00:01
Hi and welcome to
distributive bargaining
learning to negotiate
without confrontation.
00:07
In today's lecture,
we will learn to recognize a
distributive bargaining situation.
00:13
Not only will you be
able to recognize it
you will be able to throw
yourself into that negotiation
and be able to do
it mechanically.
00:21
You will learn tips on
concessional bargaining
and you will also get
a sense of how to do
distributive bargaining
professionally
without having to
be confrontational.
00:33
Now I know what you're
thinking, you're thinking
the ultimate goal in a negotiation
is to create a win-win situation
by expanding the pie,
as a matter of fact in this course,
there's an entire lecture dedicated
to this kind of negotiation.
00:49
However, sometimes there
isn't just a win-win situation
and everybody wants to know
how much exactly am
I going to take home
how big a piece of pie am
I to get and take home?
And we don't want to do
it by a getting angry
or aggressive with other people.
01:07
We want to do it professionally.
01:09
Now, how do you recognize a
distributive bargaining situation?
Well, the first thing you
have to think about is
that most distributive
bargaining situations consider
that their only limited
or fixed resources.
01:24
People see the world
as very static.
01:27
Perceptions are incompatible.
01:30
And neither side wishes to
reduce their expectations.
01:35
Usually a distributive bargainer
will look at the negotiation
and be very tactical making sure
that they are developing
a strategy to win
as much as they
can for themselves.
01:48
The whole process
is a convergence
through a series of offers
and counteroffers made
up of concessions.
01:57
The ultimate goal is the
maximum absolute profit.
02:02
As I said many times before
power is essential for
this type of negotiations.
02:09
Now you may be wondering
what kind of fundamental
strategies are involved here.
02:14
Well, usually there are four
main fundamental strategies
first,
people push for the maximum
close to what is called
the resistance point.
02:26
Second, you want to change
the subjective understanding
of how much somebody
wants something
we call that the
subjective utility.
02:38
Third, we try to understand
what is a person's
resistance points
and get them to modify
it, push it back,
allow us more room
to claim value.
02:52
And lastly,
we try to convince the other side's
that whatever we are offering
is the best option on the table,
and they should take it.
03:01
Now let's have a look at the
phases of a bargaining process.
03:06
They look a little bit like
inter space negotiations,
but actually there
are quite different.
03:12
Like interest-based negotiation,
there is a planning stage.
03:16
In the planning stage things
happen very similarly.
03:19
Were gathering information,
we're evaluating the other side,
we're trying to understand
the relationship.
03:26
Unlike interest-based
negotiation
in the planning stage
of a bargaining process
we're also trying
to understand power
how much can we influence?
How much will we be influence?
And what are going to be
constraints on our power?
Once we have
calculated our offers
and are expected counter offers.
03:47
We are ready for
the opening session.
03:51
In the opening session
of a bargaining process.
03:54
It is a much more formal process
than maybe an
interest-based negotiations
because an interest-based
negotiation
people are focused
in understanding what
the general interest are.
04:07
In a bargaining process,
we are focused on
listening very attentively
to what the value of the offer
on the other side is being made.
04:17
We're also trying to
understand exactly
where is the resistance points
or the bottom line
of the other side.
04:26
Once we have done
a formal opening
and we have understood all the
positions of all the parties
we are ready to move into the
phase of offers and counteroffers.
04:39
Unlike an interest-based
negotiations
where people do not have
offers and counteroffers,
here the parties will know they
are expected to make concessions.
04:50
These concessions
will slowly converge
at a midpoint
between the offers.
04:56
An interest-based negotiations,
we would do a lot more discovery
to make sure we do not fall into
a offer and counteroffer phase.
05:06
In any case these offers
have to be reviewed.
05:10
And once we have reviewed them
we need to go into what we
call the signaling phase.
05:14
For example,
John,
I think you can do
better than that.
05:20
Mary,
This is my last and final offer.
05:25
These kind of things are
the way people signal
how much they can
move on a concession
or how much they're not ready
to move on the concession.
05:34
Once we have done all
of the bargaining.
05:37
We begin to look at how to
create a package agreement.
05:41
One that meets the interest
of all sides but is also
at a midpoint that we can
call a compromising package.
05:49
In the end,
each side has to evaluate
whether they will
enter into an agreement
or whether we have
reached a stalemate
and we have to change the
dynamic of the process.
06:02
So you might be
wondering at this point,
What does the distributive
bargaining situation looks like?
Well before I give
you an example,
I'd like to talk to you a little
bit about the basic elements
that in the practice.
06:17
Number one before you
even meet the other side,
you need to set
yourself some goals.
06:23
What do I want to
achieve with this?
Those goals will be impacted
by what we call
the bargaining mix.
06:30
These are all the issues
that are going to be negotiated
throughout the process.
06:35
The goals will be defined
by the strategies we deploy
and the strategies will be
impacted by the tactics we use.
06:44
In other words,
in order to reach our
strategies to fulfill our goals,
we will have to devise
mechanical tactics in each phase
that push us closer
and closer to our goal.
06:57
Once we've done that,
we will think about what
is our starting point,
what is our target point?
What is our resistance point?
And in the end,
where is the settlement range.
07:11
In other words,
where is the zone of
possible agreement?
Now here's an example that
I'd like to present to you,
which most of us either
have been in ourselves
or know someone who
has been through it.
07:26
The buying and
selling of property.
07:29
We have a seller
who has thought about selling
his apartment or is home
for €460,000 euros.
07:38
We also have a buyer who
is seeking to buy a home
for about €380,000 Euros.
07:47
Yes, it's a pretty far
gap between the two sides,
but is it?
The actual target
point of the seller
is €430,000 Euros.
08:02
The target point of the buyer
is about €400,000 Euros.
08:08
Now if you look at this gap the
gap just went from 460 to 380
to 430 and 400.
08:16
Seems a little smaller,
but let's look again.
08:20
If we look at the resistance
point of each side,
we will see that the resistance
point of the seller is actually 400.
08:31
The resistance point
of the buyer is €430,000 Euros.
08:38
The negotiation
range of the seller
is between €400,000
and €460,000 Euros.
08:47
The negotiation
range of the buyer
is between 380,000 and 430,000.
08:55
That means the overall
range is between
380 at the low end and
460 at the high end.
09:04
The bargaining range
will actually be between
the two resistance points
between 400 and 430.
09:12
Now most people when they
start out to negotiate,
they'll say oh 380, 460,
if we make a compromise and
land right in the middle,
we're going to come up at 420.
09:25
That's where I should go.
That's where I would be happy.
09:29
But actually the clever
distributive bargaining negotiator
would realize that the
midpoint between 400 and 430
is not 420, but actually 415.
09:40
5,000 Euros could
make the difference
between buying and
selling our apartment.
09:47
Now, let's look a little bit at how
do we do concessional bargaining?
Let's go to the bases and core
of all negotiation strategy.
09:56
Now I'd like to mention somebody
who has impacted all negotiations
throughout the world, John Nash.
10:03
He was a scientist developing
theories of negotiations.
10:08
And he said,
there is a set of outcomes
determined by the political
and economic environment
of every negotiations.
10:18
Solutions cannot be worse
than the status quo.
10:23
And he said something
that nobody understood,
It must be on the
Pareto Frontier.
10:29
I will come back to
that in the next slide.
10:32
He also said, there a payoff for
saying no what we call non agreement.
10:39
Problems and solutions
have values in an equation
and he actually thought that
all players are rational.
10:46
We know all players
are not rational
but Mr. Nash felt they were.
10:51
He said the focus is on players,
strategies, outcomes, structure,
and finding that equilibrium.
11:00
The Nash equilibrium is based
on the Pareto optimal agreement.
11:05
Mr. Nash said,
if there is a set of strategies
where no player can benefit
without the other side
changing their strategies,
the set of strategies and the
payoffs will be in equilibrium.
11:20
What does that mean
for the Pareto Optimum?
If you look at the graph
on the screen you will see
that there is a correlation
between the buyer
and the seller.
11:33
Actually,
there are series of options
that all have the same value
which will be determined for example
in the apartment example by price,
type of payment,
time for payment,
maybe some extras on the side,
all of these packages will create a final
comprehensive negotiation agreement.
11:54
Now to make concessions,
which people always expect
you have to know a few things.
12:01
First of all if no
concessions are made
people will be skeptical
about the agreement.
12:08
Number two people
often feel cheated
if no concession can be made.
12:14
Number 3,
there is always someone
who will say, when they did it
they did it better.
12:21
So be prepared to
answer that question.
12:26
Then I take it or leave it
offer is also seen as skeptical.
12:30
And lastly, if it seems that
there no room for negotiation
people tend to walk away.
12:38
Why should I go there?
If they're not
willing to negotiate
we've all heard this before.
12:45
I'd like to give you a couple of tips to
take with you on concessional bargaining.
12:49
Number one is the principle
of proportionality
each concession should
decrease with time.
12:56
In the end,
all concessions should be balanced.
13:00
And in order to do that,
you need to discuss the subjective
and objective value of the things,
you might think this
apartment is worth a lot
because you've lived
there for 20 years.
13:12
Yet the person coming in cannot
understand that subjective value.
13:17
Number two,
be aware of Trojan horses.
13:21
Some people make an early
technical concession
because they plan to
make a bigger demand
for a larger concession
towards the end of
the negotiation.
13:32
Always make sure that
when you get something
you give something
immediately in return.
13:39
Number three, logrolling.
13:42
Make sure that
concessions are packaged
and that people feel there
was a give and a take.
13:49
And finally,
you must have a formal end to
your concession of bargaining.
13:55
Make sure that your
last concession
is large enough to
demonstrate finality,
but not so large that people
feel you have a lot more to give.
14:06
Be prepared as well that
even in the every last second
when you think you
have an agreement,
smaller parties
or weaker parties
will come with one last demand,
you have to decide for yourself
whether that last demand is a
concession you're willing to take.
14:26
Now many people ask me
Juan, how do you assess
the resistance point
of the other side when
they won't tell me?
Well, there are a few things
you can do about this.
14:36
Number one is direct or
indirect information.
14:40
For example,
what is the market rate?
Are their loan guarantees?
What kind of
information can we get
that does not involve having
to directly ask the other side.
14:52
Number two,
what are the priorities and
motivations of the other side.
14:57
For example, is having a garage
important to the new perspective owner
or a roof terrace,
or maybe the seller needs to get
rid of the apartment very quickly
that leads us to
our third criteria.
15:14
Urgency is the lease of the prospective
buyer up in his former apartment.
15:20
That means the person is under
pressure to actually buy quickly.
15:25
And lastly, what do third parties
actually say about the negotiation,
we know for example in buying
and selling apartments and houses
that banks always want to
have a say at the value
of the apartment or the house.
15:41
Therefore there are ways for you
to evaluate the resistance point.
15:46
I'd like to give
you one more tip,
and that is the
subject of anchoring.
15:52
Many people always ask,
Should I be the first one to say
something in a salary negotiation?
I don't want to lose my job.
16:02
Well, if this is your first
job right out of college,
I would say basically you're
at the mercy of the employer.
16:09
However people as they gain experience
in salary negotiations will tell you
that it's always good
to first, know exactly what
the market price of your job is
and second to do something
which is called anchoring.
16:26
Anchoring is the number in
which a distributive negotiation
always revolves around.
16:32
Statistics show that the first number
to be verbalized in a negotiation
will be closer to the final
agreement than the second number.
16:43
Keep that in mind the next time
you're doing a salary negotiation.
16:47
Now, how do you
avoid confrontations?
Well one thing is during
the opening sessions
to go back to what we've
mentioned before as win sets.
16:58
If the target point or
the resistance points
of the two sides to not overlap
in any way shape or form.
17:06
Actually having a
distributive bargaining
might be more challenging
than we thought.
17:12
Trying to force somebody to move
those resistance points unduly,
or to greater sums
were actually not achieve a
zone of possible agreement.
17:23
You do not have to get
angry at the other side.
17:26
Here are some tips on
avoiding a confrontation,
then pretty much common sense.
17:32
Number one, remember that
everyone expects a concession.
17:37
So create space in your negotiation
for offers and counteroffers.
17:44
Number two,
If the other side makes a concession,
make sure to balance it
out people expect fairness.
17:54
Number three, understanding does not
mean that you agree with someone,
therefore when you can empathize
with the other side without agreeing
take the opportunity
to show the other side
you actually care about them.
18:12
Number four, recognize large concessions
by the other side and thank them.
18:19
Think about what
you're going to do and
if you have to say no to a
demand from the other side,
make sure that you give them
some kind of explanation
why you said no.
18:30
Very important is Is not
to take back concessions
that were already made
and keeping a record
of what was agreed
so that we don't have to
renegotiate the package.
18:42
In closing, I hope that you
are now able to recognize
a distributive
bargaining situation,
that you are able to throw
yourself into a negotiation
without feeling
uncomfortable or insecure
and that you're
able to negotiate
in a distributive
bargaining situation.
18:59
I hope that you have
taken these tips on board.
19:02
And you'll use them the next time
you do concessional bargaining.
19:05
And lastly,
that you've developed a sense
that positional bargaining
or confrontational bargaining
is not the same as
distributive bargaining.
19:15
In closing,
what I would like to say is,
if you remember that most
people want to be successful
and cannot agree to things that
will hurt their relationship,
embarrassed them,
or ruin them financially,
distributive negotiations,
when done professionally
and strategically
can be a lot of fun
and it can be rewarding.
19:35
It is important to remember that
the zone of possible agreement
is crucial in understanding
what is possible in concessions.
19:43
Take time to map
out your strategy
and do not forget
to take time to discuss the
entire situation in depth
before you begin with
demanding concessions.
19:54
Remember, clarity of purpose
and quality of relationships
should always be
your top priority
in a strategic negotiations.
20:02
Good luck with your next
distributive bargaining situation.