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Chapter 3

Chapter 3. Distributive Bargaining. Distributive Bargaining. 3-2. Defined: “A negotiation method in which two parties strive to divide a fixed pool of resources, each trying to maximize its share of the distribution”. Distributive Bargaining. 3-3. Also commonly known as:

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Chapter 3

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  1. Chapter 3 Distributive Bargaining

  2. Distributive Bargaining 3-2 Defined: “A negotiation method in which two parties strive to divide a fixed pool of resources, each trying to maximize its share of the distribution”

  3. Distributive Bargaining 3-3 Also commonly known as: • A “fixed-sum” process • A “zero-sum” process • “Win-lose” bargaining • “Hard bargaining”

  4. Why? 3-4 • Because many situations are perceived as single issue – money – and each dollar “gained” by one party is “lost” by the other party • Easily identified example: the negotiated sale of a big-ticket item (house, car) between a seller and a buyer

  5. Three Components of a Distributive Bargaining Model 3-5 1. The parties view each other as adversaries 2. The objective of both parties is to maximize their self-interest,or share of “the pie” 3. The parties are only concerned about the content of the current negotiationand act as if they expect no future relationship

  6. Five Negotiation Skills 3-6 • Skill 3.1: Recognize a distributive bargainingsituation’s three key components • Skill 3.2: Determine a reservation price • Skill 3.3: Use bracketingof the other party’s offer • Skill 3.4: Recognize and use social normsto evaluate offers • Skill 3.5: Learn the framingof offers to influence how they are perceived

  7. Chapter Case: Buying a Work of Art 3-7 • Successful California artist Chris Comte has a painting titled “Sunday” on display inher studio • A vacationing couple from Texas admire the painting one day, and return the next to offer Chris $7,500. The listed price is $12,500 and Chris tells them it is one of her best works • Why is this a distributive bargaining situation?

  8. Classic Distributive Bargaining Model 3-8 • 0_____s________x________b_______$$ • s = seller’s reservation price (min. price) • b = buyer’s reservation price (max. price) • x = negotiated price or final agreement • ZOPA = zone of possible agreement = s-b (bargaining range or settlement range)

  9. “The Negotiation Dance” 3-9 • Inexperienced negotiators often use the classic distributive bargaining model • They start with opening offers and then “dance around” with counteroffers until one near “x” is agreed upon • Why is this often NOT a good strategy?

  10. The Importance of Information (cont.) 3-10 • Skilled negotiators utilize information to support their offers or diffuse other offers • Three types of information: • Relational: Focus on relationship between the parties • Example: “How can you trust this is your best price?”

  11. The Importance of Information 3-11 • Substantive: Use of facts, reason, and logic • Example: “Our price is based on the bank’s approval loan limit” • Procedural: Discuss the process • Example: “We will engage in discussions after we receive certain information”

  12. Opening Offers 3-12 • The most critical step in negotiations • Yet … successful negotiators are split on strategy: • Many prefer to make the opening offer while others prefer to receive the opening offer!

  13. Opening Offers (cont.) 3-13 • Anchoring = the first number on the table may “anchor” the entire negotiation • Why? People often fixate on it

  14. Opening Offers (cont.) 3-14 • Three types of opening offers which can anchor the negotiations • Facts: “The average price paid in the past year is $350,000” • Extreme: “This is the most valuable lot and home in the entire neighborhood!” • Precedent: “My last supervisor always gave me the highest rating”

  15. Inexperienced Negotiators 3-15 • May Easily Let the Opening Offer Anchor the Deal

  16. Bracketing 3-16 • Defined: The logical process of moving toward a middle point between the opening offers • Example: Seller’s listed price = $15,000; buyer desires to pay $13,000, thus opens with $11,000 • Thus, a negotiator may “bracket” the other party’s opening offer by setting their own opening offer the same distance away from the desired value

  17. Two-Party, Single-Issue Negotiation: A Work of Art

  18. “Traps to Avoid” Responses to an “Extreme” Opening Offer 3-18 • Recognize it: as a “tactic,” not an insult • Label it: “Outrageous” “Ridiculous” • Follow up: with your own opening offer anchored by facts, precedent, and other information

  19. Social Norms 3-19 • After opening offers, how can parties distribute the possible gain available to both sides? • Negotiators often frame their offers by utilizing social norms: • Relational: desire to maintain a positive relationship • Fairness: four variations • Equality: “50-50” or “split the difference” • Equity: proportional effort, inputs • Need: proportional needs • Status quo: keep current situation • Reciprocity: respond to the change from a previous offer with an equal change in your next counter • Good faith: meet and discuss options; favor offers; use information

  20. Does a Social Norm Provide the “Fairest” Settlement? 3-20 • “The Consistency Principle”: people need consistency and fairness in the negotiation process • The fairness norms may be the most commonly utilized • Which settlement values between $7,500 and $12,500 is “fairest”? “best”? “right”?

  21. How Norms May Affect Counteroffers

  22. Counteroffers 3-22 • Framing: a key negotiation skill • Defined: The wording or context of an offer • Why framing is a key skill • “While facts and numbers are important, people attach significant meaning to words, which affects their views of a proposal” --Theodore Kheel, The Keys to Conflict Resolution

  23. Tactics for Success:“Wait to Counter” 3-23 • When receiving an offer wait a respectful period before responding • Why? • A quick response implies you did not seriously consider the offer • The other party will feel better about the process • Gives you time to develop a positive response: • “We considered your offer and appreciate the movement on your part. We ask that you seriously consider our counteroffer…”

  24. Four Types of Frames(applied to the Chapter Case) 3-24 • Reframing: “This work is a solid investment – the only other Ireland piece by this artist just sold at auction for $20,000” • Focus framing: “This is the only painting of a lake the artist has done, and he’ll probably never get back to Ireland to paint another”

  25. Four Types of Frames(applied to the Chapter Case) 3-25 • Contrast framing: “If you pay for it over 24 months, the cost per month is less than the price of four tickets to a first-run play, but you will enjoy the painting for many years” • Negative framing: “You can wait to decide – but another couple looked at it earlier today and said they would be back”

  26. Four Types of Frames Applied to Chapter Case

  27. Reframing Offer 3-27 • William Ury, Getting Past No, suggests that negotiators never say no or reject an offer instead they reframe by using questions: • Ask why: “Why did you select that exact number?” • Ask why not: “Why not ask for an estimate from a professional appraiser?” • Ask what if: “What if we agree to your price, but you paid for delivery and warranty?” • Ask for advice: “How would you suggest I present this offer to my boss when she has rejected that price?”

  28. Reframing Personal Attacks 3-28 • Personal attacks have become a common tactic –don’t let emotions take over strategy • How? • Prepare: Expect personal attacks, control your emotions • Recognize: The other party needs to “blow off steam” • Reframe: Ignore the attack on you, reframe it on the problem • Silence: Communicates your displeasure and can be a powerful tool

  29. Final Negotiated Price 3-29 • Shaking hands and exchanging a product for money ends many negotiations • Contingency contracts should be used if future event may alter the agreement or keep it from being signed

  30. Negotiated Settlement 3-30 Chapter Case “Buying a Work of Art” • Opening offers: Buyers = $7,500 Seller =$12,500 • Reservation prices: Buyers = $11,000 Seller = $8,000 (ZOPA) = $8,000 - $11,000 • Seller’s 1st counteroffer = $11,000 (framed by citing the number of hours invested = need norm; similar to three others sold = equity norm) • Buyer’s 1st counteroffer = $9,250

  31. Negotiated Settlement 3-31 • Seller’s 2nd counteroffer = $10,000 ($1,000 concession) • Buyers accept • Negotiated price = X = $10,000 • Seller’s gain = $2,500 over buyer’s opening offer • Buyers’ gain = $2,500 less than seller’s listed price

  32. Negotiation Settlement: A Work of Art

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