Improving your negotiation skills can only take you so far – eventually you need to assess you behavior preferences as a negotiator. Being able to predict how you will behave in a given bargaining scenario will help you augment the negotiation training you have received as well as help you achieve better outcomes at the … Read More
Learn how to negotiate like a diplomat, think on your feet like an improv performer, and master job offer negotiation like a professional athlete when you download a copy of our FREE special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, from the Program on Negotiation at Harvard Law School.
What is Reservation Price?
Knowing your reservation price – the highest price you would pay in the negotiating scenario – can empower you to walk away from a bad deal and seek a better bargain.
In any negotiation, your best alternative to a negotiated agreement, or BATNA, is intimately tied to your reservation price. Determining your BATNA will help you know when it’s time to walk away and pursue your best alternative. BATNA assessment involves the following three steps:
- Identify all of the plausible alternatives you might pursue if you can’t reach a deal with the current party.
- Estimate the value associated with each alternative.
- Select the best alternative, which is your BATNA.
Once you identify your BATNA, you are in a position to calculate your reservation price, which is your walk-away point in the upcoming negotiation. In a price negotiation, this might be a particular number. In an integrative negotiation where multiple issues are at stake, your reservation price might be expressed as a package, such as the lowest salary, benefits, and responsibilities you’d accept to take a certain job.
Your knowledge of your reservation price will help you avoid two mistakes: (1) accepting a deal that’s worse than your BATNA or (2) rejecting a deal that’s better than your BATNA.
Furthermore, figuring out the other party’s reservation price is the key to knowing how far you can push them in price negotiations—or any business negotiation. Start by considering the other party’s BATNA: What will they do if they can’t close the sale with you?
Be aware, however, that even with preparation, you could unnecessarily lower you reservation price if you expect your counterpart to be a competitive negotiator. Research shows that people fall victim to a host of perceptual biases when assessing others. Therefore, be prepared to find out that your opponent is very different than you expected them to be – and perhaps less competitive than you expected.
Learn more and discover how to boost your power at the bargaining table in this free special report, BATNA Basics: Boost Your Power at the Bargaining Table, from Harvard Law School.
The following items are tagged reservation price:
It’s official: Price negotiations aren’t just for big-ticket items anymore. The prices of furniture, electronics, wine, jewelry, and other “medium-ticket” goods are now frequently up for discussion. The ancient art of haggling has made a comeback, so brush up on your skills with our six price negotiation tactics. … Read More
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To avoid conveying weakness to the other side, rather than calling for a break at the first sign of trouble, some negotiation teams devise secret signals they can use to bring wayward members in line—for instance, someone might stretch out her arms to communicate to another member that he’s getting off track. … Read More
When dealing with difficult clients, we sometimes can trace our struggles to the early stages of our interactions—including our price negotiations. If initial price negotiations are contentious and frustrating for the client, their unhappiness is likely to leave you handling difficult situations and managing difficult people in your ongoing business relationship. In this post, we … Read More
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When you expect people to be competitive, it’s not only your own behavior that changes. You also set up a self-fulfilling prophecy, such that your expectations about the other side’s behavior lead him to behave in ways that confirm your expectations. … Read More
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In the course of a career, a negotiator will confront many skilled persuaders. Here, we review three defensive negotiation strategies a negotiator can employ. … Read More
Some cultures have a long tradition of haggling—bargaining back and forth about the price of an item—in markets and bazaars. By contrast, in the United States and many other countries, haggling between buyers and sellers is an under-practiced skill. You might routinely pass up opportunities to haggle in situations where financial negotiations are not the … Read More
Price negotiations and other distributive (single-issue) negotiations often seem to come with a built-in Catch-22: If you get a great deal on price, your relationship with your counterpart may suffer because they feel as if you’ve won and they’ve lost. In a new study, Singapore Management University professor Michael Schaerer and his colleagues identify a … Read More
Goal setting affects performance. In a review of goal-setting research, negotiation scholars Deborah Zetik and Alice Stuhlmacher of DePaul University found that when negotiators set specific, challenging goals, they consistently outperform those who set lower or vague goals. … Read More
How can you negotiate the best possible price for a new car? This is a common negotiation question, and naturally so. A car is one of the most significant purchases you’ll ever make—and the price is almost always negotiable. Here are a few tips to improve your performance: … Read More
Adapted from “Strike the Right Balance Between Trust and Cynicism,” by Harvard Business School professor Max H. Bazerman, first published in the Negotiation Briefings newsletter. Negotiators often must choose between trusting their counterparts and being cynical of their motives. The consequences of such decisions can be serious in dealmaking: trust too much, and you’ll lose big; … Read More
It may be the most burning question in business negotiation: Should you make the first offer? Traditionally, negotiators were advised to wait for the other side to make a first offer. According to this reasoning, the other side’s offer gives you valuable information about his goals and alternatives. More recently, however, research on the anchoring bias has … Read More
When you expect an opponent to be competitive, your confidence in the outcomes you can achieve in negotiation is likely to plummet. In negotiation research with Adam Galinsky of Northwestern’s Kellogg School of Management, negotiators were provided with some background about their counterpart including information on how competitive their counterpart has been in previous negotiations. … Read More
Suppose your research reveals that the TV you want is fairly new on the market. Further research about your local store leads you to believe it may be willing to go as low as Amazon.com’s price of $900. Now you have a general sense of the ZOPA, or zone of possible agreement: between $900 (your … Read More
Like other cognitive biases, competitive expectations can be insidious. Fortunately, there are several steps you can take to forestall their negative consequences. … Read More
Now it’s time to assess the best deal you might get. Figuring out the other party’s reservation price is the key to knowing how far you will be able to push him, write Deepak Malhotra and Max H. Bazerman in their book Negotiation Genius: How to Overcome Obstacles and Achieve Brilliant Results at the Bargaining … Read More
Q:My wife and I are friends with another couple who live in our neighborhood. For many years they have told us that they love our home and street and that if we ever wanted to move, they would like to buy our house. From the number of times they have said it, we know they’re … Read More
Toby knew that Dara was the perfect New York literary agent for him as soon as he heard her friendly, professional voice on the phone. Never mind that 17 other agents had already rejected his book proposal. Dara’s enthusiasm and recent sales convinced him to sign the three-year exclusive contract she mailed to him in … Read More
At this point, you have entered the realm of haggling: the dance of concessions that follows each party’s first offer. (In our TV negotiation, the $1,100 list price was the store’s first offer.) For some, this is where the real fun begins; for others, it’s time of great anxiety. To manage your stress, keep your BATNA … Read More
Just like the prices of houses, cars, and other big-ticket items, the prices of furniture, electronics, wine, jewelry, another “medium-ticket” goods are now frequently up for discussion. The ancient art of haggling—the back-and-forth dance of offers and concessions between buyer and seller—is making a comeback, and you would do well to brush up on your … Read More
On July 11, 2000, U.S. president Bill Clinton welcomed Israeli Prime Minister Ehud Barak and Palestinian Authority Chairman Yasser Arafat to a summit at Camp David aimed at resolving the Israeli-Palestinian conflict once and for all. The summit covered various contentious issues, including territory, settlements, security, and the status of refugees. After about two weeks, on … Read More
In 1901, J.P. Morgan wanted to buy the Carnegie Steel Company from its founder, Andrew Carnegie. Carnegie was 65 years old and considering retirement. As Harold C. Livesay recounts in his book Andrew Carnegie and the Rise of Big Business (Little, Brown, 1975), when Carnegie finally decided he was ready to sell, he jotted down his … Read More
Adapted from “Break Through the Tough Talk,” by Kristina A. Diekmann (University of Utah) and Ann E. Tenbrunsel (Notre Dame University), first published in the Negotiation newsletter. You might think that cultivating a reputation as a tough bargainer might be the best way to cope with a competitive opponent. But this isn’t necessarily the best strategy. … Read More
The PON Clearinghouse offers hundreds of role simulations, from two-party, single-issue negotiations to complex multi-party exercises. Ocean Splash is a two-party, two-issue scoreable negotiation between a charity and a corporate sponsor regarding the number and placement of advertising banners at a fundraising walk. SCENARIO: The U.S. Cancer Association (USCA) chapter in Sixton City is organizing its … Read More
The PON Clearinghouse offers hundreds of role simulations, from two-party, single-issue negotiations to complex multi-party exercises. Negotiating Budget Cuts at Newtowne Hospital is a six-person negotiation among hospital administration and employee representatives to reach consensus on budget cuts in three departments. SCENARIO: Dr. Van Hagen, a distinguished heart surgeon, will soon join the staff at Newtowne Hospital, … Read More
Many negotiators understand the importance of estimating the other side’s reservation price—the worst deal he would accept from you. However, despite the fact that such estimates often are based on hints, clues, and speculation, negotiators are frequently overconfident that their estimates are accurate. … Read More
The PON Clearinghouse offers hundreds of role simulations, from two-party, single-issue negotiations to complex multi-party exercises. Multimode, Inc. is a two-party intra-organization negotiation between a company’s financial and human resources officers regarding the amount of a budget increase. SCENARIO: T. Boyd, a Vice President of Budget and Finance at Multimode, Inc., (a manufacturing firm) … Read More