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1. Distributive BargainingDistributive Bargaining

2. Distributive BargainingDistributive Bargaining
Defined:Defined:
““A negotiation method in which two partiesA negotiation method in which two parties
strive to divide a fixed pool of resources,strive to divide a fixed pool of resources,
each trying to maximize its share of theeach trying to maximize its share of the
distribution”distribution”
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3. Distributive BargainingDistributive Bargaining
Also commonly known as:Also commonly known as:
 A “fixed-sum” processA “fixed-sum” process
 A “zero-sum” processA “zero-sum” process
 ““Win-lose” bargainingWin-lose” bargaining
 ““Hard bargaining”Hard bargaining”
3-3

4. Why?Why?
 Because many situations are perceived asBecause many situations are perceived as
single issue – money – and each dollarsingle issue – money – and each dollar
“gained” by one party is “lost” by the other“gained” by one party is “lost” by the other
partyparty
 Easily identified example: the negotiatedEasily identified example: the negotiated
sale of a big-ticket item (house, car)sale of a big-ticket item (house, car)
between a seller and a buyerbetween a seller and a buyer
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5. Three Components of aThree Components of a
Distributive Bargaining ModelDistributive Bargaining Model
1. The parties view each other as1. The parties view each other as
adversariesadversaries
2. The objective of both parties is to2. The objective of both parties is to
maximize their self-interest,maximize their self-interest, or share ofor share of
““the pie”the pie”
3. The parties are only concerned about the3. The parties are only concerned about the
content of thecontent of the current negotiationcurrent negotiation and act as ifand act as if
they expect no future relationshipthey expect no future relationship
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6. Five Negotiation SkillsFive Negotiation Skills
 Skill 3.1: Recognize aSkill 3.1: Recognize a distributivedistributive
bargainingbargaining situation’s three keysituation’s three key
componentscomponents
 Skill 3.2: Determine aSkill 3.2: Determine a reservation pricereservation price
 Skill 3.3: UseSkill 3.3: Use bracketingbracketing of the other party’sof the other party’s
offeroffer
 Skill 3.4: Recognize and useSkill 3.4: Recognize and use social normssocial norms
to evaluate offersto evaluate offers
 Skill 3.5: Learn theSkill 3.5: Learn the framingframing of offers toof offers to
influence how they are perceived
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7. Chapter Case: Buying a Work ofChapter Case: Buying a Work of
ArtArt
 Successful California artist Chris ComteSuccessful California artist Chris Comte
has a painting titled “has a painting titled “Sunday” onSunday” on display indisplay in
her studioher studio
 A vacationing couple from Texas admireA vacationing couple from Texas admire
the painting one day, and return the nextthe painting one day, and return the next
to offer Chris $7,500. The listed price isto offer Chris $7,500. The listed price is
$12,500 and Chris tells them it is one of$12,500 and Chris tells them it is one of
her best worksher best works
 Why is this a distributive bargainingWhy is this a distributive bargaining
situation?situation?
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8. Classic DistributiveClassic Distributive
Bargaining ModelBargaining Model
 0_____0_____ss________________xx________________bb_______$$_______$$
 ss = seller’s reservation price (min. price)= seller’s reservation price (min. price)
 bb = buyer’s reservation price (max. price)= buyer’s reservation price (max. price)
 x =x = negotiated price or final agreementnegotiated price or final agreement
 ZOPA = zone of possible agreement = s-bZOPA = zone of possible agreement = s-b
(bargaining range or settlement range)(bargaining range or settlement range)
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9. ““The Negotiation Dance”The Negotiation Dance”
 Inexperienced negotiators often use theInexperienced negotiators often use the
classic distributive bargaining modelclassic distributive bargaining model
 They start with opening offers and thenThey start with opening offers and then
“dance around” with counteroffers until“dance around” with counteroffers until
one near “x” is agreed uponone near “x” is agreed upon
 Why is this often NOT a good strategy?Why is this often NOT a good strategy?
3-9

10. The Importance of InformationThe Importance of Information
(cont.)(cont.)
 Skilled negotiators utilize information toSkilled negotiators utilize information to
support their offers or diffuse other offerssupport their offers or diffuse other offers
 Three types of information:Three types of information:
 Relational: Focus on relationship between theRelational: Focus on relationship between the
partiesparties
 Example: “How can you trust this is your best price?”Example: “How can you trust this is your best price?”
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11. The Importance of InformationThe Importance of Information
 Substantive: Use of facts, reason, and logicSubstantive: Use of facts, reason, and logic
 Example: “Our price is based on the bank’sExample: “Our price is based on the bank’s
approval loan limit”approval loan limit”
 Procedural: Discuss the processProcedural: Discuss the process
 Example: “We will engage in discussionsExample: “We will engage in discussions
after we receive certain information”after we receive certain information”
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12. Opening OffersOpening Offers
 The mostThe most critical stepcritical step in negotiationsin negotiations
 Yet … successful negotiators are split onYet … successful negotiators are split on
strategy:strategy:
 Many prefer toMany prefer to makemake the opening offer whilethe opening offer while
others prefer toothers prefer to receivereceive the opening offer!the opening offer!
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13. Opening Offers (cont.)Opening Offers (cont.)
 AnchoringAnchoring = the first= the first
number on the tablenumber on the table
may “anchor” themay “anchor” the
entire negotiationentire negotiation
 Why? People oftenWhy? People often
fixate on itfixate on it
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14. Opening Offers (cont.)Opening Offers (cont.)
 Three types of opening offers which canThree types of opening offers which can
anchor the negotiationsanchor the negotiations
 Facts: “The average price paid in the pastFacts: “The average price paid in the past
year is $350,000”year is $350,000”
 Extreme: “This is the most valuable lot andExtreme: “This is the most valuable lot and
home in the entire neighborhood!”home in the entire neighborhood!”
 Precedent: “My last supervisor always gavePrecedent: “My last supervisor always gave
me the highest rating”me the highest rating”
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15. Inexperienced NegotiatorsInexperienced Negotiators
 May Easily Let the Opening OfferMay Easily Let the Opening Offer
Anchor the DealAnchor the Deal
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16. BracketingBracketing
 Defined: The logical process of movingDefined: The logical process of moving
toward a middle point between thetoward a middle point between the
opening offersopening offers
 Example: Seller’s listed price = $15,000;Example: Seller’s listed price = $15,000;
buyer desires to pay $13,000, thus opens withbuyer desires to pay $13,000, thus opens with
$11,000$11,000
 Thus, a negotiator may “bracket” the otherThus, a negotiator may “bracket” the other
party’s opening offer by setting their ownparty’s opening offer by setting their own
opening offer the same distance awayopening offer the same distance away
from the desired valuefrom the desired value
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17. Two-Party, Single-Issue Negotiation: A
Work of Art

18. ““Traps to Avoid”Traps to Avoid”
Responses to an “Extreme”Responses to an “Extreme”
Opening OfferOpening Offer
 Recognize it: as a “tactic,” not an insultRecognize it: as a “tactic,” not an insult
 Label it: “Outrageous” “Ridiculous”Label it: “Outrageous” “Ridiculous”
 Follow up: with your own opening offerFollow up: with your own opening offer
anchored by facts, precedent, and otheranchored by facts, precedent, and other
informationinformation
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19. Social NormsSocial Norms
 After opening offers, how can parties distribute theAfter opening offers, how can parties distribute the
possible gain available to both sides?possible gain available to both sides?
 Negotiators oftenNegotiators often frame their offersframe their offers by utilizingby utilizing
social norms:social norms:
 Relational: desire to maintain a positive relationshipRelational: desire to maintain a positive relationship
 Fairness: four variationsFairness: four variations
 Equality: “50-50” or “split the difference”Equality: “50-50” or “split the difference”
 Equity: proportional effort, inputsEquity: proportional effort, inputs
 Need: proportional needsNeed: proportional needs
 Status quo: keep current situationStatus quo: keep current situation
 Reciprocity: respond to the change from a previous offerReciprocity: respond to the change from a previous offer
with an equal change in your next counterwith an equal change in your next counter
 Good faith: meet and discuss options; favor offers; useGood faith: meet and discuss options; favor offers; use
informationinformation
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20. Does a Social Norm ProvideDoes a Social Norm Provide
the “Fairest” Settlement?the “Fairest” Settlement?
 ““The Consistency Principle”: people needThe Consistency Principle”: people need
consistency and fairness in the negotiationconsistency and fairness in the negotiation
processprocess
 The fairness norms may be the mostThe fairness norms may be the most
commonly utilizedcommonly utilized
 Which settlement values between $7,500Which settlement values between $7,500
and $12,500 is “fairest”? “best”? “right”?and $12,500 is “fairest”? “best”? “right”?
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21. How Norms May Affect Counteroffers

22. CounteroffersCounteroffers
 Framing: a key negotiation skillFraming: a key negotiation skill
 Defined: The wording or context of anDefined: The wording or context of an
offeroffer
 Why framing is a key skillWhy framing is a key skill
 ““While facts and numbers are important,While facts and numbers are important,
people attach significant meaning to words,people attach significant meaning to words,
which affects their views of a proposal”which affects their views of a proposal”
--Theodore Kheel,--Theodore Kheel, The Keys to Conflict ResolutionThe Keys to Conflict Resolution
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23. Tactics for Success:Tactics for Success:
“Wait to Counter”“Wait to Counter”
 When receiving an offer wait a respectfulWhen receiving an offer wait a respectful
period before respondingperiod before responding
 Why?Why?
 A quick response implies you did not seriouslyA quick response implies you did not seriously
consider the offerconsider the offer
 The other party will feel better about the processThe other party will feel better about the process
 Gives you time to develop a positive response:Gives you time to develop a positive response:
 ““We considered your offer and appreciate theWe considered your offer and appreciate the
movement on your part. We ask that you seriouslymovement on your part. We ask that you seriously
consider our counteroffer…”consider our counteroffer…”
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24. Four Types of FramesFour Types of Frames
(applied to the Chapter Case)(applied to the Chapter Case)
 ReframingReframing: “This work is a solid investment – the: “This work is a solid investment – the
only other Ireland piece by this artist just sold atonly other Ireland piece by this artist just sold at
auction for $20,000”auction for $20,000”
 Focus framingFocus framing: “This is the only painting of a lake: “This is the only painting of a lake
the artist has done, and he’ll probably never getthe artist has done, and he’ll probably never get
back to Ireland to paint another”back to Ireland to paint another”
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25.  Contrast framingContrast framing: “If you pay for it over 24: “If you pay for it over 24
months, the cost per month is less than themonths, the cost per month is less than the
price of four tickets to a first-run play, but youprice of four tickets to a first-run play, but you
will enjoy the painting for many years”will enjoy the painting for many years”
 Negative framingNegative framing: “You can wait to decide –: “You can wait to decide –
but another couple looked at it earlier todaybut another couple looked at it earlier today
and said they would be back”and said they would be back”
Four Types of FramesFour Types of Frames
(applied to the Chapter Case)(applied to the Chapter Case)
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26. Four Types of Frames Applied to
Chapter Case

27. Reframing OfferReframing Offer
 William Ury,William Ury, Getting Past NoGetting Past No, suggests that, suggests that
negotiators never say no or reject an offernegotiators never say no or reject an offer
instead theyinstead they reframereframe by using questions:by using questions:
 Ask why: “Why did you select that exactAsk why: “Why did you select that exact
number?”number?”
 Ask why not: “Why not ask for an estimate from aAsk why not: “Why not ask for an estimate from a
professional appraiser?”professional appraiser?”
 Ask what if: “What if we agree to your price, butAsk what if: “What if we agree to your price, but
you paid for delivery and warranty?”you paid for delivery and warranty?”
 Ask for advice: “How would you suggest I presentAsk for advice: “How would you suggest I present
this offer to my boss when she has rejected thatthis offer to my boss when she has rejected that
price?”price?”
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28. Reframing PersonalReframing Personal
AttacksAttacks Personal attacks have become a common tactic –Personal attacks have become a common tactic –
don’t let emotions take over strategydon’t let emotions take over strategy
 How?How?
 Prepare: Expect personal attacks, control yourPrepare: Expect personal attacks, control your
emotionsemotions
 Recognize: The other party needs to “blow offRecognize: The other party needs to “blow off
steam”steam”
 Reframe: Ignore the attack on you, reframe it onReframe: Ignore the attack on you, reframe it on
the problemthe problem
 Silence: Communicates your displeasure andSilence: Communicates your displeasure and
can be a powerful toolcan be a powerful tool
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29. Final Negotiated PriceFinal Negotiated Price
 Shaking hands and exchanging a productShaking hands and exchanging a product
for money ends many negotiationsfor money ends many negotiations
 Contingency contracts should be used ifContingency contracts should be used if
future event may alter the agreement orfuture event may alter the agreement or
keep it from being signedkeep it from being signed
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30. Negotiated SettlementNegotiated Settlement
Chapter Case “Buying a Work of Art”Chapter Case “Buying a Work of Art”
 Opening offers: Buyers = $7,500Opening offers: Buyers = $7,500
Seller =$12,500Seller =$12,500
 Reservation prices: Buyers = $11,000Reservation prices: Buyers = $11,000
Seller = $8,000Seller = $8,000
(ZOPA) = $8,000 - $11,000(ZOPA) = $8,000 - $11,000
 Seller’s 1Seller’s 1stst
counteroffer = $11,000 (framed by citingcounteroffer = $11,000 (framed by citing
the number of hours invested = need norm; similar tothe number of hours invested = need norm; similar to
three others sold = equity norm)three others sold = equity norm)
 Buyer’s 1Buyer’s 1stst
counteroffer = $9,250counteroffer = $9,250
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31. Negotiated SettlementNegotiated Settlement
 Seller’s 2Seller’s 2ndnd
counteroffer = $10,000 ($1,000counteroffer = $10,000 ($1,000
concession)concession)
 Buyers acceptBuyers accept
 Negotiated price = X = $10,000Negotiated price = X = $10,000
 Seller’s gain = $2,500 over buyer’sSeller’s gain = $2,500 over buyer’s
opening offeropening offer
 Buyers’ gain = $2,500 less than seller’sBuyers’ gain = $2,500 less than seller’s
listed pricelisted price
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32. Negotiation Settlement: A Work of Art