BATNA & ZOPA for successful negotiations

15. January 2024By Anita BleikerIn Negotiation

What all these technical terms mean and how they can assist you in negotiations!

Those who delve deeper into negotiations will quickly be confronted with a variety of technical terms. Today, I would like to explain three of them, with the first two originating from the book ‘Getting to Yes’ by Roger Fisher and William Ury, and the third term coming from cognitive psychology and initially theorized by Amos Tversky and Daniel Kahneman in the 1970s.

BATNA (Best Alternative to Negotiated Agreement)

Let’s begin with BATNA, which stands for ‘Best Alternative to Negotiated Agreement.’ This term describes the best available alternative that can be considered if a negotiation does not lead to an agreement. During the negotiation preparation phase, it is important not only to analyze our own BATNA but also to consider the BATNA of the other party. When preparing for negotiations within our team, we always ask ourselves what would happen if the deal failed. What alternatives do we have? At the same time, we also contemplate what the alternatives of the counterpart might be.

ZOPA (Zone of Possible Agreement)

The ZOPA describes the range within which an agreement between negotiating parties is possible. This range extends between the lowest and highest acceptable agreements. Only when the demands and expectations of both parties fall within this range is there a realistic chance of a successful agreement.

The ZOPA is best illustrated using the following graphic:

As the sketch illustrates, the ZOPA is a negotiation area where the negotiating parties can find common ground. It is important to emphasize that a ZOPA exists only if there is some overlap between the expectations of the individual parties regarding an agreement. No matter how long the negotiations last, an agreement will never occur outside the ZOPA. In such cases, the parties find themselves in the so-called negative negotiation zone.

Anchoring Effect (Ankereffekt)

The anchoring effect describes a psychological phenomenon in which people’s decisions are influenced by a reference point, known as the ‘anchor.’

Fundamentally, a distinction is made between the numerical and non-numerical anchoring effect. However, in the context of negotiations, almost exclusively the numerical anchoring effect is discussed, as it is mostly mentioned in relation to price negotiations.

What is this anchoring effect about? Once the value of the anchor is known, a person’s subsequent assessments differ from what they would be without the disclosure of the anchor. For example, it may be more likely for a person to purchase a certain product when it is placed next to a more expensive alternative product (the anchor), even if the said product is significantly more expensive than the originally set budget. Similarly, in negotiations, discussed prices that are below the anchor price may appear reasonable or even favorable to a buyer, even if these prices still exceed the actual market value of the product.

For this reason, in certain situations, it is advisable to mention an initial, perhaps unreasonable price. Suppose a business owner wants to sell their company to an investor. Depending on the valuation method, the company’s value ranges between $ 1 million and 2 million. Therefore, the investor is likely to make an offer that falls somewhere between these two figures. However, if the business owner aims for a target price of $ 5 million, it might be wise to present an initial offer that is far from the $ 1 – 2 million range. Of course, it is not advisable to call for an initial price of $ 100 million, as this would most likely make an agreement impossible (see also walk away price).

In my preparation for negotiations, I assess whether initiating the first offer or soliciting an offer from the counterpart would be more strategic. This decision depends on various factors, including the initial circumstances, accessible information, the counterpart’s position, and the ultimate objective.”

In negotiation situations, the aforementioned terms are of great importance as they help understanding the dynamics of negotiations better and thus being able to steer them more effectively. It is therefore fundamental to strengthen one’s own BATNA, identify the ZOPA, and occasionally make use of the anchoring effect to negotiate successfully.