Graduate School of Management University of California Davis Lodi Wine Grape Growers What is negotiation Negotiation is a form of decision making in which two or more parties talk with one another in an effort to resolve their opposing interests Pruitt 1981 p xi ID: 1028303
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1. Jim OlsonJanuary 9, 2017Graduate School of ManagementUniversity of California, DavisLodi Wine Grape Growers
2. What is negotiation?Negotiation is a form of decision making in which two or more parties talk with one another in an effort to resolve their opposing interests. (Pruitt, 1981, p. xi)A “win-win” decision-making process by which two or more parties are trying to find a mutually acceptable solution to a complex conflict.NOT a “win-lose” process
3. The Science of Negotiation
4. Common Negotiation ProcessPreparationStrategy selectionInformation ExchangeExplicit talking and listeningAgreementCommitment
5. How to Practice “Principled” NegotiationSeparate the people from the problemFocus on interests, not positionsGenerate a variety of options before making a decisionInsist the result be based on some objective standard
6. Important Concepts in Principled NegotiationInterests: Underlying desires, goals, needs Issues: Tangible points of agreement that can help you achieve your interestsPositions: Specific values for the interests you define above. A range of values for acceptable agreements or just a starting positionBATNA: Best Alternative To a Negotiated Agreement (NOT A NUMBER!)Reservation Price: Price at which you are indifferent to whether a negotiation reaches agreement or doesn’tClosely related to your BATNA
7. Important Concepts in Principled NegotiationInterests: Underlying desires, goals, needsRegion prominenceRegion affluenceIndividual wealth and derivatives Issues: Tangible points of agreement that can help you achieve your interestsPriceLength of contractYieldVarietyFarm planBrixOther
8. Important Concepts in Principled NegotiationPositions: Specific values for the interests you define above. A range of values for acceptable agreements or just a starting positionBATNA: Best Alternative To a Negotiated Agreement (NOT A NUMBER!)Other customersOther usesOther productsReservation Price: Price at which you are indifferent to whether a negotiation reaches agreement or doesn’tClosely related to your BATNA
9. Prepare1. Answer the following questions:What are my interests, what do I want to achieve?What are the specific issues that will help me achieve these interests?What are my target and bottom-line positions on each issue?What are my opponent’s interests?What are the specific issues that will help my opponent achieve those interests?What are my opponent’s target and bottom-line positions on each issue?
10. Prepare2. Develop several alternative agreementsSet aside time for creative brainstorming before the negotiationPut together several agreements with various outcome positions for each issue3. Define your BATNAThe more attractive your BATNA, the more power you haveThe best alternative for you may be no agreement
11. Define your strategy and carry out tacticsStrategies can be based on:Your desire/concern for OUTCOMESPrice, power, working conditions, etcYour desire/concern for the RELATIONSHIPTrust, friendship vs. distrust, antagonism5 Basic Strategies CollaborativeCompetitive Accommodating Avoiding Compromising
12. Negotiation StrategiesAccommodatingLose to winCollaborativeWin-winAvoidingLose-loseCompetitiveWin-loseWin at all costsImportance of RelationshipLowHighLowHighImportance of OutcomesCompromiseSplit the difference
13. Distributive dimensions of negotiationThe goal of any negotiation is not just to reach an agreement, but to reach one that is better than what you could get without negotiating (Better than your BATNA)
14. Prescriptions for rational distributive bargainingDefine the interests, issues, positions, BATNAs, and reservation prices for you and your opponentDetermine the bargaining zone for quantitative issues (e.g. Price)Bargaining Zone (or ZOPA – zone of potential agreement)Quantitative range of settlements where both parties are better off than without the negotiationRange of prices where both parties’ reservation prices overlapReservation Price: Price at which you are indifferent to whether a negotiation reaches agreement or doesn’tClosely related to your BATNA
15. Positive Bargaining ZoneSeller’s lowest price overlaps with buyer’s highest priceNo bargaining zone is when there is no overlap in reservation prices Buyer’s Target Price Seller’s Reservation Price ($50)Seller’s TargetBuyer’s Reservation Price ($75)Positive bargaining zone$20$50$75$100
16. Make tables assessing potential outcomes at different settlement pricesSettlement price Seller interest satisfied Buyer interest satisfied$50 $0 above reservation $25 below reservation$60 $10 above reservation $15 below reservation$70 $20 above reservation $5 below reservationBuyer’s Target Price Seller’s Reservation Price ($50)Seller’s TargetBuyer’s Reservation Price ($75)Positive bargaining zone$20$50$75$100
17. Consider the potential integrative dimensions of the negotiationDetermine if other issues exist besides priceDetermine what interests price may represent (i.e. price may be a proxy for status)Determine if other costs can be incorporated into the negotiation and treated as interests
18. Knight Excalibur Negotiation ExerciseIn carrying out this negotiation, remember to think about:InterestsMine Counterpart’sBATNA, Target and Reservation PriceMine Counterpart’sBargaining Zone (ZOPA)Potential Trade-offs
19. Knight/Excalibur Positions, BATNAs, and Reservation PricesKnight Positions $500?$470?Knight BATNABuy from someone else?No bid government deal?Knight RP$600Excalibur Positions$600?$480?Excalibur BATNAHank’s SM TractorExcalibur RP$100KnightExcaliburRP$100RP$600
20. Impact of the First OfferFirst offers often act as an anchor from which people fail to adjust appropriatelyFinal agreements are more strongly influenced by initial offers than by subsequent concessionary behaviorInitial offers provide an anchorRe-anchor!!
21. How Do You Re-Anchor?Make a quick counter-offer that is just as aggressiveThreaten to walk awayAsk the other person to try againAsk them to explain their reasoningMake a joke
22. ConcessionsAllow yourself room to make concessionsDevelop a rationale around each of your concessionsMake bi-lateral, not uni-lateral concessions: Don’t reward obstinate behavior with concessions!! Signal information in the size of your concessions Make your concessions smaller as you approach your goal
23. A word about power, influence, and leveragePower: A position or attribute that allows one to use influence to get individuals and groups to behave in desired waysInfluence: The processes used to affect the beliefs, perceptions, and motivations of individuals and groups to behave in desired waysLeverage: A situational advantage based on the balance of needs and fears
24. The Art of Negotiation
25. Game TheoryGame Theory Branch of applied mathematics devised to analyze certain situations in which there is an interplay between parties that may have similar, opposed, or mixed interests. “Britannica”Developed by John von Neumann and Oscar Morgenstern in their book The Theory of Games and Economic Behavior (1944)Players try to outsmart one another by anticipating the others’ decisions or movesA solution to a game prescribes the optimal strategy(s) for each player and predicts the average, or expected, outcome.Simple to extremely complex applications and very useful in negotiations
26. Game theory in negotiationsKnow as much about your opponent as possibleIn addition to interests, positions, BATNAs and reservation prices…Know what “makes them tick”Order the “discussion agenda” to your maximum advantage
27. The “art” of agenda design“I want a raise”1. Let’s discuss my salary2. We won a huge contract3. We lost a medium contract4. We know why and are going to win the next one“I want a raise”1. We lost a medium contract2. We know why and are going to win the next one3. We won a huge contract4. Let’s discuss my salary
28. Movie and dinner “game”You and your partner don’t care whether you go see Hunger Games (near the Chinese restaurant) or Star Wars (near the Italian restaurant)But you definitely want Italian food for dinnerYour partner loves Chinese foodHow do you order the agenda?28
29. Business strategy as driver of negotiation strategyWell defined interests, issues, BATNA of yourselvesWell understood interests, issues BATNA of your customersWhat are your strategic and tactical alternatives?Expanding the pie beyond your competitor’s reachIdentify and exercise sources of power, influence, and leverageMarketing strategy – pushSocial network marketing strategy – pullBrandingInglenook Niebaum Coppola Rubicon InglenookMore
30. Top Ten Key Success FactorsHUGE customer value propositionLACK of competitor presenceHIGH barriers to entry/scaleSIGNIFICANT core competenceHUGE market and growth opportunityHIGH revenue potentialHIGH profit potentialLOW cost of entry (for you!)LOW business risk HIGH long term strategic value1/7/1730WestShore Management Group Proprietary and Confidential
31. The Business Plan OutlineBusiness summary“The problem”The company solutionCustomer/market opportunityProduct roadmapCompetition matrixMarketing/distribution strategyManufacturing (if any) strategyBusiness model/3-year financial plan The team Financing terms Summary1/7/17WestShore Management Group Proprietary and Confidential31
32. The Lodi “problem”Every single business problem has a solutionA key part of the solution is solid negotiation strategy and tacticsLasting solutions come from ”inside” knowledge, fresh “out-of-the-box”-thinking, patience, perseverance, trial and error, and executionThere is a Lodi “solution”
33. Jim OlsonJanuary 9, 2017Graduate School of ManagementUniversity of California, DavisLodi Wine Grape Growers