Gold Star Negotiations: BANTA

Gold Star Negotiations: BANTA September 26, 2018

From buying new equipment to countering your child’s request to stay up another 20 minutes, everyone negotiates at some point. This is the second in a series of stories designed to provide helpful tips and tricks to use and watch out for when negotiating. See more articles in this series.

Negotiations

A phrase made famous by Roger Fisher and William Ury, BATNA stands for Best Alternative To a Negotiated Agreement. Just as it sounds, it is knowing when and under what conditions you should walk away from a negotiation. Steve Perlman said it best in his statement: “If you can’t walk away, you can’t negotiate.” (Sebenius and Fortgang 1999).  Having this figured out before sitting down at the bargaining table is imperative.

There are four main points to look at when developing a BATNA. First, look at the cost. What is the difference in monetary value between your options?  The second is feasibility. Is it realistic that your best alternative will work given your situation? Third, look at the impact. Does one of the options provide a quicker result?  The final point is consequences. Are there negative situations that will occur under each option?

Example of a BATNA in Use

The simplest situation to look at is the purchase a vehicle. You are in the market for a used 2016 pickup. You have every specification and option you want written down. After doing a search you find two trucks that meet the list perfectly. Option 1 is the local dealership that has it listed as call for price. Option 2 is a no-haggle dealership four hours away where it’s listed for $37,650. You decide to go in and talk to the local dealership.

What is your BATNA?  You have two actually. The first is the Option 2 truck for $37,650. Your second BATNA is to keep searching and not buy either truck. Going into the local dealership you know that if the price of the Option 1 truck is more than $37,800, “adding some cost for time and gas,” you should walk away from the negotiation and go with Option 2.

When talking to the local dealer you have a lot of power now that you have identified your BATNA. You are not at the mercy of your negotiating counterpart as you can control the situation. If they tell you the best price they can sell the truck for is $39,950 you have your Option 2 truck to counter with. This situation makes a BATNA seem like child’s play. In reality it is much harder. In negotiations you will often be faced with limited alternatives, alternatives that require valuation of non-monetary items, and in some cases situations where there seems to be no positive alternative.

Know the BATNA for Both Parties

You probably are confident that you can figure out your best alternative, but can you identify the other person’s BATNA? Looking back at the example, what could the dealership’s BATNA be? 

Going into the negotiation we might think that the dealer can hold onto the pickup and sell it to someone else. Part of the negotiation process will be to uncover their true BATNA. Maybe we were right and there has been a lot of interest in the pickup so the dealer is willing to hold onto the truck. We might discover though an interest that alters their BATNA. Yes, they are willing to hold it due to interest, but if sold in the next few days the salesperson gets a bonus. This brings in an interesting dynamic of whose BATNA is better.

You will find that in some cases one party has a terrific BATNA while the other party’s BATNA is rather lousy. Think of the phrase “playing cards with a stacked deck.”  Understanding who has what cards plays an important role in the negotiation, and can influence your expectations. Maybe you have the better BATNA and future dealings are limited so you want to use hard negotiation tactics such as being aggressive, threatening, or deceptive.

You could also have the better BATNA, but want to develop a long-term relationship. In this case it might be better to use soft negotiation tactics such as building trust, compromising, and avoiding conflict.

Try to identify your BATNA before your next negotiation, and contact me if you have questions.

Reference

Sebenius, J.K. and R. Fortgang (1999). “Steve Perlman at Web TV(B)” Case 9‐899‐271 Boston: Harvard Business School.