TUNGHAI UNIVERSITYDepartment of International Business - Taichung

Strategy and Tactics of Distributive Bargaining

Importance of Negotiation Media\Importance Of Negotiation.flv

Foundational Overview

Business Negotiation

Distributive Integrative Multiparty

Cross Cultural Component

Importance of negotiation

The Distributive Bargaining Situation

• Goals of one party are in fundamental , direct conflict to another party– “Win-Lose” -- “Slicing the Pie”

• Resources are fixed and limited– “The more one gets, the less the other gets”

• Maximizing one’s own share of resources is the goal

Opinions on Distributive Bargaining

1. Some people like it: -- they define “Negotiation” as distributive.

2. Others:– Avoid it at all costs– Confrontational– Destructive

• Regardless, you need to know it because:1. Some situations

require it

2. Needed when we Claim Value in “Win-Win” negotiations

3. Some like to use it against you.

Summary of Use

• We use this strategy for:– One-Time Deals: Car Purchase, Condo

• When:– Relationship is not important

• Or:– When we reach the Claiming Value stage

of other negotiation strategies

The Distributive Bargaining Situation

Need advance preparation to set a:• Target point, aspiration point

– What we would like to get

• Walk-away or resistance point– What price we will not go beyond

• Asking price or initial offer– People expect a give and take– Need to consider this activity– Danger: too high or too low

The Distributive Bargaining Situation

Party B - Buyer

Party A - Seller

Walkaway Point Target Point Asking Price

Initial Offer Target Point Walkaway

The Role of Alternatives to a Negotiated Agreement

• Alternatives = 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

The Distributive Bargaining Situation

Party B - Buyer

Party A - Seller

Resistance Point Target Point Asking Price

Initial Offer Target Point Resistance Alternative

Alternative

Fundamental Strategies

1. Push for settlement near opponent’s resistance point

2. Get the other party to change their resistance point

3. Convince the other party that the settlement is the best possible

Keys to the Strategies

The keys to implementing any of the four strategies are:1. Discovering the other party’s resistance

point

2. Influencing the other party’s resistance point

Information is valuable – target price, RP, motives, feelings, confidence…

…

• How do you influence the other party in your negotiations???

Tactical Tasks of Negotiators

• Assess outcome values and the costs of termination for the other party

• Manage the other party’s impressions– What they think about your offer

• Modify the other party’s perceptions– What they think about their situation

• Manipulate the actual costs of delay or termination

Assess Outcome Values and the Costs of Termination for the Other

Party

• Indirectly– Determine information the opponent

used to set their:• Target point• Resistance points

• Directly– Opponent reveals the information

How?

The Piano…

What was the value of information in this example?

Manage the Other Party’s Impressions

1. Screen your behavior:– Say and do as little as possible

2. Selective presentation:– Use a representative (realtors, car dealers, one way information)

– Snow Job/ Kitchen Sink (unrelated information, used to hide important info)

3. Direct action to alter impressions:– Present facts that enhance one’s position– “If I accept / implement your offer, these are my

costs/risks”

4. Use emotion or time to show/hide importance

Modify the Other Party’s Perceptions

• Make outcomes appear less attractive– Add the extra activities, risks

• 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

Manipulate the Actual Costs of Delay or Termination

• Plan disruptive action– Raise the costs of delay to the other party (coffee drinkers in

restaurant)• Form an alliance with outsiders

– Involve (or threaten to involve) other parties who can influence the outcome in your favor ( BBB or Government Regulator)

• Schedule manipulations– One party is usually more vulnerable to delay than the other– Place items where you have an advantage (beginning or

end)

As everyone has deadlines…

Positions Taken During Negotiations

• Opening offer – Who?– First offer generally has

advantage…sets anchor.

• Opening stance -- what is your attitude? (competitive, moderate)– Belligerent - powerful– Matching stance - equal– ”Lets be reasonable

people who can solve the problem”

• Where will you start? (modest or exaggerated)– Exaggerated:

• Room to negotiate• Signal a lot of work to

progress/ signal need for concessions

• Error in planning by other side (they estimated wrong)

• Foolish, rejected, may damage relationship

– Moderate (expected)

Positions Taken During Negotiations

• The role of concessions:– Without them, there is

either capitulation or deadlock

• Patterns of concession making:– The pattern contains

valuable information– People expect a

progression, shows willingness to cooperate

• Packaged offers (a&b for c&d)

• Final offer (making a commitment)– “This is all I can do”

• Pre-prepared final offers- Mgmt calculates offer & dictates:– Lack of two way

communication– No listening, respect or

legitimacy for other side.

Concession Patterns

Guidelines for Making Concessions

Commitments: Tactical Considerations

• Establishing a commitment– Three properties:

• Finality, Specificity, Consequences

• Preventing the other party from committing prematurely, why?– Their commitment reduces your flexibility– Sometimes viewed as a threat– Both parties may become stuck,

deadlocked.

Commitments: Tactical Considerations

Ways to abandon a committed position:1. Plan a way out

“Given this new information, I may need to re-think my earlier position”

2. Let it die silently

3. Restate the commitment in more general terms

4. Minimize the damage to the relationship if the other backs off

5. Use technicalities: financing clause, quality discrepancy

Closing the Deal

1. Provide alternatives (2 or 3 equal value options)

2. Assume the close (Start the paperwork)

3. Split the difference (Assumes both sides started with fair initial offers)

4. Exploding offers (expires in 24 hours, preventing party from developing other alternatives)

5. Deal sweeteners (bonuses, furnishings for a condo, upgrades for a car)

Dealing with Typical Hardball Tactics

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

Typical Hardball Tactics

• Good Cop/Bad Cop• Lowball/Highball• Bogey (playing up an issue of little

importance)• Chicken• Intimidation Aggressive Behavior• Snow Job (overwhelm the other party

with information)

Good Cop / Bad Cop

• Police interrogation technique– One rough,

intimidating– One helpful, kind; tries

to reach a quick agreement before the other returns.

– Bad cop goes to cool off (make a phone call) and good cop negotiates a confession.

• Easy to identify• Easy to call-out –

simply state that you know what they are up to.

• Difficult for negotiators to act out. Takes a lot of energy that might be used to capture information.

Low Ball / High Ball

• Start with a ridiculously low (high) opening offer.

• Idea is that the extreme offer will cause negotiator to re-evaluate their opening offer

• Risk is that opponent will quit negotiating.

• Must be communication savvy in order to return to the negotiating table after a failed extreme offer.

• Don’t counter offer, ask opponent to make a more reasonable offer. Based on fair values (ch 4)

Bogey

• Focus on an issue that is not important to you. Pretend that it is critical.

• Get agreement… then later use it to

trade off for something you really want.

• Very deceptive, may be difficult to act out.

• Both sides are arguing for something that they do not really want.

• Ask probing questions to avoid getting caught: “Why do they value that issue?” List all issues. Watch out for sudden reversals in positions.

Chicken: Two cars driving towards each other, who turns?

• A large bluff & threat

• If the union does not concede the factory will shut down.

• High stakes gamble.

• Becomes a dangerous game instead of a calculated negotiation.

• May be more attractive when circumstances are dire.

US – Iraq Relations: International Chicken

Saddam Hussein stopped UN Weapons Inspections ~ November 1, 1998

US said (commitment) if UN inspectors could not continue, the US would bomb suspected chemical plants in Iraq.

Un Envoy Shaw was waiting for Saddam’s response while US sent B52 Bombers towards Bagdad.

Shaw received a letter, translated it and learned that Iraq would comply, minutes before the missiles / bombs were to be launched.

4 weeks later, Iraq again stopped UN inspections and the US initiated a 4 day bombing attach. (follow thru)

Intimidation / Aggressive Behavior

• Forced agreement through fear, emotional ploy, anger.

• Increasing the appearance of legitimacy: written corporate forms, company policy

• Guilt: push negotiator to defend their honesty, integrity diverting attention away from real negotiating issues.

• When it occurs:– Explain that your

policy is to bargain fairly, in a respectful manner. You expect the same in return.

– Authority carries no value in negotiations, you are equals.

– It does not deserve the emotional liability.

2-33

Snow Job

• Overwhelm the other party with too much information.

• Used as distractions

• Often used by governments, in 1,000 page press releases

• On Friday afternoons

• To Counter:– Ask questions until

satisfied.

– Assign technical experts as necessary (separate meetings)

– Listen carefully to all statements and look for inconsistencies.

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

Based on: “Negotiation” 5/e Roy Lewicki, McGraw Hill (2005)S

Appendix A Key Terms

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p.1

• anchor point Number, figure, or value that becomes a salient point of reference in a negotiation.

• bargaining surplus The amount of overlap between parties’ reservation points.• bargaining zone or zone of possible agreements (ZOPA) The region between parties’

reservation points in which a final settlement should be obtained.• bilateral concessions</ITAL> Concessions made by both parties.• boulwarism A bargaining style named for Lemuel Boulware, former CEO of General

Electric, in which one’s first offer is one’s final offer.• equality rule A principle that prescribes equal shares for all.• equity rule A principle that prescribes that distribution of resources should be proportional

to a person’s contribution.• face-threat sensitivity (FTS) Likelihood that a negotiator will have a negative reaction to a

threat to his or her public image, reputation, or status vis-à-vis other people in the negotiation (“face”).

• graduated reduction in tension model (GRIT) Unilateral conciliatory actions designed to de-escalate a conflict.

• loyalist A person who prefers to split resources equally, except in antagonistic relationships.

• magnitude of concessions Extent to which one party has conceded from an initial stated position.

p.2

• mixed-motive negotiation A negotiation in which parties want to cooperate with their opponent to reach mutual agreement, but must compete to maximize their share of the joint gains.

• needs-based rule A rule that states that the benefits people receive should be proportional to their needs; also called welfare-based allocation.

• negative bargaining zone A negotiation situation in which there is no positive overlap between parties’ reservation points.

• negotiation dance The process of making offers and counteroffers in a negotiation.• negotiator’s surplus The positive difference between the settlement outcome and the negotiator’s

reservation point.• pattern of concessions In negotiation, the sequence of consecutive concessions made by parties.• premature concessions Making more than one concession in a row before the counterparty responds or

counteroffers. • ruthless competitor A person who prefers to have more resources than the counterparty, regardless of

relationship.• saint In negotiations, a person who prefers to split resources equally no matter whether the relationship

with another party is positive, negative, or neutral.• suboptimal outcome In negotiation, an outcome in which negotiators leave money on the table, reach an

impasse, or are generally worse off not reaching agreement than reaching agreement.• timing of concessions In negotiation, determination of whether concessions are immediate, gradual or

delayed.• unilateral concessions</ITAL> Concessions made by one party.• winner’s curse A situation in which a negotiator makes an offer that is immediately accepted by the

opponent, thus signaling the fact that the negotiator offered too much.