Lessons from Chapter 1 of Negotiation Genius: Claiming Value in Negotiation
Authors Malhotra and Bazerman define value as anything that someone else wants or finds useful. Negotiation, they explain, is the process by which value is created. Many negotiators start with the question, “How do I get the best deal for my side?” But negotiation geniuses take a much broader view.
Your task in this negotiation is not simply to get a deal, but to claim as much value as possible.
Malhotra & Bazerman, pg. 23
Let’s begin first with how to prepare for a negotiation. According to thousands of experts on the subject, most negotiation mistakes are made before the deal even begins. And not because of faulty preparation but because of no preparation at all! The authors lay out a five-step process for negotiation preparation.
1. Assess your BATNA
“What’s my next best option if this deal falls apart?” is a question you should ask yourself at the start of any negotiation. BATNA stands for best alternative to negotiated agreement. Without assessment of your BATNA, it is impossible to know when is the best time to walk away from an opportunity or when to move forward. Keep in mind that the BATNA isn’t what you think you can get or what you think is fair, your BATNA is the reality you face if you reach no deal.
2. Calculate your reservation value
This is also called your “walk away” point. Your reservation value (RV) as the seller is the smallest deal you’ll spend time on. If it’s complicated and takes a lot of time, your RV may be higher than a deal that is simple and quick. The Buyer’s RV is the highest price they will entertain before deciding it’s too expensive. Anything below your RV is when you decide to go with your BATNA, walk away and close-lose the opportunity.
3. Assess the other party’s BATNA
Now that you have a better understanding of your situation, it’s time to become aware of the buyer’s situation. You’ll want to assess their RV so you know how high or low you can negotiate, but in order to do this you first need to understand their BATNA. What happens if they decide your solution is not worth their money, what options will they turn to? The authors note that this is a critical step in preparation with the ability to turn a good deal into a great deal for sellers. They point to a case study of a deal made during FDR’s 1912 election bid as an example of its importance.
This critical step can make the difference between phenomenal success and utter failure.
Malhotra & bazerman, pg. 21
4. Calculate the other party’s RV
Once you know the buyer’s BATNA, now you can make some educated guesses about their RV, their walk away point. It’s important to understand this so you know how high or low you might want to start your negotiations. Starting negotiations above their RV might cause them to mentally check out of the negotiation resulting in a lost opportunity that could have been avoided.
5. Evaluate the ZOPA
The Zone of Possible Agreement, ZOPA, gives you the lay of the land upon which the negotiation will take place. It contains all the possible outcomes to which both parties would agree. In other words, it’s the space between the your lowest price point and the Buyer’s highest highest price point.
While this gives you an idea of where the final deal could land, it does not tell you where the deal will end up. From the seller’s perspective, you want the deal to end as high as possible. The buyer wants it to land as low as possible.
It is your task as the seller not simply to get a deal, but to claim as much value as possible during the negotiation.