Description
The presentation includes topics like negotiation-its definition and framework,value block,value-creation,ideal and real situation,BATNA,ZOPA.
NEGOTIATION ANALYSIS
THE CONTEXT OF NEGOTIATION
?
There are two Parties Each party has something of value to another. Each party can communicate with one another. Each party has the authority to accept
?
?
?
EXCHANGE SITUATIONS
?
Not Engaging
?
No..no…no… yes
?
Fixed Rate
? Take
it or leave it
?
Bargaining
? Trial
& Error
?
Negotiating
? Problem
solving for self / other
NEGOTIATION - DEFINED
?
Daily give and take of social interactions. Art of getting what you want without regard to the cost to the other side. Endeavor that focuses on gaining the favour of people from whom we want things. A process of exchange to resolve conflict and reach a mutually beneficial agreement.
?
?
?
CONFLICT
?
Where two or more parties have interests or perceptions that differ ( goal divergence)
?
Conflict within organization
? Departmental
? Conflict
with customers
Situations
? Exchange
NEGOTIATION
?
Fundamental Managerial Skill Two minute exercise to multi-month process One time transactions to Ongoing relationships One to One to Many to Many
?
?
?
NEGOTIATION
?
IS NOT….
? Haggling
on Price ? Showing one up-manship ? Beating an adversary in a game
It’s all about creating value
NEGOTIATION FRAMEWORK
?
Who are the parties? What are their needs & priorities? Who enjoys power? How can value be created? What to do if the negotiation breaks down?
?
?
?
?
TYPES OF VALUES – LIGHT SWITCH
? User Friendly switch
? Functional Value
? It is cheaper
? Economic Value
? Alumni Designed It
? Emotional Value
? All B Schools have it
? Social Value
? We are Innovators
? Epistemic Value
VALUE BLOCK
• Ram purchased a pressure cooker
– – – – Existing Model Most of his neighbors had it Bought a low end to save money His wife liked it mainly because she was curious about its new features.
VALUE BLOCK
?
? ? ? ?
A single product can deliver different values Value perceptions can differ Values can be satisfactory or necessary Values can not compensate each other Customers compromise on values
CAN YOU CREATE VALUE?
VALUE CREATION
Gayathri has written a novel which she thinks will be a best seller with a sales of 100000 copies. Publisher thinks it will be a moderate success with a sales of 50000 copies. They negotiate for advance royalty. Gayathri wants a minimum advance of Rs.140000. Publisher can pay a
VALUE CREATION
Producer thinks there is a 80% chance the movie will be a hit and the distributor thinks there is a 50% chance that the movie will be a hit. A hit movie is worth Rs.60 crores. They negotiate for outright sale of distribution rights. Producer wants Rs.45
VALUE CREATION
Buyer wants 60 days credit as a matter of policy. Seller wants payment upfront. The deal value is Rs.120 lakhs and the seller expects to make a clean profit of 10% on the deal. They negotiate for payment terms.
VALUE CREATION
• Value can be created when
– There is difference of opinion (view)
• Outcome • Probability • Time perception
VALUE CREATION SPACE
Buyer
No Deal Region
c fe er P
a tu u m t
ai lg
n
No Deal Region Seller
IDEAL SITUATION
Price Delivery Warranty Payment Quality
Buyer
Seller
Price
Delivery
Warranty
Payment
Quality
REAL SITUATION
Price Delivery Warranty Payment Quality
Buyer
Seller
Price
Delivery
Warranty
Payment
Quality
HANDLING DIS-CONNECTS
Buyer
Critical
Not Critical
Critical
Position Creators (no sacrifice)
Value creators for the seller
seller gain > buyer sacrifice
Seller
Not Critical
Value creators for the buyer
buyer gain > seller sacrifice
Non value creators (no gain)
NEGOTIATION POSITIONS
• I will pay 10% more if you can deliver within a week. • I can not deliver within a week even if you pay double.
• Can I get 10% more if I deliver within a week? • I can not pay you a single paisa more even if you deliver as of yesterday
MICRO ANALYSIS (PRICE)
Delivery
Relative Absolute Relative Absolute
Buyer
Price
Seller
SEPARATING POSITIONS & INTERSETS
Positions : • • • • • • Stance Price Delivery Payment Warranty Quantity
Interests: • Reason for the position • Cost cutting ? • Inventory ? • Cash Flow ?
INVENT OPTIONS FOR MUTUAL GAIN
?
Think beyond Price
? Single
price approach will not work ? Single point agenda will not work
?
Value Perceptions Differ
? Stock
Trading ? Continuous Delivery vs Rate Contract
JUDGING SUCCESS
? ? ? ?
Break Down Agreement Postponement Gain in Negotiating Capital
SEVEN QUESTIONS FOR NEGOTIATION
1. 2. 3. 4. 5. 6.
Who are the parties ? What are the fundamental needs & Priorities ? What to do if agreement is not reached ? How can value be created & who is likely to get it ? Who enjoys power ? What is the right thing to do ?
7.
What will the party do if there is no agreement ?
WHAT WILL YOU DO?
You are offered a job at Rs. 6.00 lakhs pa
? You
?
already have other offer at Rs.5.00 lakhs
pa
? Which
one will you take?
WHAT WILL YOU DO?
You are offered a job at Rs. 6.00 lakhs pa
? You
?
have another offer at Rs.5.00 lakhs
?
More about 5.00 lakh job
? Stock
options available ? The job is in your home town
BATNA
?
Better Alternative to a Negotiated Agreement.
? What
is the other party’s BATNA ? Can we attach value to it ? ? What is my BATNA ?
BATNA
?
You have to offer for your product. The buyer has three other options
? There
?
is a 10% chance that vendor A will offer the same at Rs.9.00 ? There is a 50 % chance that vendor B will offer the same at Rs.9.50. ? Vendor C has given a firm offer at Rs.9.75
BATNA
10% Buy from A @ Rs. 9.00 Yes A Approves deal No 90% B or C B Approves deal No Buy from C 50% @ Rs.9.75 Yes
50% Buy from B @ Rs.9.50
BUYER’S BATNA
Expected Values 0.10 x 9.00 = Rs.0.90 0.90 x 0.5 x 9.50 = Rs.4.27 0.90 x 0.5 x 9.75 = Rs.4.38
BATNA ?EV = 0.90 + 4.27 + 4.38 = Rs.9.55
BATNA
?
? ?
?
Is about knowing your course of action if there is no agreement on negotiations It will be difficult to find buyer’s BATNA Customer’s who demand “yes” or “no” answer from you may have worked out their BATNA BATNA is your “walk away” price or “reservation price”
ZOPA
Zone of Possible Agreement
? Meghna
?
Distributors Case ? Buyer’s expectation Rs.8.50 to Rs. 9.40 lakhs ? Seller’s expectation Rs.9.00 to Rs.9.75 lakhs ZOPA is Rs.9.00 to 9.40 lakhs
doc_200801881.ppt
The presentation includes topics like negotiation-its definition and framework,value block,value-creation,ideal and real situation,BATNA,ZOPA.
NEGOTIATION ANALYSIS
THE CONTEXT OF NEGOTIATION
?
There are two Parties Each party has something of value to another. Each party can communicate with one another. Each party has the authority to accept
?
?
?
EXCHANGE SITUATIONS
?
Not Engaging
?
No..no…no… yes
?
Fixed Rate
? Take
it or leave it
?
Bargaining
? Trial
& Error
?
Negotiating
? Problem
solving for self / other
NEGOTIATION - DEFINED
?
Daily give and take of social interactions. Art of getting what you want without regard to the cost to the other side. Endeavor that focuses on gaining the favour of people from whom we want things. A process of exchange to resolve conflict and reach a mutually beneficial agreement.
?
?
?
CONFLICT
?
Where two or more parties have interests or perceptions that differ ( goal divergence)
?
Conflict within organization
? Departmental
? Conflict
with customers
Situations
? Exchange
NEGOTIATION
?
Fundamental Managerial Skill Two minute exercise to multi-month process One time transactions to Ongoing relationships One to One to Many to Many
?
?
?
NEGOTIATION
?
IS NOT….
? Haggling
on Price ? Showing one up-manship ? Beating an adversary in a game
It’s all about creating value
NEGOTIATION FRAMEWORK
?
Who are the parties? What are their needs & priorities? Who enjoys power? How can value be created? What to do if the negotiation breaks down?
?
?
?
?
TYPES OF VALUES – LIGHT SWITCH
? User Friendly switch
? Functional Value
? It is cheaper
? Economic Value
? Alumni Designed It
? Emotional Value
? All B Schools have it
? Social Value
? We are Innovators
? Epistemic Value
VALUE BLOCK
• Ram purchased a pressure cooker
– – – – Existing Model Most of his neighbors had it Bought a low end to save money His wife liked it mainly because she was curious about its new features.
VALUE BLOCK
?
? ? ? ?
A single product can deliver different values Value perceptions can differ Values can be satisfactory or necessary Values can not compensate each other Customers compromise on values
CAN YOU CREATE VALUE?
VALUE CREATION
Gayathri has written a novel which she thinks will be a best seller with a sales of 100000 copies. Publisher thinks it will be a moderate success with a sales of 50000 copies. They negotiate for advance royalty. Gayathri wants a minimum advance of Rs.140000. Publisher can pay a
VALUE CREATION
Producer thinks there is a 80% chance the movie will be a hit and the distributor thinks there is a 50% chance that the movie will be a hit. A hit movie is worth Rs.60 crores. They negotiate for outright sale of distribution rights. Producer wants Rs.45
VALUE CREATION
Buyer wants 60 days credit as a matter of policy. Seller wants payment upfront. The deal value is Rs.120 lakhs and the seller expects to make a clean profit of 10% on the deal. They negotiate for payment terms.
VALUE CREATION
• Value can be created when
– There is difference of opinion (view)
• Outcome • Probability • Time perception
VALUE CREATION SPACE
Buyer
No Deal Region
c fe er P
a tu u m t
ai lg
n
No Deal Region Seller
IDEAL SITUATION
Price Delivery Warranty Payment Quality
Buyer
Seller
Price
Delivery
Warranty
Payment
Quality
REAL SITUATION
Price Delivery Warranty Payment Quality
Buyer
Seller
Price
Delivery
Warranty
Payment
Quality
HANDLING DIS-CONNECTS
Buyer
Critical
Not Critical
Critical
Position Creators (no sacrifice)
Value creators for the seller
seller gain > buyer sacrifice
Seller
Not Critical
Value creators for the buyer
buyer gain > seller sacrifice
Non value creators (no gain)
NEGOTIATION POSITIONS
• I will pay 10% more if you can deliver within a week. • I can not deliver within a week even if you pay double.
• Can I get 10% more if I deliver within a week? • I can not pay you a single paisa more even if you deliver as of yesterday
MICRO ANALYSIS (PRICE)
Delivery
Relative Absolute Relative Absolute
Buyer
Price
Seller
SEPARATING POSITIONS & INTERSETS
Positions : • • • • • • Stance Price Delivery Payment Warranty Quantity
Interests: • Reason for the position • Cost cutting ? • Inventory ? • Cash Flow ?
INVENT OPTIONS FOR MUTUAL GAIN
?
Think beyond Price
? Single
price approach will not work ? Single point agenda will not work
?
Value Perceptions Differ
? Stock
Trading ? Continuous Delivery vs Rate Contract
JUDGING SUCCESS
? ? ? ?
Break Down Agreement Postponement Gain in Negotiating Capital
SEVEN QUESTIONS FOR NEGOTIATION
1. 2. 3. 4. 5. 6.
Who are the parties ? What are the fundamental needs & Priorities ? What to do if agreement is not reached ? How can value be created & who is likely to get it ? Who enjoys power ? What is the right thing to do ?
7.
What will the party do if there is no agreement ?
WHAT WILL YOU DO?
You are offered a job at Rs. 6.00 lakhs pa
? You
?
already have other offer at Rs.5.00 lakhs
pa
? Which
one will you take?
WHAT WILL YOU DO?
You are offered a job at Rs. 6.00 lakhs pa
? You
?
have another offer at Rs.5.00 lakhs
?
More about 5.00 lakh job
? Stock
options available ? The job is in your home town
BATNA
?
Better Alternative to a Negotiated Agreement.
? What
is the other party’s BATNA ? Can we attach value to it ? ? What is my BATNA ?
BATNA
?
You have to offer for your product. The buyer has three other options
? There
?
is a 10% chance that vendor A will offer the same at Rs.9.00 ? There is a 50 % chance that vendor B will offer the same at Rs.9.50. ? Vendor C has given a firm offer at Rs.9.75
BATNA
10% Buy from A @ Rs. 9.00 Yes A Approves deal No 90% B or C B Approves deal No Buy from C 50% @ Rs.9.75 Yes
50% Buy from B @ Rs.9.50
BUYER’S BATNA
Expected Values 0.10 x 9.00 = Rs.0.90 0.90 x 0.5 x 9.50 = Rs.4.27 0.90 x 0.5 x 9.75 = Rs.4.38
BATNA ?EV = 0.90 + 4.27 + 4.38 = Rs.9.55
BATNA
?
? ?
?
Is about knowing your course of action if there is no agreement on negotiations It will be difficult to find buyer’s BATNA Customer’s who demand “yes” or “no” answer from you may have worked out their BATNA BATNA is your “walk away” price or “reservation price”
ZOPA
Zone of Possible Agreement
? Meghna
?
Distributors Case ? Buyer’s expectation Rs.8.50 to Rs. 9.40 lakhs ? Seller’s expectation Rs.9.00 to Rs.9.75 lakhs ZOPA is Rs.9.00 to 9.40 lakhs
doc_200801881.ppt