Negotiation Basics
An Interactive Approach to Teaching the Basics of Negotiation in One Class
Submitted to the Experiential Learning Association
Eastern Academy of Management
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Negotiation Basics
Abstract
This interactive case was developed for situations where only one or a few sessions could be devoted to teaching
negotiations…graduate or undergraduate. This exercise can be used as a “stand-alone” class or in an organizational
behavior (or related) class in which only one or two classes can be devoted to the topic of negotiations. The case
involves a complex two party negotiation which puts the student in the role of the negotiator; there are multiple
decision points, each of which involves students responding with specific decisions. Students come out of the
exercise with a basic understanding of the basics of Negotiation including planning, who should make a first offer,
how to determine goals, targets, and walkaways, ZOPA, reciprocity, anchoring, and distributive vs. integrative
negotiations
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Negotiation Basics
Teaching the Basics of Negotiation in One Class
Introduction: Courses in Negotiations are now ubiquitous, not just in Business Schools but across many parts of the
University. Many programs now require a course, or at least a workshop, in negotiations. This is quite different
from decades ago which such courses were rare. There are many reasons for this but a critical factor relates to the
changing nature of work organizations. Those we are educating today will be working in organizations that tend to
be flatter and more decentralized, less hierarchical and less characterized by the top-down command and control
model that has been standard for thousands of years. In flatter organizations, communication tends to be more
horizontal. This places an emphasis on persuasion, influence, and negotiations. For our students to be effective,
they will have to be able to influence and persuade those over whom they do not have direct authority. This has
always been an important skill, but flatter organizations place a premium on these skills.
As a longtime teacher of negotiation, I teach semester long courses that allow the exploration of the topic in depth.
But, like many of us who teach this topic, I am frequently asked to teach a short workshop on the topic, or to come
into a course such as Organizational Behavior, and teach one or two sessions. I get many requests from professional
groups as well as student interest groups, to teach a session on negotiations.
I developed this exercise as an engaging way to introduce the topic in a semester long course, but also as a standalone unit to teach the basics of negotiation. It has been used in over fifty courses and workshops and a number of
my colleagues use the exercise to cover the topic of negotiation as part of an Organizational Behavior course.
The exercise is based on a brief case first written by Howard Raiffa (The Elmtree House, The Art and Science of
Negotiation). The Elmtree House is a Halfway house in Somerville MA. It is a run-down house on an acre of land
in this close suburb of Boston. The Board of this non-profit has thought about moving, but hadn’t really taken
aggressive steps. Out of the blue, there is a call from an individual interested in making an offer on the house.
Prof. Raiffa describes the actual negotiation. In my exercise (created in Powerpoint), I break the case up into
multiple decision points. I put the student in the position of the negotiator in the case. Each student (either
individually or in groups) is asked many times to make a decision about how to act and react. What actually
happened is then displayed.
2. Presenting the Exercise
Learning Goals: The exercise has the following learning goals
-
Helping to understand the difference between distributive and integrative negotiations
Understanding the importance of planning for a negotiation
Learning how to plan for a negotiation
Understanding how to figure out Walkaways (Reservation price), targets, ZOPA (Zone of Possible
Agreement)
Understanding the importance of identifying your Walkaway
Understanding the importance of identifying your counterpart’s walkaway
First offers: understanding the potential costs and benefits of our making the first offer vs the other person
making the first offer
Understanding anchoring, its psychology, and potential impact on negotiations
Dealing with “high ball” or “low ball” offers; avoiding being intimidated by aggressive offers
Interpreting offers from your counterpart; sending the right signal
Identifying common mistakes inexperienced negotiators make (e.g. substituting target for walkaway)
Predicting when you have hit your counterpart’s walkaway
Deciding whether to accept an offer or not
Shifting the negotiation from distributive to integrative
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Negotiation Basics
Timing: Typically the exercise takes around 90 minutes, although if more time is available, it can be used
for more in-depth discussion of some of the issues listed above. Also, it is useful to give students time to
discuss with others about some of the decisions that have to be made and more or less use of this option
will affect the duration of the exercise.
Group size: any group size
Materials and Technology: The exercise was created in Powerpoint. Since students are asked for
responses a number of times during the exercise, having a way to record their responses can be helpful
but not absolutely necessary. At two points during the exercise, students are asked for a specific
monetary offer or counteroffer. While discussing possible responses, I walk around asking groups or
individuals what their answer would be and jot it down informally. Recently I have used a Google
Questionnaire where students can input a response on their smartphones and the answers instantly
populate a spreadsheet on the class computer. It can be powerful to see the wide variation of responses.
3. Teaching Notes
Advance Preparation: If possible, send out the short case ahead of time and ask students to answer the question
which is “what would you do to prepare for this upcoming negotiation?”
It is really valuable to have students respond to this question since many are astonished at the ideas that their fellow
students come up with. Where appropriate, I give answers to questions they raise in class as indicated below.
I indicate that I will follow the real negotiation which is not necessarily a perfect negotiation. Students will come up
with options that I can’t follow because the negotiator in the case didn’t. For example, students will suggest that the
negotiator should seek other potential buyers. This is a correct response and I have to respond that I can’t follow up
on this excellent idea because the negotiator didn’t. I reinforce that I am not suggesting a “perfect” negotiation here.
Planning for the Negotiation: Answers should include:
-
-
-
Find out the value of our house (how do we do this?)
Find out the cost of moving (this will be given in a subsequent slide)
Find out about Wilson: what does he do (I answer this in class that he is a developer but we don’t
know for sure what he wants to do with the property
o See if we can find out anything about his negotiating style
o Find out if he has a philanthropic interests; is he on the board of any non-profits like ours
o What kinds of deals has he done in the past
Talk to the Board and make sure they have thought long and hard about whether they want to move;
not all communities and neighborhoods are welcoming of a halfway house (I respond that the Board
has thought hard about this and have concluded that moving to any of the three options leaves them
better off. I share with the class that all three have been vetted in terms of welcoming a halfway house
in the neighborhood)
Investigate zoning: go to City Hall and find what could be done with the property; find out if Wilson
has bought properties near you (Answer: the land is zoned for apartments/condos)
What is our Walkaway? (note: this takes a lot of discussion): The slide states that two properties are available
(Medford and Allston) and the cost of moving is indicated (house plus moving costs). It is $220,000 for Medford
and $275 for Allston. I ask what the walkaway should be; there is a lot of confusion and misunderstanding. Most
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Negotiation Basics
commonly, students mistake target (what they would like) versus “walkaway,” which is that absolute minimum they
should accept before walking away. This allows an opportunity to identify clearly what “walkaway” means.
Information is also given that a realtor assessed our property at $125,000. Given that our walkaway is $220,000, I
ask if these busy students would waste their time since the value is so much lower. Perceptive students will see that
this number is irrelevant. The important number is what this property is worth to Mr. Wilson.
Determining Mr. Wilson’s Walkaway: First ask why this is important. After some discussion, either a student
figures it out, or the instructor needs to give the answer. “We need to estimate the other side’s walkway, because
that is our target. Our target is his walkaway, and his target is his estimate of our walkway. In our case we
asked other developers what this land might be worth if Wilson develops condos. They estimate between $250,000
and $475,000. Our negotiator set our estimate of Wilson’s walkaway at $350,000.
What do you do at the first meeting with Mr. Wilson: I ask students to talk with their neighbors about how to
approach this first meeting; specifically who makes the first offer. Most students instinctively think the other party
should make the first offer. This isn’t necessarily incorrect. This allows a discussion of the potential benefits and
risks of making first offers or having the other party make the first offer. I suggest that the biggest risk of letting
Wilson make the first offer is that if he “lowballs” many inexperienced negotiators are intimidated, suggesting that if
they have the other party make first offers, they must be able to inoculate themselves against being intimidated.
First Offer: I show the slides of the clever openings for each. Mr. Wilson states, “What is the bottom line, and I
will see if I can offer a little more.” Students should recognize that Mr. Wilson is asking for their walkaway. This
is a good test of whether they understand the concept. A discussion of whether this is ethical can result. I suggest
that inexperienced negotiators often give this information away. They should understand the result is that they
won’t do any better.
Mr. Wilson agrees to make the first offer. Before I show what it is, I ask students to just write down on anywhere
what they think Wilson’s first offer will be. I like to walk around to take a look at these numbers. Alternatively,
one might use technology like Google Questionnaire where a student can input a response on a smartphone and the
answers instantly populate a spreadsheet on the class computer.
It is interesting seeing the variation in responses. Some students will predict that Mr. Wilson will “lowball” at
$125,000 or around there. Many predict much higher. When I show the actual offer ($125,000), I ask if students
who expected much higher are “offended,” or walk out. Some will admit that they are. I will ask what they would
have done in Mr. Wilson’s shoes, and many will admit (even those who were offended) that they would do what he
did, offer what a realtor said it was worth.
Counteroffer: Next decision point is what to counteroffer or whether to even participate in the negotiation or walk
out. Some will walk out. Here the instructor can ask for individuals to write down on a scrap piece of paper what
their counteroffer would be or to have students discuss this in small groups. I have also tried having them input their
responses on their smartphones using the Google questionnaire.
Before I show our counteroffer, I discuss the various responses. A number of students will counteroffer below our
target of $350,000. It is critical here to discuss this. I will ask “how can you achieve your target if you start below
it?” This often dumbfounds students. This is because Wilson’s lowball offer did exactly as I predicted; it
intimidated the students, and they immediately forgot about their target and made their walkaway their target. Some
will even counteroffer below their walkaway.
It is very important to discuss this. Emphasize again that the negotiation should aim at their target. While we rarely
fully achieve our target, we should work towards it, at least until some valid information convinces us that our target
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Negotiation Basics
was unrealistic or built on false assumptions. But up to this point, Mr. Wilson has nothing to suggest our research or
planning was erroneous.
I share our counteroffer which was $600,000. It is important to acknowledge that many of us wouldn’t be capable
or comfortable making this high counteroffer. And it is important to emphasize that Mr. Wilson can defend his offer
and any counteroffer we make must be defendable. If we can’t seriously defend $600,000, we should make this
offer.
Our offer stems from the notion that often negotiations “split” the difference. Insofar as Mr. Wilson’s offer is about
$200,000 below what we estimate his walkaway to be, we offered about $200,000 above; this way if we split the
difference, we will end up at our target, which is our goal.
Mr. Wilson’s response: He states that it is “out of the question,” but at least he doesn’t walk out. Later on, he
doubles his offer to $250,000. This is more than our walkaway, and I ask individual students if they would take it.
Some would; others point out that he doubled his offer and there is probably more there.
We lowered our offer to $475,000, lowering it by the same amount he raised; this is an example of reciprocity, a
concept which should be discussed.
The process goes back and forth resulting in Mr. Wilson moving to $300,000 and we are down to $350,000. Some
students think we have found Mr. Wilson’s walkaway given that the increments he raises are getting smaller and he
is taking more time to respond. Other students feel we would “split the difference,” and counter with $325,000.
I have a slide showing $325,000 as our counter, and Mr. Wilson stating graciously that he has another property he
will pursue. You can hear the groan in the class.
I show that I made up this slide; it didn’t really happen, but it could have.
What actually happened was that our negotiator did feel that we had reached Mr. Wilson’s walkaway but that we
could push this further. What if we tried to make this more integrative. Mr. Wilson said he cared about the Halfway
House. I ask students what you would do if your counterpart expresses interest in your non-profit. Even
undergraduates will figure out that you try to get him on the Board, ask for a donation, ask for help in the
construction in the new house, ask for help in moving and construction materials, much of which may be tax
deductible.
While I don’t have specifics, I suggest that the final deal had a value to us of about $325,000 which included some
help with moving, construction, etc. The cost to Mr. Wilson was $275,000 given some tax deductions.
4. Debriefing: In the debrief, I reinforce the key concepts that we covered: planning, targets, walkaways, ZOPA,
who makes first offers, how to make counteroffers, how to deal with extreme offers, reciprocity, distributive vs.
integrative negotiation.
It is important in an introduction to negotiation that reemphasize that these components of negotiation occur every
day, not just in those “big” situations like salary or buying a car.
5. Student Reaction: students keep a journal in the course; following are some journal entries
“The Elmtree case was great because it began relaying the fundamentals of negotiations. One of the biggest take
aways for me was learning how to analyze the ZOPA and how to set goals. One of the most important things about
negotiations is doing your research. If you do not understand the other person’s motivations then you cannot
understand what they are bring to the table, what is important to them, and what outcome they would like. If you can
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figure these out you can estimate their goals. Knowing your own goal, you can then find the ZOPA. I also learned
that it is not always the best to “split the difference” if that means you are way over their walk away point. This case
was a great sample of how to begin a case.
Elm Tree: This case involves a negotiation where it is very important to understand the motive of the potential
buyer, Mr Wilson. Therefore, it is critical to find out as much as possible about drivers behind his offer to buy; why
is he buying, what is his time-frame, what is his history, etc. It is also prudent for Mrs Peters to research the
property value as well as the costs associated with moving to the other locations so that she can set a walkaway
price that makes sense from a net gain perspective. It would not be in her best interest to sell the property for less
than the total cost of moving. She should anticipate that Mr. Wilson would extend an offer derived from the
estimated property value alone and be ready with an educated counter-offer that factors in the cost of moving in
addition to some margin for bargaining. Being a property developer, Mr. Wilson most probably values the property
much higher than the baseline list price, and knowing that can help provide Mrs. Peters leverage and confidence in
bargaining towards a deal that is closer to her target. She should do enough research to confidently set her
walkaway and be able to estimate his walkaway so that she can identify a zone of possible agreement; this will help
drive her negotiation.
I enjoyed the elmtree case because it is not complicated to understand, but the information was based on a real
event. It also helped me better understand setting an anchor and that it is okay to raise or lower anchor if you can
support your claim. It is hard for me to grasp the concept of starting outside the target price you are trying to get.
The ZOPA graph gave me better indication of how setting that anchor can be effective without insulting the other
party.
There was a lot to be learned in the Elmtree case, and discussing it in class really broadened what I had thought
about just working through it on my own. Estimating the buyer’s walkaway and then knowing to always break there
(not at your own) was a new concept for me. My recommendation was to make the first offer because I felt like the
buyer was going to start to low and anchor us, though the class leaned the other way. This was actually reflective of
life because I think I’m very quick to make the first offer – I’ll have to change that going forward!
I thought the concept of anchoring based on the first price given was very accurate. Though this didn’t happen to me
in the Elmtree scenario (I suggested going for $500k), ironically I was then anchored much lower in the Sugar Bowl
exercise when the buyer started at a lower price than I anticipated. I also learned that good negotiators rarely go
back on their initial offer, you can’t win by going below your walkaway, and unless you are very informed or think
you will be significantly lowballed, don’t make the first offer.
The Elmtree Case was a little overwhelming at first. It really put the need for research and preparation into
perspective. It made me realize just how little I have prepared for some of my past negotiations, whether they are
job interviews or just basic agreements to purchase items from other private sellers. The case definitely outlined the
need for information as well as the concepts of BATNA, ZOPA, walkaway prices, and making the first offer. It made
me realize that I’m more often too quick at making the first offer since I am eager to move things in a particular
direction. I think this goes along with my distributive negotiation style. Too often I’ve been intimidated by the
thought of a seller “anchoring” a negotiation in such a way that the ZOPA is too small. The case also helped to
clarify the concept of “goals” during a negotiation through the ZOPA, BATNA, and walkaway prices. It definitely
worked well with the introductory concepts discussed by Malhotra and Bazerman.
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The Elmtree case was complex as it appeared that the task set out by the Board would be difficult to achieve. Mrs.
Peters would need to negotiate the potential sale of the Elmtree property to be high enough to cover all costs of a
potential move. The target was a minimum of $220,000 and the property was valued at a maximum of $114,000. The
key here was understanding not only what the current value of the property was, but what the value of the property
would be to Mr. Wilson (the potential buyer). We estimated that Mr. Wilson would pay a maximum of $350,000 and
that would be our deal price. The negotiations started with Mr. Wilson offering market value to which Mrs. Peters
countered at $650,000. We stated in class that Mr. Wilson could defend his price, but Mrs. Peters had no way to
substantiate hers, other than it had to be high in order to go down and meet somewhere around $350,000. In the end
a final price of $325,000 was reached. I had not considered the potential of Mr. Wilson helping with moving costs
and retrofitting of the new property for Elmtree House along with the tax benefits that it would have for him. In fact,
the total deal was worth $325,000 but Mr. Wilson would receive about $50,000 in tax write-offs. This made the deal
more lucrative for both parties in which they walked away with the best possible outcome that was profitable for
both. This exemplified the first exercise in how working together when negotiating will actually yield far more
favorable results than competing against one another.
The key challenge in this case was estimating the walkaway price of Wilson without making a first offer that would
show the Elmtree board’s hand (walkaway price). The negotiator went about estimating this by conducting research
on Wilson’s company’s background, his previous projects, potential development opportunities on the site, and
concluded with confidence that Wilson’s intention is to develop condominiums on this site, which led to an assessed
ZOPA of $250,000 to $475,000. The negotiator strategized around not showing Elmtree’s hand first and forcing
Wilson to make the first offer. But, being a master-negotiator, Wilson offered a price of $125,000, which matched
the appraised value of the house. This indicated that he was lowballing because he knows that it will cost Elmtree
much more to acquire a new house and move. The response of $600,000 was close to double of Elmtree’s true target
price, set without anchoring on Wilson’s first-offer price. But the reaction from Wilson indicated that this is
probably beyond his reservation price. When both parties met again Wilson doubled the offer to $250,000 and
Elmtree matched their counteroffer to $475,000. Although the counteroffer had started very high (at $600,000). This
allowed Elmtree to respond to Wilson’s tactic of doubling his first-offer while still remaining above their target
price ($350,000). Eventually, both parties stood at a gap of $50,000 when Wilson made a final offer of $300,000
while Elmtree demanded $350,000. Now, Elmtree’s negotiator changed tactics to ask for alternative ways in which
Wilson’s could help, such as by doing some repairs on the new house or making tax-free donations to the cause. The
latter moved Wilson quite easily and he agreed to contribute $25,000 as gift. Therefore, we see that Elmtree ended
up with a deal closer to their target price while keeping both the Medford and Allston options within the realm of
possibilities.”
6. Presentation at ELA: It won’t be possible to fully demonstrate this exercise in 30 minutes, but I will demonstrate
two of the key decision points in this exercise and have the ELA participants do what the students have to do; i.e.
make a decision and share it with the group.
7. References
Raiffa, H. (1982). The Art and Science of Negotiation. Harvard Univ. Press, Cambridge, MA.
Shell, G. (2010) Bargaining for Advantage. Penguin, New York.
Malhotra, D and M. Bazerman, (2014) Negotiation Genius, Bantam Dell, New York.
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Appendix 1: The Case
Background
Elmtree House is a halfway house for young men and women located in Somerville, MA. Many of the residents
have had an episode of psychological trauma or have a permanent condition that keeps them on the fringe of being
able to sustain life on their own. Others are recovering from dependence on drugs. The residents share a need for
support and professional guidance as they try to make the transition to an independent life.
The house itself is small and somewhat rundown. The lot, however, is a full acre: large in any terms, but
particularly for the neighborhood. The neighborhood is in transition and people disagree about which way the
transition is headed. Some think it will continue to deteriorate, while others feel that there are signs that a
significant upswing has begun.
The governing board of Elmtree House (which you sit in on) has looked into moving to a different location several
times, getting as far as identifying suitable houses in Brookline, Medford, and Allston on a recent occasion. The
costs were always beyond the resources that were available and so the subject was, reluctantly, dropped.
Mrs. Peters, the Director of Elmtree House, was approached recently by a Mr. Wilson who suggested that his firm
(a design and building contractor/developer) might be interested in buying the property. This expression of interest
was unsolicited. The inquiries into other properties had been made by members of the board as individuals in order
to maintain confidentiality. No discussion of moving has taken place outside of closed board meetings.
Mrs. Peters responded to Mr. Wilson’s inquiry by saying that she had not thought about moving, but that the Board
would be foolish not to listen to an offer. Mr. Wilson said he would like to pursue the topic further if there was a
chance for a deal. Mrs. Peters said she would take the issue up with the Board and get back to him.
At this point the Board turned to you and asked you to take over the negotiations. With a little bit of digging you
have determined that Mr. Wilson is a legitimate business man with a decent reputation. You had a brief
conversation with him in which you said the Board had asked you to act as Elmtree’s agent but that you needed a bit
of time to clear some space on your calendar and do a little bit of work you thought was necessary to be a
responsible agent.
What steps should you take in preparing for the negotiation? Write down the steps you would take.
____________________________________________________________________________
_____________________________________________________________________________
Appendix 2: Powerpoint slides
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Slide 1
___________________________________
The Elmtree House
Negotiation
___________________________________
• Please read the Background
• you’ve been asked to take over
negotiations
Decide
What you will do next
___________________________________
___________________________________
1
Elmtree Negotations (elmtree.ppt)
___________________________________
___________________________________
___________________________________
Slide 2
___________________________________
Elmtree House
___________________________________
Find your walkaway price (reservation price)
How are you going to set this?
What is your BATNA (Best Alternative to a
Negotiated Agreement)?
___________________________________
___________________________________
2
Elmtree Negotations (elmtree.ppt)
___________________________________
___________________________________
___________________________________
Slide 3
___________________________________
Elmtree House
• with research you find that the best
options are still the Medford site
($175,000) and the Allston site ($235,000;
the house in Brookline recently sold
• Moving costs push this higher to:
– Medford
– Allston
___________________________________
___________________________________
$220,000
$275,000
• Realtors claim Elmtree could get from
$110,000 to $145,000 or about $125,000
What do you do next?
___________________________________
3
Elmtree Negotations (elmtree.ppt)
___________________________________
___________________________________
___________________________________
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Negotiation Basics
Slide 4
___________________________________
Assessing Wilson’s
Reservation Price
___________________________________
• How are you going to do this; what do
you want to know?
___________________________________
___________________________________
4
Elmtree Negotations (elmtree.ppt)
___________________________________
___________________________________
___________________________________
Slide 5
Getting a sense of Wilson’s
options and intentions
• you find out what kind of structure could
be built on the site
• you find he has purchased other
property in the area; you couldn’t get
any further information on his projects
• you guess he will try to develop
condominiums
___________________________________
___________________________________
___________________________________
___________________________________
5
Elmtree Negotations (elmtree.ppt)
___________________________________
___________________________________
___________________________________
Slide 6
Estimating his reservation
price
• after consulting some developers, you
make your best estimate; you would bet
even money that it lies in the interval
between $250,000 and $475,000 rather
than above or below it..depends on how
high a building; does he have other land
• we decide to set it at $350,000
• Create a ZOPA-Zone of possible
agreement
___________________________________
___________________________________
___________________________________
___________________________________
6
Elmtree Negotations (elmtree.ppt)
___________________________________
___________________________________
___________________________________
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Slide 7
You have a meeting with
Wilson tomorrow evening
• What will your strategy be?
• will you name a figure or try to get Wilson to
name a figure first? Why?
• How do you use the information you have put
together?
• If you get Wilson to name a figure, how will
you interpret and use what he says?
• How will you respond?
• Is there anything you need to guard against?
___________________________________
___________________________________
___________________________________
___________________________________
7
Elmtree Negotations (elmtree.ppt)
___________________________________
___________________________________
___________________________________
Slide 8
___________________________________
Negotiations Begin
After some pleasantries, he said
“Tell me the bare minimum you would
accept from us and I’ll see if I can throw
in something extra.”
(what is he doing with this question?)
___________________________________
___________________________________
___________________________________
8
Elmtree Negotations (elmtree.ppt)
___________________________________
___________________________________
___________________________________
Slide 9
___________________________________
You were ready...and said
“Why don’t you tell me the maximum you
are willing to pay and I’ll see if I can get
the Board to shave something off it.”
___________________________________
___________________________________
___________________________________
9
Elmtree Negotations (elmtree.ppt)
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___________________________________
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Negotiation Basics
Slide 10
___________________________________
Wilson was amused
He’d obviously been throught his many times)...
He said
___________________________________
___________________________________
___________________________________
10
Elmtree Negotations (elmtree.ppt)
___________________________________
___________________________________
___________________________________
Slide 11
___________________________________
___________________________________
$125,000
He’d done his homework; his figure
matched the appraisal you had made;
he backed this up with a lot of
information on recent sales in
Somerville.
___________________________________
___________________________________
11
Elmtree Negotations (elmtree.ppt)
___________________________________
___________________________________
___________________________________
Slide 12
___________________________________
You Responded...
I hadn’t put the house on the market,
however, and the disruption and costs
associated with moving could only be
justified by a figure of
(is this statement appropriate?)
???????????????
How will you decide what figure to
respond with?
___________________________________
___________________________________
___________________________________
12
Elmtree Negotations (elmtree.ppt)
___________________________________
___________________________________
___________________________________
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Negotiation Basics
Slide 13
___________________________________
___________________________________
___________________________________
___________________________________
13
Elmtree Negotations (elmtree.ppt)
___________________________________
___________________________________
___________________________________
Slide 14
___________________________________
You decided
• $600,000; this is a round figure in the upper
quartile of your assessment of his reservation
price;
• Your reasoning: the midpoint between
$600,000 and $125,000 is near your
aspiration price of $350,000
___________________________________
___________________________________
___________________________________
14
Elmtree Negotations (elmtree.ppt)
___________________________________
___________________________________
___________________________________
Slide 15
___________________________________
FO (Seller) $600K
FO (Buyer ) $125K
___________________________________
Bargaining Zone
ZOPA
W (Seller ) $220K
___________________________________
W (Buyer ) $350 K (est)
ZOPA= Zone of Possible Agreement
W= walkaway (also called
Reservation Point)
FO= First Offer
BATNA: Best Alternative to a
Negotiated Agreement
___________________________________
15
Elmtree Negotations (elmtree.ppt)
___________________________________
___________________________________
___________________________________
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Negotiation Basics
Slide 16
___________________________________
He looked shocked...
“Anything like $600,000 is totally out of
the question.”
• But you two continued to talk and
neither blinked
• You agreed to break off the session
both hinting that the other side should
do some homework.
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Elmtree Negotations (elmtree.ppt)
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Slide 17
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What to do next?
• if you have to name a figure what will it be;
• how long will you wait to contact Wilson;
• are there any steps you take in the meantime
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Elmtree Negotations (elmtree.ppt)
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Slide 18
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Before the deadline, he calls
“My conscience has been bothering me. I
admire what the association is trying to
do. I had a dream about Elmtree House
and would like to help. You have a
noble mission and I will increase my
offer to $250,000, even though it makes
no business sense.”
What do you do?
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Elmtree Negotations (elmtree.ppt)
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Negotiation Basics
Slide 19
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“I will go to my Board and see if I can get
them to come to a figure of
???????????
What figure and why?
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Elmtree Negotations (elmtree.ppt)
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Slide 20
• you decided on a figure of $475,000
• you want to show movement similar in magnitude
to his move and into the quartile where you
estimate his walkaway price
• You agree to meet with Wilson again in a couple of
days for what he referred to as a “final round of
bargaining.”
• over the next two days, he moved from $250,000 to
$275,000, to $290,000 and then after a long delay
to a “firm last offer of $300,000.”
• You moved from $475,000, $400,000, and after
Wilson made his last “firm last offer” painfully to
$350,000.
• the Gap is $300,000 (his offer) $350,000 (yours)
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Elmtree Negotations (elmtree.ppt)
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Slide 21
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What do you do next?
• How should you interpret Wilson’s actions
• Will you be able to move him from his
“final offer.”
• What is at issue? What will it take?
How do you assess your own situation?
• What opportunities and risks do you face?
Do you do any homework?
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Elmtree Negotations (elmtree.ppt)
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Negotiation Basics
Slide 22
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• You look further into the Allston property and find that
repairs and renovations are more than expected-it
would take $295,000
• this is still within Wilson’s last offer of $300K
• You ask the director to determine what any extra
money would mean
• She says anything over $300K would go for financial
aid, new mattresses, needed repairs, a piano, and a
new TV; the list grows
• you are convinced that an extra $25,000 to $50,000
would significantly improve the quality of life for
residents
Will you try to get Wilson to move? If so, how?
What different endings can you imagine for this story
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Elmtree Negotations (elmtree.ppt)
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Slide 23
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You countered with $325K
Out of the blue, Mr. Wilson called and
said that he had just received an offer
on another project he was considering
and accepting that offer, he stated
courteously that he wished us luck but
that he was no longer interested.
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Elmtree Negotations (elmtree.ppt)
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Slide 24
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This didn’t happen….but it
could have
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Elmtree Negotations (elmtree.ppt)
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Negotiation Basics
Slide 25
“Our board is divided about accepting
$300K (true)… Would it be possible for
your company to yield a bit and do, for
free, the equivalent of $30,000 worth of
repair work on Elmtree’s new property if
your deal with you goes through? If so,
we could go with the $300K offer.
(you have to figure out a face saving way
of allowing him to break his statement of
“firm last offer.”
Can you shift this negotiation from
distributive to integrative?
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Elmtree Negotations (elmtree.ppt)
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Slide 26
Wilson:“I am delighted the board is smart
enough to accept my magnanimous offer of
$300K….
But my company has a firm policy not to
entangle itself with side deals.”
Board: Then it would surely help us if your
company could make a tax-free gift to the
House of $40,000 for our Financial Aid Fund
for needy residents
Wilson: Now that’s an idea. $40K is too high
but I’ll see if we can contribute $20K
Board: $25?
Wilson: OK
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Elmtree Negotations (elmtree.ppt)
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Slide 27
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takeaways
• Concepts of walkaway (reservation
point), targets, first offers, ZOPA,
Bargaining Zone, BATNA
• Importance of preparation and planning
• Who makes first offer and why
• Importance of anchoring
• Distributive vs. integrative…tradeoffs
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Elmtree Negotations (elmtree.ppt)
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