Question

In essay form, explain BATNA negotiation including different strategies, examples and how they can be used in real life.

Answer 1

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.

BATNA is often used in negotiation tactics and should always be considered before a negotiation takes place. 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:

1. It provides an alternative if negotiations fall through.
2. It provides negotiating power.
3. It determines your reservation point (the worst price you are willing to accept.

If,

• Buyer offers a price that is lower than the seller’s worst case, then the seller is better off going with an alternative.
• Seller offers a price that is higher than the buyer’s worst case, then the buyer 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 scours through Craigslist 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. If Tom demands 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, then $8,000 is Tom’s BATNA. In such a scenario, an agreement will not be made, as Tom is only willing to sell for a minimum of $8,000, while Colin is only willing to purchase at a maximum of $7,500. If Tom’s best alternative to the deal is selling the car to a dealership, which would offer him $6,000, then both parties can come to an agreement because Tom’s reservation point would be $6,000. In this case, there is a zone of potential agreement – $6,000 to $7,500. Somewhere within this range, the two parties should be able to come to an agreement.

BATNA in real life

There are a few common strategies to be kept in mind , and they are as follows:

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