

Four Tactical Tasks in Distributive Bargaining 1.Assess Other Party’s resistance point, target point, and costs for stopping Negotiation 2.Manage Other’s Impressions of your target point, your resistance point and the cost of stopping negotiation 3.Modify Other’s Perceptions 4.Manipulate Actual Costs of Delay or Termination

Other’s party’s lower value of a particular issue Other’s party’s perception of how much you value issue Other’s vs. your cost to delaying/stopping negotiations 1 st Tactic: Assess other party’s resistance point Other party’s resistance point + +/- Factors affecting other party’s resistance point +/- So ask and give information appropriately!

Assess Other Party’s target point, resistance point, and costs for Stopping Negotiation Direct Getting the other party to provide accurate information about their points and validate it yourself by collecting the same – e.g., when buying a car Knowing about the other party’s negotiating history etc Covert tactics, manipulate other’s self-control & emotions (e.g., antagonize) Indirect Determine what info was used (e.g., docs, experts etc.) by other party- is it valid? Individual differences in interpretation of facts (e.g., strike fund vs. market conditions)

2 nd Tactical Task Manage Other’s Impressions of your target, resistance and cost of terminating negotiation Screening Selective silence, Calculated incompetence engendered Multiple unimportant items on agenda

2 nd Tactical Task Manage Other’s Impressions of your target, resistance and cost of terminating negotiation-- continued Directly Alter Impressions Selective presentation of facts that only support his/case, Interpret facts for the other logically in terms of costs/risks to self Display emotional reactions to facts/proposals (e.g., anger, enthusiasm)

3 rd Tactical Task: Modify Other’s Perceptions Interpret for the other party the consequences of implementing other’s proposal Conceal Information

4 th Tactical Tasks in Distributive Bargaining Manipulate Actual Costs of Delay or Termination Plan disruptive action Ally with outsiders Manipulate scheduling of negotiations: Deadlines, time pressures

Steps in Distributive Bargaining Concessions Opening Stance Final Offer First Offer

First OfferAnchoringFinal outcome of First Offer maker How First Offers Work

First OfferAnchoringFinal Outcome of First Offer maker Other Party’s Focus on own target point Other party’s focus on first offer maker’s resistance point How to mitigate the effect of First Offers

First Offers (FO) Creates advantage to offer maker Exaggerated FO get higher settlements –Creates room for negotiation –Meta-messages to other party »(long way to go, needs to make more concessions, leads other to think they mis-perceived resistance point) –disadvantages=can be rejected, conveys attitude of toughness and breeds retailiation Those with better BATNA make first offer

Opening Stance –What you say…with your offer –Competitive vs. moderate Results in other party to respond in kind –Should be consistent with first offer or it could be confusing

Initial Concessions –Initial Offer and counteroffer=bargaining range Or reject initial offer –Symbolic messages in initial concessions –Packet of opening offer, opening stance, initial concessions display firm vs flexible stance Firmness creates a climate of negotiation that is either reciprocated, or shortens negotiations

Concessions –Schema of negotiations That negotiation is about concessions later concessions are more valued Satisfied w/settlements arrived after a progression of concessions –Offer too close to your resistance point decreases bargaining range People accept offer that is better than other’s target point –Boulwarism may backfire- throwing a last offer as a ‘take it or leave it approach’ –Perception of concession maker if other party does not reciprocating as ‘weak’

Concessions –Progression of Decreasing vs. increasing sizes of concessions and reciprocation Across issues = logrolling in integrative bargaining –Size of concession & occurrence in negotiation sequence Signals resistance point, target point, interpret ratios of concessions –Try out different packages, sweeten the end Not all issues are worth the same to both negotiators = integrative bargaining skill

Final Offers Statement vs. using concession to convey ‘final offer’ Problem If other party does not recognize final offer.. May lead to negative feelings –Can make the last concession more substantial to signal final offer stage…

Commitments Taking position with explicit/implicit pledge re: future course of action eg. If bargaining position is not reached, Clarify intended behavior Can be interpreted as threat Can involve future promises Need follow-up action to be believed Can lead to loss of flexibility Tactics while using commitments Have secret contingency plans in case commitment fails Try to keep other from becoming committed Keep ways to get the other out of commitment

Features of effective commitment statements General: Have sense of finality, specific, clearly outline consequences Make public pronouncements Link with outside allies Make prominent demands (via repetition, use multiple channels) Threats/promises are reinforced (via behavior) Specific:

How to prevent other from committing prematurely? Deny time to the other party Ignore/do not acknowledge other party’s commitment But: sometimes commitment may be to self’s advantage, take notes/keep track of commitment Four ways to abandon commitment Make secret backup plan Let it die silently Restate commitment in general terms Find ‘common good’ cause for own/other’s backing off

Tactics for closing the deal Providing alternatives of equal value Assuming the close Splitting the difference: when parties start with fair opening offers Providing an exploding offer (e.g.,UTSC mgt) Sweeteners : special concession for the end

Hardball Tactics: General pointers on how to deal with them Ignore them Discuss them Respond in kind (more on this later) Co-opt the other (via friendship)

Hardball TacticBrief descriptionHow to counter Good Guy/Bad guyUse two negotiatorsOpenly describe tactic Highball/lowballextreme opening offers Bogeypretend unimportant issue is important Nibbleinclude a small issue late in negotiation ChickenExtreme commitment Intimidationfear, anger, guilt, appearing legitimate Aggressive Beh.Relentlessly push for concessionsStop negotiating and discuss process Snow JobOverwhelm other with info

Positions taken in Distributive Bargaining Beware of symbolic messages in initial concessions Are often systematic Help in determining other’s target point Be aware of messages conveyed when reciprocating concessions Boulwarism may backfire Decreasing vs. increasing sizes of concessions vis-à-vis resistance point Size of concession & occurrence in negotiation sequence Try out different packages, sweeten the end When no more concessions are made When last concession is substantial Concessions Opening Stance be consistent with opening offer Final Offer First Offer

Last points… (Jack failed to negotiate well with his nanny on her salary)