DISTRIBUTIVE DISTRIBUTIVE BARGAININGBARGAINING

• There are two ways in which the parties to the negotiation can try to meet their needs. They can each try to claim as large a share of the available benefits for themselves… or, they can try to increase the total amount of benefits available to everyone

• Each of these approaches can be found in almost all negotiations

• To the extent that a negotiation is about gaining as much as possible of what is available, it is distributiveit is distributive.

• People try to get their needs met at other peoples' expense.

• A zero sum game. You try to divide up a pie so you get the majority share.

A Second WayA Second Way

• People can try to meet their needs through increasing what is available to all and making sure everyone's needs are adequately addressed.

• To the degree that people are pursuing this integrative dimension, they have a common interest of increasing the pie and their needs are integrated. This is termed integrative, principle-based, interest-based or, mutual gains bargaining

THIS WILL BE THE FOCUS OF CLASS # 3 THIS WILL BE THE FOCUS OF CLASS # 3

THE IMPORTANCE OF YOUTHE IMPORTANCE OF YOUOne of the first choices a negotiator (YOU) One of the first choices a negotiator (YOU)

has to make is whether to use distributive has to make is whether to use distributive or integrative bargainingor integrative bargaining

Ultra-integrativeUltra-distributive

Versatile

THE IMPORTANCE OF RANGE

The Importance of You

• If you are basically an accommodating, nice person, do not try to become Buzz Hargrove. It will not work. And if you are basically competitive, do not try to convince people you are a saint! Just be yourself and use the style that fits you more effectively.

BUT, BE CERTAIN YOU DEVELOP A RANGE OF SKILLS

THE REALITY IS, YOU CANNOT AFFORD TO BE

TOTALLY UNI-DIMENSIONAL -

you need to be able to do some of both

Assess the situationAssess the situation

Perceived conflict over stakes

Perceivedimportance offuturerelationship

Hi Lo

Hi

Lo

I. Balancedconcerns

II. Relationships

III. Transactions IV. TacitCoordination

Quadrant I - Balanced ConcernsQuadrant I - Balanced Concerns• The future relationship and the immediate stakes are in

balanced tension

• You want to do well but not at the cost of the future relationship

• Examples: Many employment disputes, partnerships, mergers, long-term supplier relationships, family business issues, relationships between different units of the same organization

Best strategies: Problem-solving or compromiseBest strategies: Problem-solving or compromise

Assess the situationAssess the situation

Perceived conflict over stakes

Perceivedimportance offuturerelationship

Hi Lo

Hi

Lo

I. Balancedconcerns

II. RelationshipsII. Relationships

III. Transactions IV. TacitCoordination

Quadrant II - Relationships

• Here, the relationship matters a lot and the particular matter being negotiated is secondary

• We strive to treat the other party 'well', we play by the rules and conduct ourselves well

• Examples: Healthy marriages, friendships, well- functioning work teams

Best strategies: Accommodation, problem-solving, or compromise

Assess the situationAssess the situation

Perceived conflict over stakes

Perceivedimportance offuturerelationship

Hi Lo

Hi

Lo

I. Balancedconcerns

II. Relationships

III. Transactions IV. TacitCoordination

Quadrant III - TransactionsQuadrant III - Transactions

• The stakes matter more than a continuing relationship

• Leverage counts

• Examples: Buying a car, buying a house, land transactions, many market-mediated deals

Best strategies: Competition, problem solving, or Best strategies: Competition, problem solving, or compromisecompromise

Assess the situationAssess the situation

Perceived conflict over stakes

Perceivedimportance offuturerelationship

Hi Lo

Hi

Lo

I. Balancedconcerns

II. Relationships

III. Transactions IV. TacitIV. TacitCoordinationCoordination

Quadrant IV - Tacit CooperationQuadrant IV - Tacit Cooperation

• These situations do not require formal negotiation so much as the tactful avoidance of conflictthe tactful avoidance of conflict

• Example: Two cars meet at an intersection or choosing seats in an unassigned bus or train

Best strategies: Avoidance, accommodation, compromiseBest strategies: Avoidance, accommodation, compromise

The Dual Concerns ModelThe Dual Concerns Model

CONCERNABOUTOTHERS'OUTCOMES

CONCERN ABOUT YOUR OUTCOMES

HI

LO

INACTION

PROBLEM-SOLVING

HI

YIELDING

COMPROMISING

CONTENDING

Some Characteristics ofSome Characteristics ofDistributive BargainingDistributive Bargaining

The focus is on how to get the most for The focus is on how to get the most for yourselfyourself

Distributive Bargaining Distributive Bargaining CharacteristicsCharacteristics

• Issues tend to be framed in terms of how to compromise among conflicting needs or how to choose among mutually exclusive alternatives

• Power is applied to 'wrest' concessions from the other side. The power is applied to convince the opponent they have no option but to make concessions

WHAT MIGHT BE TYPES OF POWER USED???WHAT MIGHT BE TYPES OF POWER USED???

• Information is shared only to the extent it will convince others to compromise. Information that points out weakness of the other side is 'good'

• Agreement is reached when the parties accept a proposal they believe to be better than their realistic alternatives

Distributive BargainingDistributive BargainingCharacteristicsCharacteristics (continued…)(continued…)

PREPARING FOR NEGOTIATIONS

The absolutely essential, but often neglected, first step in any negotiation

MPA 821MPA 821

Strategy Before TacticsStrategy Before Tactics• Strategy

– Overall goals - price, quantity, the "package"

– Your intended approach

– Your situation analysis

• Tactics

– Time and place

– Logistics

– Moves/countermoves/closure

– Communication

1. Preparing for the process

2. Preparing numbers and vision

3. Preparing for "end-game"

Good Preparation Means Preparing for 3 things;

Preparing for the Preparing for the ProcessProcess

What should you watch out for, what should

you be ready for?

or, put another way,

What might they expect to see in terms of your behaviour and attitudes?

Things to Think AboutThings to Think About

• How might the other party perceive this? Stakes, relationship?

• Power (influence)

• Ritual and non-task behaviour

• Uncertainty

• Conflict - 'To be, or not to be'

• Decision-making

• If possible, you need to include in your homework some analysis of your opponent and your opponent's situation including how they might think about the situation

• How might the other party perceive this? Stakes, relationship?

• Power (influence)

• Ritual and non-task behaviour

• How do you get such information?How do you get such information?

– ExamplesExamples

Preparation: Numbers and Vision

• Targets

• Resistance points

• Settlement range (window of opportunity)?

• Interests

• Alternatives

Targets

• The target is your preferred price. It is your optimal goal;

– The best targets are well researched and well reasoned as opposed to esoteric 'wishes'

– Do not set your aspiration too low! - the concept of 'the winners curse'

Reasons for Setting Targets

• It pays!

• An "anchor"

–A reference point for a decision that affects that decision. It becomes a standard against which subsequent adjustments are made. An anchor becomes a benchmark

BATNABATNA• You normally are willing to accept any deal that is

better than your BATNA.

• A BATNA is not wishful thinking.

• BATNA is not something you wish for - it is determined by objective reality

–ACCEPT THE FALLING IN LOVE RULE - develop several options

• A good BATNA is a valuable source of negotiating power

Resistance Point

• This is your 'bottom line' or the point beyond which you will not go

• This is where you will 'walk away‘

• The point beyond which you will not accept a deal and will turn to your BATNA. The reservation point is the quantification of BATNA, the trigger point where you will take your next best alternative instead of negotiating. (Informally, this is often called "your bottom line.")

Settlement RangeSettlement Range

• The settlement range, sometimes called the bargaining range, is the spread between resistance points

• This is the area where bargaining takes place

TODAY…TODAY…• A bit of hands on experience with

– key concepts– The act of planning thoroughly

• The concept of distributive bargaining and the elements

• Some ‘tactics’• Offers or asking and counters

– Hands on experience if time• CASE 1 AND STRUCTURE

Resistance Point Target

AskingPrice

SELLERConcession Making

Initial Offer Target ResistancePoint

Concession MakingBUYER

• Be sure to identify ALL the issues in negotiation - Do not focus just on one

1.Identify alternatives for EACH issue

2.Think about how they might be packaged, i.e.. for a job offer

•Why, if asked to state your expected salary range in a job interview, should you not answer with a range?

• Define your 'walk away point' in advance

• Have and/or develop a good alternative

• Ignore your relationship with the other side - focus only on this deal

• Get as much information as you can without giving much up - the power of questions

• SET THE OPENING AS HIGH OR LOW AS SET THE OPENING AS HIGH OR LOW AS POSSIBLE! THIS IS NOT THE TIME TO BE NICE!POSSIBLE! THIS IS NOT THE TIME TO BE NICE!

Having done all this, Having done all this, you you now need to make the same now need to make the same

assessment of where you assessment of where you think the other side is on think the other side is on

each of these key points!!!each of these key points!!!NOTE THE DETAIL THAT GOES IN TO

PLANNING YOUR APPROACH TO NEGOTIATION AND TRYING TO ANTICIPATE THE OPPOSITION’S

SITUATION

Questions: KarrassQuestions: Karrass.Questions are mind openers. They lead both buyer and seller into more active involvement with each other .Give a lot of attention to the questions you will ask during preparation☼☼ . . . .☼☼ . . . .Questions and answers can be looked at as negotiation in their own right. Every question has the character of a demand. Every answer is in a sense, a concession .Try to keep your questions ‘open ended’.

Questions early on should seek Questions early on should seek general information aboutgeneral information about,,

• What the other person thinks will be achieved,

• What expectations they have about each side’s goals.

• Attitudes on key issues,• Interest in developing or maintaining a

relationship,• Outside constraints-real or perceived.

The matter of agendaThe matter of agenda• Agendas stipulate the important issues for

negotiators.

• RECOGNIZE that setting the agenda is a negotiation in and of itself. Agenda building lets you situate issues in a manner conducive to attaining your goals. It also lets you trade issue positioning with the other side which shows ‘good will’. BUT make sure you trade lower important issue positioning!

– Here again-preparation is criticalHere again-preparation is critical

Distributive BargainingDistributive Bargaining

• Alternatives are used as 'leverage' to convince others to compromise or give up potential benefits

Distributive BargainingDistributive BargainingCharacteristics Characteristics (continued…)(continued…)

Leverage means the tools negotiatorsLeverage means the tools negotiators use to give themselves an advantage or increaseuse to give themselves an advantage or increase

the probability of achieving their objectives.the probability of achieving their objectives.WHAT ARE SOME EXAMPLES??WHAT ARE SOME EXAMPLES??

Negotiation is a process of give and take

• The process exchanges:

1.Information

2.Concessions

Changes in positions are usually accompanied by new information concerning the other's

intentions, the value of outcomes, and likely area of settlement

Opening Offer or BidOpening Offer or Bid• Do not set your initial bid or offer too near

your final objective. Assume your opponent will always table maximum positions first

• There is STRONG research evidence that high and even extreme opening offers get higher settlements than those that are low or modest

Advantages of a High Opening Bid

1. It gives you room to maneuver as more information becomes available

2. It sends a strong message that:

–There is a long way to go to a settlement

–More concessions than the opponent had planned may may be necessary

Risk of a High Opening BidRisk of a High Opening Bid

1. You may alienate the opponent to the point they may just say "Get lost!"

2. It may damage future negotiations between the parties

3.3. IF YOU CHOOSE TO OPEN HIGH, BE CERTAIN IF YOU CHOOSE TO OPEN HIGH, BE CERTAIN TO HAVE A CONTINGENCY PLAN TO DEAL TO HAVE A CONTINGENCY PLAN TO DEAL WITH ABRUPT REJECTIONWITH ABRUPT REJECTION

CONCESSIONS

• An opening offer is usually met by a counteroffer, and these two offers define the initial bargaining range

• After the first round of offers, the next step is to decide what movement or, concessions are to be made.

• NOTE; the first concession conveys a message, frequently a symbolic one, to the other side.

Role of ConcessionsRole of Concessions

• Avoid the resentment of the 'take it or leave it' scenario

• By beginning with an opening offer not close to your resistance point, you insure some room for YOU to make some concessions which plays to the psychology of bargaining

Some Rules Some Rules BeforeBefore Starting Starting ConcessionsConcessions

1. Do not set your initial demand near your final objective

2. Do not ever underestimate your power = knowledge + bargaining skill + resources

3. Do not EVER be intimidated by boorishness

4. Do not reveal your power too early

Some More Rules for ConcessionsSome More Rules for Concessions Never accept the first offer

Never give a concession without getting one in return

Never lose track of how many concessions you have made

Some Rules for Some Rules for ConcessionsConcessions

4. Try not to make the first concession on important issues.

1. How might you do this while keeping the negotiation ‘alive’ and moving??

5. Do not go into a negotiation without listing every issue you can imagine beforehand. Establish an aspiration level, a minimum, and an initial asking price for eacheach issue.

Often it helps to role play the session. ( This is a particularly effective planning method for people who are not very confident in their negotiating abilities.)

Some Rules for Concessions Some Rules for Concessions (continued…)(continued…)

6. Do not be reluctant to ask that an initial demand that you feel is too high be lowered BEFORE you make a counteroffer.

Some Rules for Concessions:The Matter of Rate/Pattern

1. Buyers who start with low offers do better than those who do not. Niceness does not count!

2. Sellers who are willing to take less, get less.

3. People who give a little at a time do better.

4. Bargainers with a clear pattern lose!

Some Rules for Concessions:Some Rules for Concessions:The Matter of The Matter of Rate/PatternRate/Pattern

(continued…)(continued…)

• Never make concessions in a predictable pattern

• Different concession rates send different messages

Some Rules for Concessions:Some Rules for Concessions:The Matter of The Matter of Rate/PatternRate/Pattern

(continued…)(continued…)

• Ideally you should start low and 'give in' very slowly over a long period of time.

• When you sense concessions are getting smaller, the opponent's resistance point may be near.

Some Rules for Concessions:Some Rules for Concessions:• When making a concession, do not assume your

actions speak for themselves. Let it be known what you have given up- or what you have stopped demanding

• Emphasize the benefits to the other side.. Malhotra’s research indicates negotiators reciprocate concessions based on the benefits they receive, not the other side’s sacrificesnot the other side’s sacrifices

• YOU define the reciprocity you expect for YOUR concession

SOME TACTICS OF WHICH SOME TACTICS OF WHICH YOU NEED TO BE AWAREYOU NEED TO BE AWARE

YOUR ASSIGNMENT FOR DEMONSTRATION

CASECASE

ROLE PLAYROLE PLAY

DEBRIEFDEBRIEF