Monday, April 11, 2011

How to Swing a BATNA

“Now that I understand how to think about my BATNA and the client’s BATNA, what do I do with the analysis?” Verdi asked Tyler Gitou.

“Be careful with it!” Tyler said with a laugh. “Bad things can happen when you swing a BATNA in a negotiation room! Seriously, you do need to be very strategic about how you communicate a BATNA. Let’s review the deal you just closed.”

“Well,” Verdi said, “We were chosen to be the supplier of these custom components for the client’s manufacturing process. Our price was $1 million. The client demanded a 10% discount at the last minute or else they’d go to another supplier.”

“Stop there,” Tyler said. “What was the client doing?”

“The client was telling me its BATNA: do what I ask or I will do the deal with someone else.”

“Correct. So that’s when you came to me, and we analyzed the strength of the client’s BATNA, asking how real was the risk of them going to someone else.” (

“Yes,” Verdi said, “and we concluded that the client’s BATNA was weak. We were the only company with components that met their quality requirements.”

“And how was your BATNA? What if you said, ‘no deal’?”

Verdi shrugged. “Not great. I would just not get the deal. I don’t have a ‘replacement client’ to sell to.”

“So you had a situation where your BATNA was weak, but so was the client’s. That’s not a bad place to be. The key is to develop a communication strategy based around making the client aware of the weakness of its own BATNA. Then offer options that might meet the interest behind the request for the lower price. Why did the client negotiator suddenly need a lower price?”

“I asked him,” Verdi said. “And he said because the competitor’s price is lower. That is true, but it’s lower quality. I knew they were trying to cut costs and his bonus is based on how much he can reduce the prices charged by their suppliers.”

“Good to know,” Tyler said. “He has a personal interest to meet but no legitimacy on a price reduction. But if you can meet his interest in a way that does not reduce the value of the deal for you, you will go a long way toward building on the relationship. You could beat him over the head with his bad BATNA and say, ‘Hey I don’t have to give you a discount! Your back is against the wall. You have no one else to buy from and if this deal doesn’t close in two weeks you miss your manufacturing cycle. So shutup and sign the deal.’ How would that response work?”

Verdi laughed. “Not very well. He probably would get mad, throw me out, have his executives call my manager and pressure them to cut the price because of my bad behavior.”

“Exactly. Overplaying a BATNA or shoving it in the face of the other party can generate an emotional response where they will, in essence, kill the deal to spite you. You often don’t want to let the other side know that you’re aware that they have a weak BATNA. They know they have to do the deal with you. So offer them options that are balanced exchanges of value and demonstrate collaboration toward finding something they will say ‘yes’ to. Doing that helps build them a golden bridge so they can accept the deal.”

“A ‘golden bridge’?” Verdi said. “What’s that?”

“That,” Tyler said closing his notebook, “is the topic of our next conversation.”