The Role That Your BATNA Plays In A Risky Negotiation

You need to leverage your alternatives to get the best deal
You need to leverage your alternatives to get the best deal
Image Credit: Mike Lawrence

As a negotiator, who wouldn’t want to walk into a negotiation knowing that you had all of the cards? Knowing that you were in the position of power and the other side had few options – they were going to have to agree with whatever you told them that you wanted? This type of situation does not happen all that often; however, it will happen occasionally. When it does, how should we deal with it?

Having All The Power

In a negotiation in which you appear to have all the bargaining power, it’s tempting to use your negotiation styles and negotiating techniques to make take-it-or-leave-it offers that appear reasonable. People outside of your negotiation would consider the offer you’re contemplating to be objectively fair, for example, because your supplier would not lose money and has little choice but to accept your terms. In other words, everyone knows that you have all the power in this negotiation, and it seems as if your supplier will realize this fact and accede to your proposal.

However, you should probably display caution in bargaining situations such as this. In an experiment, negotiation researchers found that perceived fairness, not impartial analysis, often drives the behavior of the powerless party in such cases.

In the research, one person was given a sum of money. This person then must propose a split of the money with another person (“the responder”), who must either accept or reject the offer. If the responder rejects the offer, neither side gets any money. Simple economic analysis suggests the responder should accept any proposed split because a rejection would leave both parties with nothing.

Recognizing this, the proposer should offer only a small amount of money to the responder, such as $1 out of $10. Yet it turns out that people behave very differently from this prediction. Well over half of responders who receive only a token offer from the proposer reject it. Also, proposers typically offer nearly 40% of the money, suggesting they recognize that responders are likely to reject small offers. Across cultures and even when substantial sums of money are at stake, the results do not change significantly.

Making Smart Powerful Choices

Neuroscientists think that they know why things are working out this way in the experiments. In their negotiation studies, participants wore devices that scanned their brain activity while they played the game. When responders received an offer they perceived to be fair, the logical, planning parts of their brains lit up with activity. When responders faced a very small offer, the emotional parts of their brains, which handle feelings such as disgust, repugnance, and conflict, lit up.

As this research demonstrates, we often have strongly negative, emotional responses to proposals that leave us with very little of the value from a relationship, no matter how fair such offers are from a rational economic perspective.

How To Avoid a WATNA When Calculating Your BATNA

Negotiators need to understand that to avoid the emotional cost of accepting a Worst Alternative To A Negotiated Offer offer that gives us very little, we often react self-destructively. For example, finance companies report that retailers facing bankruptcy often choose to close their doors rather than accept a low offer that would leave the owners better off. In your case, the supplier might reject your terms and risk bankruptcy rather than ceding almost all the value of your relationship to you.

Just because you have all the power in your upcoming negotiation doesn’t mean you should attempt to squeeze all the value from your supplier. This is especially true given that you have good relations with the supplier and want to work with the company in the future. Of course, you’re certainly within your rights to request a price reduction from the supplier. When doing so, consider tried-and-true negotiation methods such as justifying your request and probing to learn your supplier’s interests—perhaps, for example, a long-term contract that frees it from its current threat.

What All Of This Means For You

It does not happen very often, but there will be times when we enter into a principled negotiation coming from a position of power. We hold all of the cards. When we find ourselves in this unique position, we need to pause and take a step back. Just exactly how should we go about correctly handling this situation?

When you find yourself in this kind of negotiating situation, you may be tempted to present the other side with a take-it-or-leave it offer. However, you want to be careful here, perceived fairness, not impartial analysis, often drives the behavior of the powerless party in such cases. We need to understand that the other side can tell when we are making a fair offer to them. They may accept a fair offer and may not accept an offer if they perceive it to be unfair. They may turn down an unfair offer even if they don’t have any other choices. Keep this in mind and get the best deal that you can without attempting to squeeze all of the value out of the other side.

Having power in a negotiation is a great feeling. However, we have to be careful here because if we go about doing things incorrectly, we can end up not getting the deal that we want. We need to use our negotiating power carefully and make sure that we don’t force the other side into a corner. Ask for what you need and you’ll have a very good chance of walking away with a deal that both sides can live with.

– Dr. Jim Anderson Blue Elephant Consulting –
Your Source For Real World Negotiating Skills™

Question For You: Do you think that you should tell the other side that you have all of the power in a negotiation?

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What We’ll Be Talking About Next Time

I’m pretty sure that we’ve all heard that people make first impressions about us. In a negotiation, the expectation that someone is “tough” or “cooperative” can become a self-fulfilling prophecy at the bargaining table. When you approach an allegedly tough competitor with suspicion and guardedness, he is likely to absorb these expectations and become more a more competitive negotiator. How can we make this first impression thing work for us during a negotiation?

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