Negotiation Simulation
Used Car Seller
Ralph’s Manual of used car prices
Requirement for negotiation:
Read buyer and seller’s part in the book respectively;
Chapter Eleven
Distributive VS Integrative Types of Negotiation
Negotiations can be categorized into two types by how people looking at the results of negotiations: the distributive, representing winlose result and the integrative, representing win-win result.
analysis.
Case Study Sarah Meets WalMart
(1) What is the most important point for Sarah’s success dealing with WalMart? (2) How did Sarah turned a distributive negotiation into an integrative negotiation? (3) Why did Sarah suggest that “Trying to bluff Walmart buyers is never a good idea”? (4) Why did Sarah suggest that “Try not to let Walmart become more than 20% of your company’s business”? (5) Why is it important to “go into a meeting with a clear negotiation agenda”?
First offer
Bottom line
First offer
150 Buyer
180 170
Zone of possible agreement 10
200 Seller
Integrative Negotiation
The word integrative by concept implies some cooperation, or a joining of forces to achieve something together. Integrative negotiation usually involves a higher degree of trust and a forming of a relationship.
Win or lose?
Win Win?
Distributive Negotiations
Win
Lose
•Relationship: simple and secondary •Issues: simple and tangible •Reward system: win or lose •Assumptions: only present interests
Integrative Negotiation Basics
Multiple Issues Information sharing Problem Solving Bridge Building
Strategies for Integrative Negotiation
Gain first hand information Play Fair Present Multiple Offers Third Party Assistance
Variable cost + fixed costs = cost of product + profit margin = selling price
Profit
Negotiations on Price
Price Zone
Buyer’s negotiation zone
Seller’s negotiation zone
Strategy used
To reduce other’s resistance to making of concession To reduce other’s estimation that you will concede To exploit other’s trust, low skill and inexperience To exploit information asymmetry
• marketing and distribution costs – cost of running the marketing operation (including the sales force), provision for retailer support
Equation of cost structure
Discuss with your partner your negotiation strategy, including your first offer, bottom line, and the zone of possible agreement
Case Study
How did the buyer find out the price of the equipment was over valued? Point out those factors which make it possible for the buyer to make the cost
Price Negotiation and Cost Analysis
• Two basic cost functions • variable costs: raw materials
and labor • Fixed costs: supplier has to
bear irrespective of whether it manufactures anything or not, such as rent, rates, ed Cost Elements
• planning and production expenses – expenditures on plant and equipment, and such administrative costs as salaries, insurance, depreciation and interest on overdrafts