1. Strategy and Tactics of Distributive Bargaining

2. Negotiation is an interpersonal decision-making process by which two or more people agree how to allocate scarce resources
Two Main Types of Negotiation:
Adversarial (Win-Lose): Negotiation is a contest. Each side pursues its own interests – at the expense of the other, if necessary.
Cooperative (Win-Win): Negotiation is a collaboration. Both sides work together for mutual satisfaction.

3. Distributive Bargaining: Slicing the Pie
also known as competitive, adversarial, or win-lose bargaining
the goals of one party are usually in fundamental and direct conflict with the goals of the other party
resources are fixed & limited, and both parties want to maximize their share of the resources
one party tries to give information to the other party only when it provides a strategic advantage

4. negotiation power depends on the information one can gather about the other party
negotiating parties focus much on their differences that they ignore what they have in common
3 Reasons to Understand Distributive Bargaining:- See Board
3 Situations When Distributive Bargaining is Effective: See Board

5. The Distributive Bargaining Situation
Preparation—set a
Target point, aspiration point
Walkaway, resistance point
Asking price, initial offer

6. The Role of Alternatives to a Negotiated Agreement
Alternatives give the negotiator power to walk away from the negotiation
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
BATNA –Best alternative to a negotiated agreement

7. Basic Concepts
Target Point – the point at which a negotiator would like to conclude negotiations; his optimal goal or aspiration
Buyer’s Target Point (BT) – the optimal (lowest) price buyers would like to pay
Seller’s Target Point (ST) – the optimal (highest) price sellers would like to set

8. Resistance (or Reservation) Point – the negotiator’s bottom line
Buyer’s Resistance Point (BR) –the highest price buyers are willing to pay
Seller’s Resistance Point (SR) – the lowest price sellers are willing to set

9. Asking Price – the initial price set by the seller; seller’s opening bid
Initial Offer – the first price that the buyer will quote to the seller; buyer’s opening bid
Settlement Point – the price that both buyer and seller will agree upon

10. Bargaining Range – the spread between the resistance points; a. k. a
Bargaining Range – the spread between the resistance points; a.k.a. settlement range or zone of potential agreement
Bargaining Range Absolute Value – the difference between the buyer’s & seller’s resistance points

11. Positive Bargaining Range – when the buyer’s resistance point is above the seller’s; negotiation is possible
Buyer’s Bargaining Range
Seller’s Bargaining Range
Positive Bargaining Zone
Buyer’s Target Point (BT)
Seller’s Resistance Point (SR)
Seller’s Target Point (ST)
Buyer’s Resistance Point (BR)

12. Negative Bargaining Range – when the seller’s resistance point is above the buyer’s; negotiation is impossible
Buyer’s Bargaining Range
Seller’s Bargaining Range
Negative Bargaining Zone
Buyer’s Target Point (BT)
Buyer’s Resistance Point (BR)
Seller’s Target Point (ST)
Seller’s Resistance Point (SR)

13. Negotiator’s Surplus – the positive difference between the settlement point and the negotiator’s resistance point
Buyer’s Bargaining Range
Seller’s Bargaining Range
Seller’s Surplus BT SR ST BR
Settlement Point
Buyer’s Surplus

14. Illustrative Case: Larry and Monica
Larry wanted to move closer to where he works. After some time, he found a house that met his requirements. The seller, Monica, set the asking price at $145,000, which was $10,000 above what Larry hoped to pay but $5,000 below the most he would be willing to pay. Larry knew that the more he paid for the house, the less he would be able to make some very desirable alterations, buy draperies and some new furniture, and hire a moving company.

15. Monica already had attractive drapes in the house
Monica already had attractive drapes in the house. She was moving to a new house; if she could not use the drapes in the new house, Larry might be able to purchase them or ask Monica to include them with the sale. The same might be true for several rugs, hall tables and other items.
Note:
Assume further that the seller’s resistance point is 20% below the asking price

16. Identify the following elements:
Larry’s target point
Larry’s resistance point
Monica’s asking price
Monica’s resistance point
Bargaining range
Bargaining range absolute value
Settlement point (seller’s surplus is 65%)
Settlement point (buyer’s surplus is 90%)

17. Answers:
Larry’s target point: $135,000
Monica’s asking price, $145,000, was $10,000 above what Larry hoped to pay:
$145,000 - $10,000 = $135,000
2. Larry’s resistance point: $150,000
Monica’s asking price, $145,000, was $5,000 below the most Larry would be willing to pay:
$145,000 + $5,000 = $150,000

18. 3. Monica’s asking price: $145,000
Monica’s asking price was already explicitly stated in the case
4. Monica’s resistance point: $116,000
The seller’s resistance point was assumed to be 20% below the seller’s asking price:
($145,000)(0.20) = $29,000
$145,000 - $29,000 = $116,000

19. 5. Bargaining range: $116, $150,000
This is simply the spread between the buyer’s and seller’s resistance points
6. Bargaining range absolute value: $34,000
The difference between the buyer’s & seller’s resistance points:
$150,000 - $116,000 = $34,000

20. 7. Settlement point (if the seller’s surplus is 65%): $138,100
The difference between the buyer’s & seller’s resistance points (bargaining range absolute value):
$150,000 - $116,000 = $34,000
Seller’s surplus is 65% of the bargaining range absolute value:
($34,000)(0.65) = $22,100
Settlement point (SR + seller’s surplus):
$116,000 + $22,100 = $138,100

21. Buyer’s Bargaining Range Seller’s Bargaining Range
Seller’s Surplus (65%) BT SR ST BR
Settlement Point
Buyer’s Surplus
$116,000
$150,000
$138,100
$22,100
$34,000

22. 8. Settlement point (if the buyer’s surplus is 90%): $119,400
The difference between the buyer’s & seller’s resistance points (bargaining range absolute value):
$150,000 - $116,000 = $34,000
Buyer’s surplus is 90% of the bargaining range absolute value:
($34,000)(0.90) = $30,600
Settlement point (BR - buyer’s surplus):
$150,000 - $30,600 = $119,400

23. Buyer’s Bargaining Range Seller’s Bargaining Range
Seller’s Surplus BT SR ST BR
Settlement Point
Buyer’s Surplus (90%)
$116,000
$150,000
$119,400
$30,600
$34,000

24. 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

25. Keys to the Strategies
The keys to implementing any of the four strategies are:
Discovering the other party’s resistance point
Influencing the other party’s resistance point

26. Manage the other party’s impressions
4 Tactical Tasks relating to targets, resistance points and costs of terminating negotiations
Assess other party’s Target, Resistance Point and the costs of termination for the other party
Manage the other party’s impressions
Modify the other party’s perceptions
Manipulate the actual costs of delay or termination

27. 1/ Assess Outcome Values and the Costs of Termination for the Other Party
Indirectly
Determine information opponent used to set:
Target
Resistance points
Directly
Opponent reveals the information

28. 2/ Manage the Other Party’s Impressions
Screen your behavior:
Say and do as little as possible
Direct action to alter impressions
Present facts that enhance one’s position

29. 3/ Modify the Other Party’s Perceptions
Make outcomes appear less attractive
Make the cost of obtaining goals appear higher
Make demands and positions appear more or less attractive to the other party –whichever suits your needs

30. 4/ Manipulate the Actual Costs of Delay or Termination
Plan disruptive action
Raise the costs of delay to the other party
Form an alliance with outsiders
Involve (or threaten to involve) other parties who can influence the outcome in your favor
Schedule manipulations
One party is usually more vulnerable to delaying than the other

31. Positions Taken During Negotiation:
Opening Offer
Opening Stance
Initial & Subsequent Concessions
Final Offer

32. Guidelines for Making Concessions:
Give yourself enough room to make concessions.
Try to get the other party to start revealing their needs and objectives first.
Be the first to concede on a minor issue but not the first to concede on a major issue.
Make unimportant concessions and portray them as more valuable than they are.

33. Make the other party work hard for every concession you make.
Use trade-offs to obtain something for every concession you make.
Generally, concede slowly and give a little with each concession.
Do not reveal your deadline to the other party.
Occasionally say “no” to the other negotiator.

34. Be careful trying to take back concessions even in “tentative” negotiations.
Keep a record of concessions made in the negotiation to try to identify a pattern.
Do not concede “too often, too soon, or too much.”

35. Establishing a Commitment:
Public Pronouncement
Linking with an Outside Base
Increase the Prominence of Demands
Reinforce the Threat or Promise

36. Closing the Deal:
Provide Alternatives
Assume the Close
Split the Difference
Exploding Offers
Sweeteners

37. Hardball Tactics – designed to pressure negotiators to do things they would not otherwise do; work best against poorly-prepared negotiators
Dealing with Hardball Tactics:
Ignore Them
Discuss Them
Respond in Kind
Co-opt the Other Party

38. Typical Hardball Tactics:
Good Cop/Bad Cop
Lowball/Highball
Bogey
The Nibble
Chicken
Intimidation
Aggressive Behavior
Snow Job

39. Summary Negotiators need to: Set a clear target and resistance points
Understand and work to improve their BATNA
Start with good opening offer
Make appropriate concessions
Manage the commitment process