Anyone can become a Better Negotiator with BATNA
Negotiation is a skill needed not only for businessmen and lawyers but for everyone. Everyone faces situations where they need to negotiate in their life.
Some have high stakes such as negotiating your salary whilst some have lower ones like negotiating in a retail shop.
The problem is that most people never get educated regarding Negotiation and thus fall prey to deals that do not possess the best value to them.
Yet, like in any skill set, there is the right way to negotiate and just getting an understanding of a fundamental concept can go a long way towards being better at making deals.
This fundamental concept is called BATNA. It is a proven negotiation technique which stands for Best Alternative to a Negotiated Agreement.
This concept was first introduced in the book Getting to Yes: Negotiating Agreement Without Giving In. Since then, this concept has been the foundation of Program of Negotiation at Harvard Law School.
Though BATNA might sound like a fancy term, people who are negotiating do tend to have an intuitive feel for it. Yet, BATNA possesses a specific framework to follow which is important for high stakes negotiations.
As the name suggests, it means to identify the best alternative in the case that the negotiation goes south.
By being clear on this information about what could be the best option outside the deal, it leaves you with clarity on when you should walk away from a bad deal or at what specific value you’d accept a deal.
Often times, it is exactly the lack of clarity regarding this information which causes regret after making a deal.
Follow these 4 steps to prepare for a Negotiation by Assessing your BATNA:
List your alternatives: What are all the alternatives available to you if the current negotiation goes sour?
Evaluate your alternatives: Examine the options based on the value they provide.
Establish your BATNA: Choose one alternative that you believe you can pursue as your BATNA.
Calculate your reservation value: Reservation Value is the lowest value of the deal that you are willing to accept. If it’s lower than this value, you should be in the position to walk away from the deal with confidence.
By following these steps, you have now been able to make your BATNA clear.
But, that’s only half of the work done.
The real secret sauce of negotiating well lies in finding the BATNA that your opposing side has and what their reservation value is.
- The key question is thus What would they do if they don’t get a deal from me?
2. What alternatives do they have and what value do these alternatives possess?
3. What could be their actual reservation value?
This process requires research, some detective-ish work, or at the very least sound assumptions.
How you get this information is based on your own tactics.
Another key point to remember is that when there are negotiations between 2 parties, there is usually an individual involved as well representing the organization.
Thus, its important to assess the individuals BATNA as well since this highly affects the negotiation dynamics.
Thus, to summarize, the key questions you need to answer include:
Party Diagramming: Who are the parties to this negotiation, and what are their underlying interests?
BATNA Assessments: What will each party do without an agreement?
A Good Outcome: Given parties, interests and BATNAs, what does a good outcome look like? Is it sustainable?
Reservation Value: What is the lowest/highest value they are willing to accept?
Zone of Possible Agreement(ZOPA): The range between your reservation value & another parties reservation value?
Let’s establish a case to see it in practice.
Say you are working as a clothing brand. You outsource the creation of the clothing through a local manufacturer. You had a two- year deal that is now expiring and now talks are underway for a new deal.
Before such a deal, it is important to thus follow the process outlined above.
Firstly, who are the different parties involved in the negotiation? This includes the President of the Manufacturing Company and the Sales Director.
Now, the situation is that the deal is currently set at $10,000 for 1000 pieces of clothing i.e. $10/piece.
My interest is definitely to maintain this current rate as the business is growing and now I’m moving from a breakeven point of establishing the brand towards turning a positive cashflow for the business.
Furthermore, since the consumer behavior for clothing is changing so rapidly, I’d like to only have a 1 year deal based on renewals as I wouldn’t want to limit the variety of designs for the future brand.
However, from the side of the manufacturer, they want to increase the price per piece to $13/piece since they want to account for the rising demand for clothing but a limited amount of manufacturers.
Furthermore, the President of the company has devised a strategy where pushing for longer-term deals is sought after in order to make sure that the investments they are doing right now to increase capacity is backed by adequate demand in the future.
To prepare for this deal, I first start to research on who could be the options I have if this deal fails to manifest.
I start to research other manufacturers and come to find that they are indeed limited but are mostly operating the same type of machinery and thus can create the current set of designs with the current manufacturer.
I also find out that some of them are new to the market and are actively seeking customers to establish their business.
I evaluate one manufacturer who is new to the market yet their SOP’s set high standards which they have proven with their small but satisfied set of customers. I move talks with them forward and they agree to a $11/piece deal at my interested renewal date of 1 year.
Yet, I also see that again having to align with a new team and create a smooth communication flow will require anywhere from 3 to 6 months until there is complete sync as with the current manufacturer.
Thus, I come to finalize that my reservation value is $11.5/piece. If the manufacturer doesn’t settle for less or equal to this, I am ready to move away from the deal.
Now, from the side of the manufacturer, they are well aware that they are in a market where new manufacturers are indeed upcoming and have similar machinery too.
But, they realize that their technical know-how and consistency in quality they offer is something new manufacturers will take time to replicate.
And, they realize that for the clothing brands, any inconsistencies in the end product will end up costing them more in time and money. They’ve decided that moving forward $11/piece along with a two year deal is the minimum they will consider to be their reservation value.
Otherwise, they are willing to let the customer go.
Hence, having this information before a negotiation will ensure that you have higher chances of securing a good deal.
Getting complete information of the side of the other party is not an easy task but the more you know about them, the better you’ll be in the negotiating table.
Overall, everything you do to get ready for a negotiation matters. Thus, your actions should be aligned in a way where you have a strong BATNA & Reservation Value.
Its not really all about trickery in the deal making table but everything you do leading to making the deal that matters most.
