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business negotiation case study 2013

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business negotiation case study 2013

business negotiation case study 2013

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  • 1. BSMH 5113BUSINESS NEGOTIATIONSCASE STUDYDeveloping a Strategic Negotiation Plan:Toyota HighlanderBy814284 - PRIDHIVRAJ NAIDU18thMay 2013
  • 2. The Case:As Michelle Tipton read through the brochure for what seemed the tenth time she found herself nodding inagreement. “The new Highlander.An unexpected bit of comfort in the rugged world of the SUV. Breaking newground is nothing new to Toyota, but this time around, weve built a vehicle that boldly redefines everythingyouve come to expect from a sport utility vehicle. Highlander gives you uncommon comfort and unparalleledsmoothness in an unmistakable form. Its designed for those drivers who crave the versatility and space of anSUV, but arent willing to sacrifice a refined, comfortable ride. With exceptionally smooth handling, clean,unique styling and a spacious interior, Highlander is the civilized ride youve been looking for.” (ToyotaInternet Website and Highlander brochure).After months of investigating, Michelle knew that this was the vehicle she wanted. Siftingthrough piles of Carand Driver, Auto Week, and Consumer Reports magazines, visiting websitesfor Acura, Subaru, BMW, andHonda brands among others, convinced her that this was the vehicle for her. Now the question was how to getthe best deal from one of the local Toyota dealerships in the Louisville metropolitan area. Located in the citywere Toyota of Louisville and Oxmoor Toyota. Just across the river in Southern Indiana was Green TreeToyota. Because of negative comments and stories she had heard about Oxmoor Toyota, Michelle decided tolimit her dealership choice to either Toyota of Louisville or Green Tree Toyota.An unexpected twist in Michelle’s deliberations came when one of her colleagues at work, Ashley Lacey,dropped by her office one day and told her that she and her husband Robert were also looking for a new sportutility vehicle for their family, which included their nine year-old daughter Alex and one good size Labradorretriever. After talking for a while concerning what Michelle had discovered in her research, and about a weekafter she loaned Ashley all of the information she had collected on various models, Ashley came back and toldher that she and Robert were convinced the Highlander was the vehicle that was right for them. Furtherdiscussions between the two parties discovered that with the exception of the choice of exterior color, they bothwanted virtually identical models and accessories. Both Michelle and the Lacey family wanted the 6-cylinder,four wheel drive model, with a significant number of options.
  • 3. In Michelle’s case she would be able to purchase the vehicle outright, trading in her low mileage 1992 HondaAccord LX. The Lacey’s however, they would be keeping their current car and financing the purchase beyond a$5,000 down payment.Both Ms. Tipton and the Lacey’s knew that if they went to the dealerships together with the intent of buyingtwo vehicles as a package deal, it would be a different, or at least unusual, situation that the salespeople didn’tsee too often. They hoped that it would allow them to get a better overall price.Through various online sources, Michelle has been able to find not only the Manufacturer’s Suggested RetailPrice (MSRP), which typically served as the high end or full price benchmark but also wholesale prices. Thesewholesale prices represent the amount the car dealership paid for the vehicle, excluding any givebacks or otherincentives provided by the manufacturer. Michelle’s further investigation indicated that there were no otherincentives provided to the dealerships for sales of the Highlander model. As she sat at the kitchen table with theLacey’s and with the financial information spread out before them, they knew they had a number of decisions tomake and questions to answer in putting together their negotiation plan before they approached the dealerships.1. What is the Negotiation strategy best used by Michelle and Lacey?Based on the case, the goal of the buyers is to get the best deal with the best price. Miss Michelle is lookingforward to buy the Highlander model at a discounted price, but she is aware based on the Manufacturer’sSuggested Retail Price (MSRP) shows the price the car dealership have paid for the car and that the cardealership have not received any incentives for this car.Based on the Dual Concern Model, the best position for Miss Michelle and Laceys negotiation would beCompetitive strategy. Competitive strategy is basically a distributive bargaining, Distributive bargaining tacticsaim for a large slice of a fixed pie of value, increasing one’s own payoff at the cost of the counterpart’spayoff(Amanatullah, Morris, & Curhan, 2008). As in this case the dealer has to give in to accommodate MissMichelle’s goals for a special or discounted price.
  • 4. In the purely distributive case, the interests of the parties are negatively correlated, with an increase in the utilityof one partys outcome associated with a correspondent decrease in the utility of the other partys outcome(Walton &McKersie, 1965). Based on this competitive strategy the negotiation will be “I win – you lose” basis.There will be a clear conflict of interest between the parties involved. A classic example is a haggle over thepurchase price of a single item, such as a used car, where the seller seeks the highest price possible and thebuyer hopes to pay as little as possible. (Barry & Friedman, 1998) The buyers will be forced to use externalfactors such as, Car dealer’s image and competitor factor. In this type of situation, each negotiator presumablyhas in mind a reservation price (also known as a resistance point or a bottom line) beyondwhich he or she willnot go in reaching an agreement(Raiffa,1982)2. Explain the negotiation process1. Preparation:Miss Michelle has collected detailed information including the MRCP to have a clear picture on the pricing andincentives received by the car dealer. Through discussing Miss Michelle and Lacey are also well aware of theirfinancial situation and clear on the steps they are planning to take during the course of the business.2. Relationship buildingMiss Michelle and Lacey would have to make a warm up meeting with the chosen dealer; they may have a lookaround and test driving to build repo to provide the sense of commitment and interest to the dealer. This wouldcreate interest and serious negotiating atmosphere for the serious matter to take place.3. Information gathering
  • 5. Even though well aware of the financial and business situation of both sides, the buyers may allow the dealer toexplain to them of price offered and the details. To be updated of any changes or latest deal the seller couldoffer. This information gathering session could be used by the buyer to express their interest through mild bodylanguage such as nodding or otherwise.4. Information usingBased on the information gathered from the preparation and also the information gathering, Miss Michelleand Miss Yale could begin their discussion and bargaining with the dealer to offer a better or cheaper price.This would create initial conflict as the dealer is facing a losing situation.5. BidingBiding is the most critical stage of any negotiations. Heated arguments may arise; Miss Michelle and MissYale have to take control of the situation as they are in the upper hand of the situation. In negotiation, a firstoffer can serve as an anchor that biases the other partys judgments of the underlying economic structure ofthe bargaining encounter (Neale &Bazerman, 1991). There should be give and take in this stage, assumingthe arguments and bargaining of Miss Michelle and Miss Yale is convincing the dealer would have to givein.6. Closing the dealResearch on distributive bargaining indicates that these first moves, initial offer and counteroffer, accountfor a significant portion of the variance in final outcomes in distributive negotiations (Pruitt &Carnevale,1993). The first offer lower than the MRCP price quoted would help set the starting of the deal. A strongprice deal may help Miss Michelle fish the dealer as Miss Yale would be getting her car on cash downpayment. The dealer may have a lower margin of profit but not at lost.
  • 6. 7. Implementing the agreementAfter closing the deal, Miss Michelle and Miss Yale would proceed to finalizing the purchase. Making thepayment and getting the documents completed.ReferencesAmanatullah, E. T., Morris, M. W., & Curhan, J. R. (2008). Negotiators who give too much: unmitigatedcommunion, relational anxieties, and economic costs in distributive and integrative bargaining. Journal ofpersonality and social psychology, 95(3), 723–38. doi:10.1037/a0012612Barry, B., & Friedman, R. a. (1998). Bargainer characteristics in distributive and integrative negotiation.Journal of Personality and Social Psychology, 74(2), 345–359. doi:10.1037//0022-3514.74.2.345Pruitt, D. G., & Carnevale, P. J. (1993). Negotiation in social conflict.Pacific Grove, CA: Brooks/Cole.Raiffa, H. (1982). The art and science of negotiation. Cambridge, MA: Harvard UniversityPress.Walton, R. E., &McKersie, R. B. (1965).A behavioral theory of labor negotiation.New Yotk:McGraw-Hill.