BUSINESS

NEGOTIATIONS
Leighton Wilks
HROD 493
Fall 2015

Agenda - Week 2
Hardball tactics
Negotiation BioPharm/Seltek
Distributive negotiation

Hardball Tactics
What kind of tactics

used in negotiations
could be described as
hardball tactics?
How should we deal
with such tactics?

Opening Stance
Will you be competitive

or moderate?
Negotiators tend to
respond in kind
Try to send a
consistent message
Difficult to switch
Sends mixed messages

The Flinch (Demur)

An extreme reaction to an

opening offer
Generates a feeling that
your counterpart has gone
beyond a reasonable level
in their opening offer
Causes your counterpart
to make two consecutive
concessions

Good Cop/Bad Cop

Bad guy presents tough

position, then good guy

tries to reach an
agreement
Very transparent with
repeated use

Highball/Lowball
Open the negotiation with

an extreme (high or low)

offer
Anchors the negotiation
toward a very high or very
low bargaining range

Silence

Bogey
Pretending that an issue of

little importance when

really it is not important
Allows you to trade this
issue off at a later date for
something that is really
important

The Nibble
Ask for a proportionately

small concession on an
item that hasnt been
discussed previously in
order to close the deal

Intimidation/Aggressive Behavior
Attempt to force the other

party to agree by means of

an emotional ployanger,
fear, guilt
Constantly pushing or
attacking the other side's
position

Snow Job
When the negotiator

overwhelms the other

party with so much
information that he or she
has trouble determining
which facts are real or
important, and which are
included merely a
distraction

Exploding Offer
Giving an offer with a time

limit attached
Create unnecessary
pressure
Restrict choice
People are notoriously bad
at making decisions given
time constraints

Using Hardball Tactics

Can you claim more from the other party if you

are a tough and offensive negotiator?

Research suggests no:
Counterpart may just walk away rather than negotiate

with you
Counterpart may understand your reputation and use
competitive tactics of their own
People are more accommodating to people that they
like than people they dislike

Dealing with Typical Hardball Tactics

Four main options:
Ignore them
Discuss them
Respond in kind
Co-opt the other party (befriend them)

Discussion

What was your strategy going into this negotiation?

Who made the first offer? Why?
What arguments did you use to persuade your

counterpart?
Buyers/Sellers what numbers did you gravitate towards?

How many people feel they were successful?

Results
Group #

Agreement Price
($million)

8.1

20

11

10

10

10.8

11.5

18

12

12.5

19

13.75

14.5

14.8

14

15.5

12

16

15

16.2

17

19

20

21

21

16

22

21

No

Discussion

Was this negotiation distributive or integrative?

Were there any issues that we could agree on?
Did any BioPharm CFOs buy Petrochek?
Why?
What would you tell The Board & CEO?

INTRODUCTION TO
NEGOTIATION
Class #2

Learning Objectives
Identify & understand distributive bargaining

situations
Understand the importance of targets, reservation
points, and BATNAs
Understand the varied tactical approaches used
in distributive situations
Recognize and defend yourself from hardball
tactics used by others

Distributive Negotiation
Also known as fixed pie, zero

sum, win-lose
One persons gain is the others
loss
Directly conflicting interests
Each person is trying to maximize

his/her share of the payoff (pie)

Value claiming!

Distributive Negotiation (Win/Lose)

Total Value

Key Point
Negotiation is:
80% preparation
20% implementation
The next slide will help you
prepare!

Key Concepts in Distributive Negotiation

Minimum preparation for any negotiation will
involve establishing the following:
Target point (aspiration point)
Resistance (reservation) point (walk away)
Asking price, initial offer
BATNA This will influence the other three

points!

Target
Your goal in the

negotiation
What price would you
like to sell/buy the item
for?
Should be realistic,
based on available
information
This is NOT your
opening offer!

Resistance Point
The point at which

you are indifferent to

whether you achieve
a negotiated
agreement or walk
away
Beyond the
resistance point, you
prefer no agreement
Never reveal your
resistance point!

Putting it Together Buying a House

Role of the Buyer
Target You would like to buy the house at a price as
close to $220,000 as possible
Resistance point You would be willing to pay up to
$235,000 before walking away

Buyers Target

215

220

Buyers Resistance

225

230

235

240

245

Putting it Together Buying a House

Role of the Seller
Target You would prefer to sell as close to $240,000 as
possible
Resistance point You have decided that you would
settle for any offer that yielded at least $225,000

Buyers Target

Buyers Resistance

Sellerss Resistance

215

220

225

Sellers Target

230

235

240

245

Bargaining Zone
The bargaining zone (or zone of potential agreement) is

defined as the space between the two parties reservation

points
$225,000 235,000

This is referred to as a positive bargaining zone and

some form of agreement should be possible

Positive Zone
Buyers Target

Buyers Resistance

Sellerss Resistance

215

220

225

Sellers Target

230

235

240

245

Bargaining Zone
What happens if:
The Buyer will pay no more than $225,000 (Buyers resistance)
The Sellers wants at least $235,000 (Sellers resistance)
This is referred to as a negative bargaining zone
It is better to walk away rather than to negotiate!
Negative Zone
Buyers Resistance

Walk Away!
Sellerss Resistance

215

220

225

230

235

240

245

BATNA
Best Alternative 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
A good negotiator will establish a BATNA prior to the
negotiation
A good negotiator will do everything possible to improve
his/her BATNA
A good negotiator will walk away from the negotiation
based on his/her BATNA

So What Exactly is this BATNA Thing?

Role of the Buyer
Target $220,000
Resistance point $235,000
What would happen if you could buy a similar/same
house for $230,000?

Buyers Target

215

220

Buyers Resistance

225

230

235

240

245

So What Exactly is this BATNA Thing?

Role of the Buyer
Target $220,000
Resistance point $235,000
What would happen if you could buy a similar/same
house for $230,000?

Buyers Resistance

Buyers Target

The buyers resistance point is stronger!

215

220

225

230

235

240

245

So What Exactly is this BATNA Thing?

Role of the Buyer
Target $220,000
Resistance point $235,000
What would happen if you could buy a similar/same
house for $230,000?

Buyers Resistance

Buyers Target

The buyers resistance point is stronger!

The buyers target may also be influenced!

215

220

225

230

235

240

245

So What Exactly is this BATNA Thing?

Role of the Buyer
Target $215,000
Resistance point $230,000
We still have a positive bargaining zone
If we meet in the middle then the buyer gains value!
$227,500 instead of $230,000

Buyers Target

Buyers Resistance

Sellerss Resistance

215

220

225

Sellers Target

230

235

240

245

So What Exactly is this BATNA Thing?

Role of the Buyer
Target $215,000
Resistance point $230,000
We still have a positive bargaining zone
If we meet in the middle then the buyer gains value!
$227,500 instead of $230,000

Buyers Resistance

Buyers Target

Sellerss Resistance

215

220

225

Sellers Target

230

235

240

245

BATNA and Resistance Point are Not the Same!

Reservation Price is BATNA +/- things that make

you want to do the deal (premium)

switching costs, ego, miscellaneous preferences

You know you can purchase a similar/same

house for $230,000 (BATNA) however:

You have negotiated for hours on this deal
You like the person you are dealing with
Cute guy/girl living next door

You are willing to pay $231,000

Your BATNA ($230,000) plus the $1000 premium

Switching Costs

Why Not Switch?

Koodo & Fido have the same plan & no contract
RBC & CIBC have the same accounts
You can get the same job at another company

The Bottom Line

The BATNA serves to help you set the

correct resistance point

The resistance point is what you use in
bargaining
Knowing the value of your BATNA helps
you protect your resistance point from
influence by the other party

Putting it Together Seltek

Target:
About $25million if you knew BioPharms resistance
May have used the common information to give you guidance

BATNA:
Reconfigure the plant - $3 million + 6 months = About $10 million

Reservation price:
$10 million (appraised value) $3 million (reconfiguration)

= $7 million

Putting it Together BioPharm

Target:
About $7million if you knew Selteks resistance
May have used the common information to give you guidance

BATNA:
Buy a plot and build (land - $500,000, building - $25 million,

shutdown costs 1 million per month)

This is a fairly weak BATNA

Reservation price:
Cost of new building ($25 million) + lost profits + experienced

workforce + FDA approval = $40 million?

Putting it Together
BioPharm
Resistance point: $25 million
Target: ????
Seltek
Resistance point: $7 million
Target????
Buyers Resistance
= $25 million

Buyers Target
= ???

Sellerss Resistance
=$7 million

Positive Zone

Sellers Target
= ???

Key Points
It is easy to talk about targets, resistance points,

& BATNAs, but in reality it is often very difficult to

establish these points
Different individuals may assign different value to
intangibles
What is an experienced workforce worth?

DISTRIBUTIVE NEGOTIATION
- STRATEGY AND TACTICS

Concession Making
When one party agrees to make a change in his/her

position, a concession has been made

When a concession is made, the bargaining range is
further constrained
Concessions can signal when negotiations are
reaching a conclusion
Getting smaller, and smaller, and smaller

Never, ever, ever make two concessions in a row

Sign of a bad negotiator (negotiating with yourself)

Guidelines for Making Concessions

1. Give yourself room to make concessions (dont start at

your target)
2. Be the first to concede on a minor issue, but not the first
to concede on a major issue
Different value on different issues

3. Make unimportant concessions, and portray them as

4.
5.
6.
7.

important
Make the other party work for the concession
Backtracking on concessions is very difficult
Keep a record, especially in complex negotiations
Do not concede too often, too soon, or too much

Fundamental Strategies
Push for settlement near opponents resistance

point
Get the other party to change their resistance
point
If bargaining range is negative, either:
Get the other side to change their resistance point
Modify your own resistance point (better to walk away!)

Convince the other party that the settlement is the

best possible

Keys to the Strategies

As a buyer I want to:
Discover the other partys resistance point
If I know the seller will sell for $225,000 then I am
going to try to push for a final price that meets the
sellers minimum requirements
Buyers Target

Buyers Resistance

Sellerss Resistance

215

220

225

Sellers Target

230

235

240

245

Keys to the Strategies

As a buyer I want to:
Influence the other partys resistance point
There is a comparable house in the
neighborhood for $220,000
Property value has gone down lately
Buyers Target
Buyers Resistance

Sellers Target

Sellerss Resistance

215

220

225

230

235

240

245

Making an Opening Offer

People believe it is

best to sit back and

wait for the first offer
Research suggests
that it is best to make
the first offer
This is due to the
anchoring effect

Results

Group #

Agreement Price
($million)

First Offer ($million)

8.1

buyer

20

buyer

11

10

13

seller

10

10.8

10

buyer

11.5

buyer

18

12

12.5

20

seller

19

13.75

buyer

14.5

14

buyer

14.8

25

seller

14

15.5

16

seller

12

16

12

buyer

15

16.2

15

buyer

17

19

37

seller

20

12

buyer

21

11.5

buyer

21

16

buyer

16

22

13

buyer

21

No

Offer by
buyer

A Quick Experiment!

The Power of an Anchor!

Is the population of

Turkey greater than

100 million?
What is the population
of Turkey?

The Power of an Anchor!

Is the population of

Turkey greater than

10 million?
What is the population
of Turkey?

The Power of an Anchor!

What is the population

of Turkey?
74 million (2011), but
that doesnt matter
People tend to attach
themselves to any
number
I could have done this
with a roulette wheel

The Power of an Anchor!

(Tversky & Kahneman)
Five seconds to answer:
1x2x3x4x5x6x7x8
Median = 512

8x7x6x5x4x3x2x1
Median = 2250
Actual = 40,320

Closing the Deal

At some point the negotiation must come to an end. Here
are some signals:
Provide alternatives (2 or 3 packages)
Counterpart chooses equal value to you

Assume the close

Act as if the deal has been made (Hardball)
Split the difference
Ok if a small concession, poor strategy if a large concession
Exploding offers (Hardball)
Deal sweeteners
Ill give you ??? If we agree to close this deal

Leightons Life Lessons

Do your Homework!
Negotiation is 80% preparation and 20%

negotiation
More on this next class
Hardball tactics can work (sometimes)
Best used sparingly and in moderation
Best used in a distributive negotiation where

there is little chance of negotiating in the future

(spoils the relationship)
Sometimes the best deal is no deal at all
No shame is not reaching an agreement

QUESTIONS?