Knowledge is power

New class, new game! And there is nothing better than practicing negotiation to improve your negotiation skills as you already know…

This time, we played in teams. On one hand, there is Brims, a chain of coffee shops which has recently bought a parcel of land in Salt Harbor. On the other hand, there is Easterly, a bed-and-breakfast inn located adjacent to the land bought by Brims and which is opposed to the construction of this coffee shop that could disrupt its own business. 

I was a negotiator for Brims, and I had to fix various prices before starting to negotiate: first, the very best price realistically hoped, then a specific price that I consider as a good outcome and lastly a walk-away price.

The negotiation starts and I fell it’s going to be complicated. As usual, each party has good arguments to defend its position. I only needed $185,000 to buy a new land to launch my business elsewhere, that’s why I set my walk-away price at $185,000. I didn’t want to go under this price because it was essential for me to obtain this minimum amount of money. I also fixed my good outcome at $200,000 and my very best price at $250,000. I thought my very best price was a good price because I knew Easterly needed this land but I didn’t know to what extent. That’s why it was really difficult for me to fix the best price because I fixed it only by making assumptions, and I thought $250,000 was the best price that I could reach. At the end of the negotiation, we finally made a deal and I reached $220,000. I thought it was a really great deal because I managed to reach my good outcome. But then, when I discovered my partner's figures and I saw that her maximal offer was $350,000, I was really disappointed because it was higher than my assumptions: my good deal turned into a bad deal.

Why this deal wasn’t a good deal? It was mostly due to the lack of information that I had about Easterly. 

I didn’t know how much my opponent needed this land and that it was in a weaker bargaining position than me. Indeed, I didn’t know that Easterly would lose $350,000 if it failed to buy the land! I only knew that my coffee shop would interfere in its view of the harbor, but I was not able to define an exact value of this view, how much it represented for Easterly. Because of the lack of information, I was not able to prepare my BATNA and so to evaluate the other side, consider every option and find a solution for every possible issue. If I had had more information about Easterly, by asking questions to know more about its financial issues, I would have asked for more and my deal would have been way better.

My second mistake was to make the first offer at the exact price of $250,000. It was my very best price but I should have known that if I wanted to reach this price, I needed to settle a higher price. I made this mistake because I didn’t know about a new concept called « anchoring ». It means that the first price you offer to your opponent has to be higher than the one you want.

To conclude, I can say that this practical exercise helped me to understand how much the information you have about your opponent during a negotiation is crucial. It’s the only way to define your BATNA, and thus, to make a good deal.