NEGOTIATION

NEGOTIATION
An Art
What is BATNA?
■ BATNA is an acronym that stands for

■ Best Alternative To a Negotiated Agreement.
■ It is defined as the most advantageous alternative that a negotiating
party can take if negotiations fail and an agreement cannot be made.
In other words, a party’s BATNA is what a party’s alternative is if
negotiations are unsuccessful. The term BATNA was originally used by
Roger Fisher and William Ury in their 1981 book entitled “Getting to
Yes: Negotiating Without Giving In.”
Importance of BATNA
■ BATNA is often used in negotiation tactics and should always be
considered before a negotiation take place. Therefore, it is never wise
to enter into a serious negotiation without knowing your BATNA.
■ The value of knowing your best alternative to a negotiated
agreement is that:
■ It provides an alternative if negotiations fall through.
■ It provides negotiating power.
■ It determines your reservation point (the worst price you are willing to
accept).
Illustration
What is ZOPA?
■ ZOPA stands for “Zone Of Potential Agreement.” It is the overlap

between the seller’s and buyer’s settlement range.
■ Seller’s settlement range is a biddable range by the seller.
■ Buyer’s settlement range is a biddable range by the buyer.
■ Buyer’s/Seller’s worst case is the reservation point of respective parties.
■ If:
■ Buyer offers a price that is lower than the seller’s worst case, seller is better
off going with an alternative.
■ Seller offers a price that is higher than the buyer’s worst case, seller is better
off going with an alternative.
Example of BATNA
■ Colin needs a car and is negotiating with Tom to purchase his car.
■ Tom offers to sell his car to Colin for $10,000.
■ Colin looks through Car Trade. Com and finds a similar car to which he
assigns a dollar value of $7,500.
■ Colin’s BATNA is $7,500 – if Tom does not offer a price lower than
$7,500, Colin will consider his best alternative to a negotiated
agreement.
■ Colin is willing to pay up to $7,500 for the car but would ideally want
to pay $5,000 only.
■ The relevant information is illustrated below:
■ In the diagram above, if Seller Tom offers a price higher than $7,500,
Colin will take his business elsewhere.
■ In the example, we are not provided with Tom’s BATNA. If we assume
that Tom can sell his car to someone else for $8,000, $8,000 is Tom’s
BATNA.
■ In such a scenario, an agreement will not be made as Tom is willing to
sell for a minimum of $8,000 while Colin is willing to purchase at a
maximum of $7,500.
■ However if If Tom’s best alternative to the deal is selling the car to a
dealership, which would offer him $6,000, both parties can come to an
agreement.
■ In such a case, there is a zone of potential agreement – $6,000 to
$7,500. In this range, both parties can come to an agreement.
Know Your BATNA
■ As illustrated in the example above, having a best alternative to a

negotiated agreement before entering into negotiations is important.
Had Colin not have a BATNA, Tom would have more Bargaining
Power. Knowing Colin’s BATNA is at $7,500, the highest price that Tom
would be able to sell his car to Colin for is $7,500.
Reservation Point
■ Reservation price is the least favorable price at which a negotiation will

be accepted. This price is always a numeric amount. Simply put, the
reservation price is the lowest amount that a seller will accept for an
agreement and the maximum amount a buyer will pay.
■ This is also known as the “walk away” point.
■ For example, imagine that you are selling the house you purchased 15
years ago at $500,000. Your house is worth $1.5 million, but with the
current state of the housing market and the demand for purchasing a
house, you would be okay with selling your home for $1 million.
BATNA vs Reservation Price
■ BATNA stands for “best alternative to a negotiated agreement” and,

unlike reservation price, it expresses a scenario rather than a number.
■ BATNA answers the following question: “What will you do if you are
unable to reach a negotiated agreement with your partner?” While the
reservation price is dependent upon reaching a negotiation,
■ The BATNA is a back-up plan in case negotiation fails.
■ Imagine you are selling your car. Your relative tells you that he would
buy it from you for $10,000 if you are not able to sell it elsewhere.
■ But if you were okay to selling it for $10,000 to your relative, you
might want other buyers to pay at least $11,000.
■ In this case, the BATNA is selling to the relative for $10,000.
■ But the Reservation Value is $11,000.
How to Find Your BATNA ??
■ Here is a process developed by Havard Law School develop the best

alternative to a negotiated agreement:
■ List all alternatives to the current negotiation – what could you do if
negotiations fall through?
■ Evaluate the value of each alternative – how much is each alternative
worth to me?
■ Select the alternative that would provide the highest value to you
(this is your best alternative to a negotiated agreement).
■ After determining your BATNA, calculate the lowest-valued deal that
you’re willing to accept.

NEGOTIATION

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NEGOTIATION

■ BATNA is an acronym that stands for

■ ZOPA stands for “Zone Of Potential Agreement.” It is the overlap

■ As illustrated in the example above, having a best alternative to a

■ Reservation price is the least favorable price at which a negotiation will

■ BATNA stands for “best alternative to a negotiated agreement” and,

■ Here is a process developed by Havard Law School develop the best

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