L7 : Principled Negotiation

KEY CONCEPT :

1) PRINCIPLED NEGOTIATION.
2) BATNA
3) ZOPA ( Make sure you are able to give the ZOPA for a given situation)

Focus :
1) ZOPA
2) BATNA


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NEGOTIATION : a PROCESS where 2 or more parties with different views/expectations etc are able to come to reach a MUTUALLY agreeable agreement.

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PRINCIPLED NEGOTIATION.

- a style of negotiation.

- based on principle.

- win win outcome.

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PRINCIPLED NEGOTIATION

1) separate people from issues.
focus on both.

- watch for emotion
- communciate
- listen actively.


What is separate people from issues?

People : negotiators and supporting staff.

Issues : what is being negotiated to come to a common agreement.


eg : price of the building to be sold/purchase.

Eg : if a negotiator proposed a ridiculous proposal/request, FOCUS on the proposal/request and understand why. Don't get angry with the negotiator(people) or assume he/she is stupid/unreasonable.


In the negotiation,

- don't get angry, show displeasure, don't use bully tactic.

- acknowledge if the other parties is unhappy (with our proposals, suggestions etc).

- reflect on your own behaviour in the morning negotiation, were you emotional, unresponsive.


2) POSITION VS UNDERLYING INTEREST.

POSITION :(seen, told)

- outcome, effect, what the party wants.

eg : Position : want to have chairman name on the building

UNDERLYING INTEREST :(unseen, need to discover through questions)

- the reason why the party reach the position.
- the need
- the cause

eg : Interest : the chairman is leaving and the board of directors want to honor his work or leave a legacy of his work.


3) INVENT MUTUALLY BENEFICIAL options.

- good option : low cost to you and high benefit to the other party.

eg : teach a newbie how to play online game (low cost to you , because you are an expert), high benefit to the newbies (because he can quickly become an expert without going through trial and error).


PROCEDURE :

- separate inventing options (brainstorming)
from evaluating.


4) Set OBECTIVE CITERIA

Set objective criteria to decide on which options to choose/agree upon.


Eg : use current   market price to help discuss the price to be agreed upon.


=========end of principled negotation.==================


ZOPA : Zone of possible agreement.

Given a situation/scenario, ZOPA is just a range (of pricing, dollar amount, compensation, quantifier objects) within which both parties can come to an agreement or likely to occur.


Usually, there are 2 parties :
"seller " who will offer something,
"buyer" who wants what is on offer.

Within ZOPA , there is

a) opening price (OP)
b) reservation price (RP)or walk away price
c) target price. (TP)

Generally, both parties won't reveal their RP .Thus, each need to do some detective work to guess the RP.

The seller wants to get the maximum amount possible from the deal, but generally may also set a limit for the least amount they will accept.
The least amount they are willing to accept, is known as the seller's 'Reservation Price'. This is the amount where they draw the line, also know as the 'walk away' from the deal point.
The buyer, on the other hand, wants to pay the least amount possible, but may consider a higher amount that they might be prepared to pay as well.
The maximum amount they are prepared to pay is also known as the buyer's 'Reservation Price' or 'walk away' from the deal point.

Eg :
Farsighted Faris has a business for sale.
He (seller) advertised it for $30,000 (OP) and will not go lower than $22,000 (RP)
You (buyer) came along and managed to beg/borrow/steal only $27,000 (RP)
You offerred Farsighted Faris $20,000 (OP)

The ZOPA is :

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Shang wants to buy a motorbike and install an  additional TV video system. The video system cost $800. He has a budget of  $40,000.
Rila wants to get rid of his motorbike without TV video system. He wants to sell it for min. $40800.

What is Shang walk away price?

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BATNA :
best alternative to negotiated agreement.

a) what is your plan if the deal fall through.
b) what is the amount you can get/buy from others if the deal did not get through.



eg :

You want to sell your Ferrari Almost brand new.

You friend agrees to buy from you for $135,000,guaranteed, cash on delivery.

You advertised to sell for $200,000.

Few strangers came along to offer .

Stranger 1 : $180,000
Stranger 2 : $ 155,000
Stranger 3 : $130,000.


Your BATNA is :


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ZOPA is $22,000 to $27,000

BATNA is take your friend offer, if you cannot close a deal with Stranger 1 and 2.

Stranger 3 : ask him to go and ..... take a test drive ...

Shang's  walk away price is $39200 ($40,000 - $800) .


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The process to arrrive at ZOPA.

(and hey sometime there is no ZOPA.)

Scenario :

Nathan needs to book an air ticket for a holiday. He prefers a flight with Lion Airlines where a ticket costs $700. If he cannot afford it, he will settle for a less enjoyable Tiger Airlines flight where a ticket costs $500.
Nathan has $300 only and wants to find some temporary work to pay for the rest of the ticket price.
Silvia has to hire a temporary worker for a week. The current market rate for wages is $400 per week. However, she hopes to hire someone for $300 per week.
Nathan has applied for the temporary job with Silvia. They want to negotiate how much Nathan should be paid for one week of work.
(a) What is Nathan’s reservation point?
(b) What is their Zone of Possible Agreement (ZOPA)? 

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Question to ask :

1)      What are they negotiating for – air ticket or wage?.

2)      Who are the 2 parties ?

3)      Who is the buyer (of labour) and who is the seller (of labour).

4)      For buyer  : what should be the opening price, target price and reservation price?

5)      For seller :  what should be the opening price, target price and reservation price?

6)      What is the range of seller – reservation price of seller  to reservation price of buyer ?

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