TEXOIL Negotiation Strategies Claiming Value Creating Value Win/Lose Win/Win Positional/Distributive/ Rights/or Power Based Principled/Integrative/ Interest Based Goal: Individual Gain Goal: Mutual Gain + Individual Gain Single Issue Multiple Issues No Future Relationship Long-term Relationship 1996-2006 Dispute Resolution Research Center, Northwestern University. Revised 1998. TEXOIL Value Creation Worksheet Issue Self Other BATNA Bottom Line Issues/ Interests 1996-2006 Dispute Resolution Research Center, Northwestern University. Revised 1998. TEXOIL Claiming Value Preparation Define your Best Alternative to a Negotiated Agreement (BATNA). Define your bottom line (reservation price). Define your aspiration level (target). Be realistic but not optimistic. Strategy \"Fair\" standard strategy Bargaining strategy Open aggressively: High if selling; low if buying Make concessions reciprocally, not unilaterally Use concession size to indicate you are reaching your bottom line 1996-2006 Dispute Resolution Research Center, Northwestern University. Revised 1998. TEXOIL Creating Value Preparation Define your Best Alternative to a Negotiated Agreement Analyze own and others' interests Search for differences Relative importance of issues Expectations of the future Risk preferences Time orientation Construct multi-issue proposals Opening Aspiration Bottom line 1996-2006 Dispute Resolution Research Center, Northwestern University. Revised 1998. TEXOIL Creating Value Strategy Take a cooperative approach. Build trust. Share information about interests and priorities, not bottom line. Ask for information about interests and priorities. Make proposals; ask for proposals. Make equivalent proposals. Try for a post-settlement settlement. 1996-2006 Dispute Resolution Research Center, Northwestern University. Revised 1998. Chapter 3: Distributive Negotiation - The Dance CHAPTER 3 Distributive Negotiation Win-win is optimal, however sometimes you will have to slice the pie. CHAPTER 3 Figure 3-1A: Positive Bargaining Zone Seller's Bargaining Range Positive Bargaining Zone Buyer's Bargaining Range $5 $10 $15 $20 ST, Seller's Target Point BR, Buyer's Reservation Point SR, Seller's Reservation Point BT, Buyer's Target Point CHAPTER 3 Figure 3-1B: Negative Bargaining Zone Seller's Bargaining Range Negative Bargaining Zone Buyer's Bargaining Range $5 $10 $15 $20 ST, Seller's Target Point SR, Seller's Reservation Point BR, Buyer's Reservation Point BT, Buyer's Target Point CHAPTER 3 Figure 3-2: Negotiator's Surplus Seller's Bargaining Range Seller's Surplus Buyer's Surplus SR BR Buyer's Bargaining Range $10 $15 Settlement BATNA: Best Alternative to a Negotiated Agreement CHAPTER 3 Pie-Slicing Strategies (I) Strategy 1: Assess your BATNA and improve it Strategy 2: Determine your reservation point, but do not reveal it Strategy 3: Research the other party's BATNA and estimate their reservation point Strategy 4: Set high aspirations (be realistic, but optimistic) Strategy 5: Make the first offer (if you are prepared) Strategy 6: Immediately reanchor if the other party opens first An Example of a BATNA... CHAPTER 3 Pie-Slicing Strategies (II) Strategy 7: Plan your concessions Pattern of concessions Magnitude of concessions Timing of concessions Strategy 8: Use an objective-appearing rationale to support your offers Strategy 9: Appeal to norms of fairness Strategy 10: Do not fall for the \"even split\" ploy CHAPTER 3 The Most Commonly Asked Questions Should I reveal my reservation point? Should I lie about my reservation point? Should I try to manipulate the other party's reservation point? Should I make a \"final offer\" or commit to a position? Saving face Negotiation: Biopharm-Seltek CHAPTER 3 The Power of Fairness (I) Multiple methods of fair division Equality rule Equity rule Needs-based rule CHAPTER 3 The Power of Fairness (I) Rules of fairness are situation-specific People are concerned about the \"other person\" People seek equity in their relationships with others When people sense inequity, they will attempt to restore it CHAPTER 3 The Power of Fairness: Example Imagine you are being recruited for a position in firm A. Your colleague, Jay, of similar background and skill is also being recruited by firm A. Firm A has made the following salary offers: Your salary: $75,000 Jay's salary: $95,000 CHAPTER 3 Your other option is to take Example The Power of Fairness: a position at firm B, which has made you an offer. Firm B has also made your colleague, Ines, an offer: Your salary: $72,000 Ine's salary: $72,000 Which firm do you prefer to work for? Firm A or Firm B? CHAPTER 3 The Power of Fairness (II) People evaluate not only the fairness of outcomes, but also the fairness of procedures by which those outcomes are determined Judgments about what is fair are driven by the nature of the relationship with the other party CHAPTER 3 The Power of Fairness: Relationships Exhibit 3-5: Social utility as a function of discrepancy between our own and others' outcomes Source: Loewenstein, G. F., Thompson, L., & Bazerman, M. H. (1989). Social utility and decision making in interpersonal contexts. Journal of Personality and Social Psychology, 57(3), 426-441. CHAPTER 3 The Power of Fairness (II) Egocentrism taints judgments of fairness People don't realize that they are self-serving CHAPTER 3 Avoiding Problems through Wise Pie-Slicing Consistency Simplicity Effectiveness Justifiability Consensus Generalizability Satisfaction Distributive Bargaining Goals of one party are in fundamental, direct conflict to another party Resources are fixed and limited Maximizing one's own share of resources is the goal Distributive Bargaining Situation Preparation: Set a Target point, aspiration point Walk away, resistance point Asking price, initial offer The Distributive Bargaining Situation Party A - Seller Walkaway Point Initial Offer Party B - Buyer Target Point Target Point Asking Price Walkaway Point The Role of Alternatives to a Negotiated Agreement Alternatives give the negotiator power to walk away from the negotiation If alternatives are attractive, negotiators can: Set their goals higher Make fewer concessions If there are no attractive alternatives: Negotiators have much less bargaining power The Distributive Bargaining Situation Party A - Seller Walkaway Point Target Point Alternative Initial Offer Party B - Buyer Asking Price Alternative Target Point Walkaway Point Fundamental Strategies Push for settlement near opponent's resistance point Get the other party to change their resistance point If settlement range is negative, either: Get the other side to change their resistance point Modify your own resistance point Convince the other party that the settlement is the best possible Keys to the Strategies The keys to implementing any of the four strategies are: Discovering the other party's resistance point Influencing the other party's resistance point Tactical Tasks of Negotiators Assess outcome values and the costs of termination for the other party Manage the other party's impressions Modify the other party's perceptions Manipulate the actual costs of delay or termination Assess Outcome Values and the Costs of Termination for the Other Party Indirectly Determine information opponent used to set: Target Resistance points Directly Opponent reveals the information Manage the Other Party's Impressions Screen your behavior: Say and do as little as possible Direct action to alter impressions Present facts that enhance one's position Modify the Other Party's Perceptions Make outcomes appear less attractive Make the cost of obtaining goals appear higher Make demands and positions appear more or less attractive to the other party - whichever suits your needs Manipulate the Actual Costs of Delay or Termination Plan disruptive action Raise Form the costs of delay to the other party an alliance with outsiders Involve (or threaten to involve) other parties who can influence the outcome in your favor Schedule One manipulations party is usually more vulnerable to delaying than the other Positions Taken During Negotiations Opening offer Where will you start? Opening stance What is your attitude? Competitive? Moderate? Initial concessions Should any be made? If so, how large? Positions Taken During Negotiations The role of concessions Without them, there is either capitulation or deadlock Patterns of concession making The pattern contains valuable information Final offer (making a commitment) \"This is all I can do\" Commitments: Tactical Considerations Establishing a commitment Three properties: Finality Specificity Consequences Preventing the other party from committing prematurely Their commitment reduces your flexibility Commitments: Tactical Considerations Ways to abandon a committed position Plan a way out Let it die silently Restate the commitment in more general terms Minimize the damage to the relationship if the other backs off Closing the Deal Provide alternatives (2 or 3 packages) Assume the close Split the difference Exploding offers Deal sweeteners Dealing with Typical Hardball Tactics Four main options: Ignore them Discuss them Respond in kind Co-opt the other party (befriend them) Typical Hardball Tactics Good Cop/Bad Cop Lowball/Highball Bogey (playing up an issue of little importance) The Nibble (asking for a number of small concessions) Typical Hardball Tactics Chicken Intimidation Aggressive Behavior Snow Job (overwhelm the other party with information) Summary When it comes to slicing the pie, the most valuable piece of information is a negotiator's BATNA. Negotiators should not reveal their reservation price and never lie about their BATNA. A negotiator who is well versed in the psychology of fairness is at a pie-slicing advantage. Chapter 4: Integrative Negotiation CHAPTER 4 Faulty Perceptions of Win-Win Negotiation Compromise Even split Feeling good Building a relationship CHAPTER 4 Telltale Signs of Win-Win Potential Does the negotiation contain more than one issue? Can other issues be brought in? Can side deals be made? Do parties have different preferences across negotiation issues? CHAPTER 4 A Pyramid Model of Integrative Agreements Level 3: Pareto-optimal Level 2: Settlement demonstrably superior to other feasible settlements Level 1: Mutual settlement (positive bargaining zone) Pareto-Optimal Frontier CHAPTER 4 Expanding the Pie: Strategies That Do Not Work Commitment to reaching a win-win deal Compromise Focusing on a long-term relationship Adopting a \"cooperative orientation\" Taking extra time to negotiate CHAPTER 4 Expanding the Pie: Strategies That Work (I) Perspective taking Ask diagnostic questions Provide information about interests and priorities Unbundle the issues Logrolling Make package deals, not single-issue offers Make multiple offers simultaneously CHAPTER 4 Expanding the Pie: Strategies That Work (II) Structure contingency contracts by capitalizing on differences Valuation Expectations Risk attitudes Time preferences Capabilities CHAPTER 4 Expanding the Pie: Strategies That Work (II) Presettlement settlements (PreSS) Postsettlement settlements CHAPTER 4 Figure 4-5: Decision-Making Model of Integrative Negotiation not acceptable (optimistic) not acceptable (bleak) Resource Assessment Assessment of Differences Construct Offers and Trade-Offs Current \"Best\" Terms both agree Postsettlement Settlements Implement Agreement Impasse CHAPTER 4 Stages in the Evolution of the Integrative Negotiator \"Old-fashioned\" negotiator \"Flower child\" negotiator \"Enlightened\" negotiator Negotiation: Texoil What Makes Integrative Negotiation Different? Focus on commonalties rather than differences Address needs and interests, not positions Commit to meeting the needs of all involved parties Exchange information and ideas Invent options for mutual gain Use objective criteria to set standards Overview of the Integrative Negotiation Process Create a free flow of information Attempt to understand the other negotiator's real needs and objectives Emphasize the commonalties between the parties and minimize the differences Search for solutions that meet the goals and objectives of both sides Key Steps Identify and define the problem Understand the problem fully identify interests and needs on both sides Generate alternative solutions Evaluate and select among alternatives Claiming and Creating Value Identify and Define the Problem Define the problem in a way that is mutually acceptable to both sides State the problem with an eye toward practicality and comprehensiveness Identify and Define the Problem State the problem as a goal and identify the obstacles in attaining this goal Depersonalize the problem Separate the problem definition from the search for solutions Understand the Problem Fully: Identify Interests and Needs Interests: Underlying concerns, needs, desires, or fears that motivate a negotiator Understand the Problem Fully: Identify Interests and Needs Interests Substantive interests relate to key issues in the negotiation Process interests are related to the way the dispute is settled Relationship interests indicate that one or both parties value their relationship Interests in principle: Doing what is fair, right, acceptable, ethical may be shared by the parties Generate Alternative Solutions Invent options by redefining the problem set: Expand the pie Logroll (tradeoffs) Use nonspecific compensation Cut the costs for compliance Find a bridge solution Generate Alternative Solutions Generate options to the problem as a given: Brainstorming Electronic brainstorming Surveys Evaluation and Selection of Alternatives Narrow the range of solution options Evaluate solutions on: Quality Objective standards Acceptability Agree to evaluation criteria in advance Be willing to justify personal preferences Be alert to the influence of intangibles Use subgroups to evaluate complex options Evaluation and Selection of Alternatives Take time to \"cool off\" Explore different ways to logroll Exploit differences in expectations and risk/ time preferences Keep decisions tentative and conditional until a final proposal is complete Minimize formality, record keeping until final agreements are closed Why Integrative Negotiation Is Difficult to Achieve The history of the relationship between the parties If contentious in past, it is difficult not to look at negotiations as win-lose Why Integrative Negotiation Is Difficult to Achieve The belief that an issue can only be resolved distributively Negotiators are biased to avoid behaviors necessary for integrative negotiation Why Integrative Negotiation Is Difficult to Achieve The mixed-motive nature of most negotiating situations Purely integrative or purely distributive situations are rare Conflict over distributive issues tends to drive out cooperation, trust needed for finding integrative solutions Factors That Facilitate Successful Integrative Negotiation A common objective or goal Faith in one's own problem-solving ability A belief in the validity of one's own position and the other's perspective Motivation and commitment to work together Factors That Facilitate Successful Integrative Negotiation Trust Clear and accurate communication An understanding of the dynamics of integrative negotiation Summary All negotiators want to reach win-win agreements, yet most fail to do so. Negotiators are usually not aware that their outcomes are inefficient. Key reasons for lose-lose outcomes are illusory conflict and the fixed-pie perception. In attempts to expand the pie, negotiators should not forget about claiming resources. NEGOTIATION PLANNING WORKSHEET Your Name: _____________________________________________________ Negotiation: _____________________________________________________ Role: ___________________________________________________________ What issues are most important to you? (list in order of importance) 1. ______________________________________________________________ 2. ______________________________________________________________ 3. ______________________________________________________________ 4. ______________________________________________________________ 5. ______________________________________________________________ What is your BATNA? Reservation Price? Target? _________________________________________________________________ __________________________________________________________________ __________________________________________________________________ What are your sources of power? __________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ Other important things to note: __________________________________________________________________ ___________________________________________________________________ What issues are most important to your negotiation partner? (list in order of importance) 1. ______________________________________________________________ 2. ______________________________________________________________ 3. ______________________________________________________________ 4. ______________________________________________________________ 5. ______________________________________________________________ What do you think your negotiation partner's BATNA is? Reservation Price? Target? _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ What are your negotiation partner's sources of power? _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ What is your opening move/first strategy? _________________________________________________________________ _________________________________________________________________ _________________________________________________________________ Other important things to note: _________________________________________________________________ _________________________________________________________________ Texoil General Information and Confidential Information for Service Station Owner By Stephen B. Goldberg Texoil, 1 a large petroleum refining company, owns some service stations outright. For the most part, however, it contracts with individual service station owners to provide them with all their requirements of gasoline, oil, tires, batteries and accessories. One of the independent service station owners, who has been under contract with Texoil for 12 years, has recently put the station up for sale. In addition to notifying Texoil that the station was for sale, the owners put ads in the local newspapers, as well as in a national professional journal of service station owners. The ads said that they were selling for family reasons. operating 24 hours per day, and all expectations are that it will continue to do so. There are several small shopping centers in this area and numerous warehouses. There are, however, only two other service stations in the vicinity, and neither is run by an owner-operator. The service station is located on one of the main routes leading to the Port of Los Angeles. This port area is growing because of the consolidation that is occurring among west coast ports. The port is now The service station owner and a Texoil representative are scheduled to meet to discuss Texoil's possible purchase of the service station. The station owners are a husband and wife, both of whom work at the station. They keep the station open 6 a.m. to 10 p.m., 6 days a week. The station is closed on Sundays. Their annual income has been approximately $75,000 (before taxes). 1 This exercise has been adapted and translated by Professor Stephen B. Goldberg from an exercise created by Henri LeCloarec and copyrighted by Mobil France. 1996-2014 Dispute Resolution Research Center (DRRC), Kellogg School of Management, Northwestern University. All rights reserved. Revised 1998. DRRC/KTAG teaching materials are protected by copyright law. DRRC requires a per person royalty for use of its exercises. Each purchase of an exercise authorizes copying or electronic distribution of that exercise equal to the quantity purchased. Access DRRC/KTAG materials at www.negotiationexercises.com Contact DRRC at drrc@kellogg.northwestern.edu This document is authorized for use by Emilie Croonenberghs, from 6/16/2015 to 8/30/2015, in the course: MGT 324/624-89 COURSE A: Negotiation Strategies - Scandura (Summer 2015), University of Miami. Any unauthorized use or reproduction of this document is strictly prohibited. Texoil Role of Service Station Owner By Stephen B. Goldberg It is imperative that you complete this sale promptly. You and your spouse have been working 18-hour days for the last five years in order to save enough money to realize your life's dream, which is to sail around the world. You are close to realizing that dream. You have made a down payment on a beautiful, old boat and have begun to fit it out for a two-year around the world cruise. In order to pay the first $50,000 installment on the boat, you sold your condo. You put your furniture in long-term storage and you and your spouse are now living in a small rental apartment near the service station. It is not very pleasant there and you are anxious to leave and begin your trip as soon as possible. In addition, you are both nearly 50 years old and you want to take this trip while you are still young enough to enjoy it. You estimate your expenses for the trip as follows. First, you owe another $230,000 on the boat, which must be paid in full before you leave. To get the boat ready to sail will cost another $68,000. You anticipate that your personal living expenses, food, clothing, insurance, etc., will come to approximately $75,000 over the two years and that you must set aside at least $40,000 for boat maintenance and repairs. These are really minimum estimates. Additionally, you are convinced that you must have at least $75,000 in the bank for your return. You'll need a car, a place to live, and ultimately a job. You are not at all sure what you will do on your return. Your spouse is on the edge of a nervous exhaustion (which is why he/she will not be attending this meeting with Texoil) and the doctor has told you that he/she cannot in the future work 18-hour days. Although you have held up under the long hours, the life of the independent service station owner is becoming more and more difficult, and less and less appealing. Your competition is now open 24 hours a day. You cannot do that without hiring more help, whom you won't be able to supervise properly. In addition, you have concerns for the safety of any staff working alone late at night. A mini mart would give you a jump on your competition, but you have neither the capital nor the motivation to make such an addition. You want out, now. For all these reasons, you think it is crucial that you have $75,000 in reserve for your return so that you can explore various possibilities of earning a living. In sum, then, you must receive at least $488,000 for this sale after taxes. (It is possible that you could sell the boat on your return, but you cannot count on being able to do so quickly enough to have cash to live on. Besides the equity in the boat is the equity you had in your condo and the station; if you sell the boat for living expenses, you will lose that equity.) The tax situation depends on the selling price. You built the station over 12 years ago for a price of $100,000. You have put in $20,000 worth of equipment that has been fully depreciated. You estimate the equipment will be valued at no more than $20,000 upon sale (it's getting old) so you will owe no tax on it. You must anticipate paying 15% on the capital gains on the property. Exhibit 1 illustrates the taxes due if you sell for $553,000. Exhibit 1 $553,000 - 120,000 sales price cost basis (equipment, investment) $433,000 capital gains (will be taxed at 15%) $553,000 - 64,950 $488,050 sales price tax owed (=15% of $433,000) amount received after taxes You think you can easily justify a $553,000 selling price. Given the property values in the area, which 1996-2014 Dispute Resolution Research Center (DRRC), Kellogg School of Management, Northwestern University. All rights reserved. Revised 1998. DRRC/KTAG teaching materials are protected by copyright law. DRRC requires a per person royalty for use of its exercises. Each purchase of an exercise authorizes copying or electronic distribution of that exercise equal to the quantity purchased. Access DRRC/KTAG materials at www.negotiationexercises.com Contact DRRC at drrc@kellogg.northwestern.edu This document is authorized for use by Emilie Croonenberghs, from 6/16/2015 to 8/30/2015, in the course: MGT 324/624-89 COURSE A: Negotiation Strategies - Scandura (Summer 2015), University of Miami. Any unauthorized use or reproduction of this document is strictly prohibited. have been soaring due to the activity at the Port, you estimate it would cost Texoil at least $650,000 to buy land and build a comparable station. Both of the other two stations in the area are owned by oil companies and neither is for sale. Your equipment, although not meets all environmental state-of-the-art, requirements. Your station has never had any difficulty in passing its annual environmental inspection. You have a loyal customer base who like the Texoil products, and who are unlikely to switch to another station if Texoil buys this one. Texoil could easily increase the profits from the station by keeping it open 24 hours a day, 7 days a week. In addition, Texoil could add a mini mart. The night shift from the port is an untapped source of customers and the mini mart should appeal to them. major oil company. You have devoted twelve years of your life to building up this station, and you do not want to sell it to somebody who may well make a failure of it. Most of the big oil companies have also looked at your service station, but the best offer you have received so far is $400,000 from British Petroleum, which would very much like to have a station in this area. The talks with them are continuing, but the likelihood that they are going to increase the offer is very slim in light of the firmness that they indicated at your last meeting. You have also been contacted by FINA, but after the last meeting they have not contacted you again, nor have they made any offer. All things considered, it appears that Texoil provides your only real opportunity to complete the sale at a price that will enable you to fulfill your life's dream. They know the property, they appear interested, and they have often said that they thought sales could be increased with a more aggressive marketing approach. You hope that will lead them to make a substantial offer. If it does not, that's an end to your dreams. Your ads to sell the service station have been running for about two months, without leading to any really attractive proposition. There have been some offers from individuals who would like to operate a service station, but there have been problems with each of these. Either they had insufficient funds and little likelihood of receiving a bank loan, or they had absolutely no experience as service station operators and would therefore be unable to get a contract with a 2 Texoil/Service Station Owner This document is authorized for use by Emilie Croonenberghs, from 6/16/2015 to 8/30/2015, in the course: MGT 324/624-89 COURSE A: Negotiation Strategies - Scandura (Summer 2015), University of Miami. Any unauthorized use or reproduction of this document is strictly prohibited