Elements of Negotiation

Parties
It is important to identify who the players are in a negotiation. A party is a person (or group
of persons with common interests), who acts in accord with his or her preferences. Parties are
readily identified when they are physically present, but often, the most important parties are
not present at the negotiation table. Such parties are known as the hidden table. Very often a
negotiator needs to get a result, that satisfies the hidden table.

Issues
The issues are the resources to be allocated or the considerations to be resolved in negotiation.
For example, in a land dispute, the issues may be particular plots, mineral and water rights,
method of payment, development rights, and so on. In an employment negotiation, the issues
may be salary, job responsibilities, health coverage, and so on. A central element of
successful negotiation is identifying the issues. Although it might seem that negotiations
would be better for everybody involved if the issues were simplified and fewer in number, in
fact, the opposite is true. More issues provide negotiators with more opportunities to construct
tradeoffs among issues.

Alternatives
The alternatives correspond to the choices available to negotiators for each issue to be
resolved. For example, in the land dispute negotiation, the alternatives for the mineral rights
may range from no rights to complete mining rights. In the employment negotiation,
alternatives for medical coverage may include premiums, selection of health maintenance
organizations, deductibles, dependent care, and so on. The more alternatives negotiators
identify and create, the better.

Interests and Positions

Positions are the stated wants a negotiator has for a particular issue. Interests are the
underlying needs that a negotiator has. For example, in an employment negotiation, salary is
an issue. Requesting 75.000 Euro is a position. The negotiator's underlying interest might be
the ability to afford a home mortgage payment to be paid off in 15 years or to send children to
college in 18 years. Usually, negotiators' needs may be met by a variety of positions. A key to
successful negotiation is to move away from positional bargaining into a discussion of
underlying interests and needs.

Negotiation Process
The negotiation process is the events and interaction that occur between parties before the
outcome (or settlement). The process of negotiation includes all the verbal and nonverbal

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 Elements of Negotiation

interchange among parties, the enactment of bargaining strategies, and the external or
situational events affecting the interaction between negotiators..

Negotiation Outcome
The negotiation outcome is the product or endpoint of the bargaining. Negotiations may end
in impasse, wherein parties do not reach a settlement. Such situations are also known as
stalemates or deadlocks. In some cases, parties may elect to have a third party intervene and
possibly impose a settlement.

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Preparation for Negotiation -Target Points, Reservation Points and BATNA

Target point
A target point represents a negotiator's most preferred or ideal settlement. Target points
should represent realistic appraisals. Typically, negotiators' target points do not positively
overlap – for example the seller wants more than the buyer is willing to pay.

Reservation Point
A reservation point (walkaway point) is the point at which a negotiator is indifferent bet-
ween reaching a settlement and walking away from the bargaining table. The outcome of
negotiation depends more on the relationship between parties' reservation points than on their
target points. A common flaw in preparing for negotiations is to concentrate on the target
point and not on the reservation point. This can lead to two unfortunate outcomes: People may
agree to terms that are worse for them than what they could attain by engaging in a different
course of action, or people reject offers that are better than any other alternative.

BATNA
You always have to know the potential consequences of failing to reach an agreement. You
need to accurately asses your Best Alternative To a Negotiated Agreement (BATNA). The
most important source of power in negotiation is a person's BATNA. The more attractive or
valuable the alternative to negotiated agreement, the greater the chances for good personal
and joint outcomes. The better your own alternative relative to an opponent's one, the larger
your piece of the resource pie. Clearly, the best way to enhance individual gain in negotiation
is to enhance your BATNA. If you know your BATNA, you can easily determine your
reservation price. To accurately asses your BATNA (and your reservation point) involves a 4
step process:

Step1: Brainstorm Your Alternatives: Step 1 involves thinking about what you will do in
the event that you do not get an offer which corresponds to your target. For example, imagine
that you are selling your house. You have already assessed your target price – in this case,
275.000 Euro. What if you don't get an offer of 275.000. Perhaps you may reduce the list
pirce by 10.000 Euro (or more); or perhaps you may stay in the house; or you may consider
renting. Another example: Rather than buying a new car from a particular dealer, one
alternative you could consider is to use mass transit. Alternatively, you could buy the same
car from another dealer or buy a used car.
Step2: Evaluate Each Alternative: Order the various alternatives identified in Step 1 in
terms of their relative attractiveness, or value, to you. If an alternative has an uncertain
outcome, such as reducing the list price, you should determine the probability that a buyer
will make an offer at that price. Your reservation price is based on research, not hope! The
best, most valuable, alternative should be selected to represent your BATNA.

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Preparation for Negotiation -Target Points, Reservation Points and BATNA

Step3: Attempt to Improve Your BATNA: Your bargaining position can be strengthened
substantially to the extent that you have an attractive, viable BATNA. Unfortunately, this is
the step that many negotiators fail to fully develop. For example, in the house selling case
mentioned before, you might contact a house rental company and develop your rental options,
or your may make some improvements that have high return on investment (e.g., new paint).
Of course, your most attractive BATNA is to have an offer in hand on your house.
Step4: Determine your Reservation Point: Once you have determined your most attractive
BATNA, it is time to identify your reservation point. Once again, it is not effective
negotiation strategy to pull this number out of thin air. It must be based on fact.

In the house selling example, suppose that you assess the probability of getting an offer on
your house of 265.000 Euro (or higher) within the next six weeks to be 60%. Suppose that
you assess the probability that you will get an offer of 250.000 Euro or higher to be 95%. You
think there is a 5% chance that you won't get an offer of 250.000 Euro. Assume when renting
your house, it will be worth 100.000 Euro to you at present time. Your reservation price in
this case would be: (265.000 * 0.6) + (250.000 * 0.35) + (100.000 * 0.05) = 251.500
This value would be your reservation price. It means that you would never settle for anything
less than 251.500 Euro in the next six weeks. Obviously you want to get a lot more, but you
are prepared to go as low as this amount at the present time. An offer that you receive in the
next six weeks can change your reservation point. Suppose a buyer offers to pay 260.000
Euro for the house next week. This would be your reservation point by which to evaluate all
subsequent offers.

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 Preparation for Negotiation - Psychology of Reservation Points

A negotiatior's reservation point should be based upon objective assessment of the best
possible alternative to reaching agreement. A person's reservation point should not change
during the course of negotiations unless, for some reason, the objective situation has changed.

Bargainer Beware
Be aware of a common bargaining ploy that salespersons often use. Many savvy negotiators
attempt to talk negotiators out of their BATNA. ("... You would surely regret your decision to
buy last year's model once you saw your colleagues driving this year's model." ...) Negotiators
are most likely to fall prey to this ploy when they have not adequately prepared for the
negotiation and have conjured up a BATNA not based on objective information. Clever
negotiators appear to have our best interests in mind when actually they only have their own
interests in mind. In a negotiation situation, the person who stands to gain most by changing
our mind should be the least persuasive. Thus, it is important to develop a BATNA before
commencing negotiations, and stick to it during the course of negotiations.
Focal Points
Negotiators who make the mistake of not developing a reservation point before they negotiate
often focus on an arbitrary value, which masquerades as a reservation price. Such arbitrary
points are focal points (Anchoring). Focal points can be salient numbers, figures, or values
that appear to be valid, but have no basis in fact. For example, it might be a discount on a
posted sticker price, or the price of a similar model car with fewer featurs. Negotiators tend to
anchor on focal points during negotiation (Anchoring and Adjustment Bias).
The Problem with Targets
Negotiators may often make the mistake of using their target point as a reservation point.
When they are queried, they remark that the target is not "hard" and that they will move away
a "little" from this point. Thus, the negotiator has a clear sense of what he or she would like to
achieve but has not thought about the least acceptable terms he or she could live with.
The Not-so-even Split
A common focal point in negotiation is the "even split". In many negotiation situations,
parties' offers do not overlap, such as in car and house-buying negotiations. Inevitably, one
party has the bright idea of "splitting the difference". The concept of the even split has an
appealing, almost altruistic flavor to it. To many of us, it seems unreasonable not to
compromise or meet the other person halfway. The problem is that even splits are based on
arbitrarily arrived-at values. Even if the concessions were of equal magnitude, this is no
guarantee that the middle value is a "fair" value. All this means is that it behooves a
negotiator to begin with a high starting value and to make small concessions. Often, the
person who suggests the even split is in an advantageous position. Before accepting or
proposing an even split, make sure the values are favorable to you.

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 Preparation for Negotiation - The Bargaining Zone

The Bargaining zone, or settlement zone, represents the region between parties' reservation
points. The bargaining zone is extremely important to assess, for it determines whether an
agreement is feasible and whether it is worthwhile to negotiate. To asses the bargaining zone
you need to know two things: Your own reservation point based on your BATNA and equally
important but more difficult to find out, the same analysis for the other party.

Positive
Bargaining
Zone Seller's Bargaining Range

Buyer's Bargaining Range

5 10 15 20

Seller's
Target Point
Buyer's
Reservation Point
Seller's
Reservation Point
Buyer's
Target Point

In a positive bargaining zone, parties' reservation points overlap. This means that it is
possible for parties to reach mutual agreement. A negative bargaining zone has no overlap
between parties' reservation points. In this situation, parties should exercise their best
alternative to agreement.
 Preparation for Negotiation - Negotiator's Surplus

The bargaining surplus is the amount of overlap produced by parties' reservation points. It is
a measure of the size of the bargaining zone. It shows the value that negotiated agreement
offers to both parties over the alternative of no reaching settlement. Sometimes this is very
large; other times it is very narrow.

Seller's Bargaining Range

Seller's Buyer's
Seller's Reservation
Reservation Surplus Buye's
Point Point
Surplus

Buyer's Bargaining Range

10 15

Settlement

The positive difference between the settlement outcome and the negotiator's reservation point
is the negotiator's surplus. Notice that the total surplus of the two negotiators adds up to the
bargaining surplus. The fact that settlements fall somewhere in the bargaining zone and that
each negotiator tries to maximize his or her share of the bargaining surplus illustrates the
mixed-motive nature of negotiation. That is, negotiators are motivated to cooperate with the
other party to ensure that settlement is reached if there is a positive bargaining zone, but they
are motivated to compete with one another to claim as much of the bargaining surplus as they
can.