Some Learnings About Negotiations – BATNA, Target Price, Reservation Price, Concessions

Learnings on Distributive Negotiations or Its Aspects

The goal of a negotiation is to meet interests.

Distributive negotiation is when two (or more) parties are trying to claim the maximum amount of value for themselves. Distributive negotiations tend to be competitive interactions for several reasons. They are characterized by a win/lose outcome. It is common for distributive negotiations to be used in situations where the people involved have never had a relationship, and are not likely to have one again in the near future. Without the presence of a short or long-term relationship, there is less concern about perceptions or reputation.

The Power of Three – BATNA, Target (Aspiration) Price, Reservation Price (Self) and Reservation Price (Other Party). The first major learning is to always go into the negotiation with good preparation. While this may seem obvious, it is the obvious that we most often miss in the real world. One should always go into a negotiation by knowing their own alternatives and especially the best alternative, the reservation price of self and the reservation price of the other party. The zone between the reservation prices of both the parties is where there is a chance of agreement and hence it is called as Zone of Possible Agreement (ZOPA). This is the pie that each of the party wants to eat the maximum.

Never approach in a distributive manner when the situation is an integrative situation. Integrative situations require you to maintain a careful win-win approach and not a distributive manner. Approaching in a distributive manner will cause a perception that the other party is instrumental and is trying to maximize only his or her own gains.

Anchor by making the first offer. Making the first offer anchors the other party and makes them respond with an offer more closer to your aspirational price. However, an extreme offer might straight away put off the other party. Ruchi Sinha said ‘respond to an extreme offer with an equally extreme offer at the other end’. Also take care to not reveal the BATNA while anchoring.

Distributive negotiations have something called as ‘walkaway value’ – the value at which a party would walk away from the deal. One needs to have a broad heuristic about the other person’s walkaway value. This is nothing but the reservation price, but the term ‘walkaway value’ is more suitable one time negotiation situations.

Constantly communicate and mention about the discounts given. Once you give a discount, the other party will not feel (in future time) that it is something great. Even you may forget it. Therefore, it is important to track the concessions and discounts given and communicate to the other party often to build a sense of obligation in the other party.

Learnings on Integrative Negotiations or Its Aspects

Preparation for Negotiation: Go into a negotiation with reservation price (self and other party), BATNA (self and other party) and factors to make concessions during the negotiation. You always know what the reference price is for you, but the problem is you don’t know what the reference price of the other party is. Before going into a negotiation, you need to have an idea about the reference price of the other party by doing background research and understanding industry standards. Reference point is influenced by the alternatives available, industry standards, etc. It is your job to collect this information from various research and relations before going into the negotiation.

Make Concessions: We should plan aside for some concessions to be given to the other party. Giving concessions make the other party feel they got a good deal. One should make large concessions initially and then decrease the size of the concessions in each iteration.

Don’t get too excited as it might make the other person feel that they have given something too valuable. Even if you like something that the other person offered, don’t just jump in joy. This will make the other person feel that he has given something to you and he will in turn ask you something valuable to him to offset it.

Offset As and Bs: Always try to identify what item of discussion is of higher priority to you and what is of low priority to the other person (Call them A ). Similarly, identify what is of priority to the other party and is of low priority to you (call them Bs). You should always offset the As and Bs. One of the best ways of making a win-win agreement is to give away your low priority and other party’s high priority and in return take the opposite. One should figure out early in the negotiation about which issues are of high priority and which issues are of lower priority to the other party.

Strengthen your alternative and weaken the other party’s alternative

Even after the negotiations have started, power comes to you by strengthening your BATNA or by weakening the other party’s BATNA or doing both simultaneously. One should always try to weaken the other person’s BATNA at any point in negotiation.


Involve multiple issues and offset one with another

Unlike the distributive approach where there is generally only one issue of discussion, an integrative approach allows you to build multiple issues. This will enable you to win on some issues and give the other party a win on some other issues.

Constantly communicate and mention about the discounts given. Once you give a discount, the other party will not feel (in future time) that it is something great. Even you may forget it. Therefore, it is important to track the concessions and discounts given and communicate to the other party often to build a sense of obligation in the other party.

Interest based approach

Always start by understanding the interests of the other party and why do they want what they want from you. This will help us understand what is the main motive behind asking something and if there are other ways for you to satisfy that motive.

Plan your opening move and draft an agenda for the negotiation

Always plan and prepare your pitch for the first move. Anticipate what could be the issues that could be raised by the other party and plan accordingly. Make an agenda and have dynamic MESOs in hand to be on top of the negotiation.

Prepare a planning and scoring document

Make a planning document comprising of self-assessment, other party’s assessment and strategies. Self-assessment will include understanding what our interests are, the rationale behind the interests, BATNA, target price and reservation price, sources of power and the general position in the negotiation and preparation for anticipated counters. One should prepare the same for the other party too. Then, prepare the opening pitch, opening offer, anchoring strategy, sunk costs, risks, etc.

Make a scoring document by creating an issue-mix. Prioritize the issues from your end and also the other party’s end. Estimate the reservation prices for each of the issues and prepare a few combinations (MESOs) with these issues. These combinations involving offsets on various issues are called Multiple Equivalent Simultaneous Offers (MESOs).

Build Trust Of the Other Party

If you are happy about getting something, then show the other party that you are happy about it genuinely. This will make them trust you more and trust is the building block of long and healthy relation. Share information with the other party (with some caution – don’t share very critical information) to gain the trust of the other party.

Question your assumptions about the negotiation

One should question the assumptions one is making about both the parties in any negotiation and how are they changing.  Therefore, frequent checks and reviews of assumptions will provide pointers about where the negotiations are going wrong and why.

          Don’t be overly thankful

            Being overly thankful hurts a negotiation. This is because the other party feels that they’ve given something very valuable and may ask something big in return or take back what they gave. At the same time, not being thankful makes you look cold and hurts the relation too. It is about striking the balance.

Power, Dispute Resolution, Trust and Conflict Management

Playing politics and coalition building is not bad. Using it to create a bad outcome is bad.

First Advocacy Advantage: There is a psychological cost to say ‘No’ after you said ‘Yes’ and therefore relations or coalitions that are formed first tend to last longer.

Theory of Loss Aversion: We value losses more than gains. Therefore, it is natural for people to be loss aversive and to play safe during negotiations. It is your responsibility to probe the other party on the interests and find out the real reasons behind the negotiation to help them in a better way in this negotiation.

Power comes from negotiating with discipline, strong alternatives, weakening other party’s BATNA and the network.

Power comes by starting first. Research shows that over 50% people choose how to negotiate based on the approach of the other party. They wait to see how their counterpart is going to negotiate and then follow suit. So, the best approach is to lead the way and make the opening move.

On the other hand if the other party takes charge and takes the direction of the negotiation in not a helpful way, then there is no need to follow. Instead we can ignore it and take a different approach and show why this approach is beneficial to both.  If that doesn’t work, then we should re-anchor and shift the negotiation.

Deal with the conflict issue directly: It is better to directly deal with the issue of conflict. Also, one separate the emotions of past issues in the relationship and the difference between the relationship issues and the current negotiation issues.