Every negotiator should understand at least three basic terms about negotiations. When used together, they can create a powerful framework to help you view each negotiation more analytically.
"BATNA" is an acronym which stands for 'Best Alternative to a Negotiated Agreement'. BATNA answers the question: 'What would you do if you were not able to agree to a deal with your negotiation partner?'
But it is not all. It is also crucial to assess the BATNA of the other side. The weakness of your own BATNA might not matter that much if the other side has no good alternative to doing business with you.
"Reservation Value" is the least favorable point at which one will accept a negotiated agreement. For example, for a seller, this means the minimum amount they would be prepared to accept, while for a buyer it would mean the maximum that they would be prepared to pay.
Unlike BATNA, the Reservation Value is always expressed as a number. It can be the same number that you can get without the negotiation, but it can also mean a different number. For example, imagine you are selling your car. Your relative tells you that he would buy it from you for $10,000 if you are not able to sell it elsewhere. But if you were okay to selling it for $10,000 to your your, you might want other buyers to pay at least $11,000. In this case, the BATNA is selling to the relative for $10,000. But the Reservation Value is $11,000.
While preparing for a negotiation, it is important to estimate the Reservation Value of your counterpart.
"Zone of Possible Agreement (ZOPA)" is the range in which an agreement is satisfactory to both parties involved in the negotiation process. It is the range between each parties Reservation Values and is the overlap area that each party is willing to pay in a negotiation.
Usually, it is not very difficult to find out our BATNA and Reservation Value, but how can we uncover the Reservation Value and BATNA of our counterparts?
Here is the simple algorithm to follow:
1. Collect all the information you can from open sources and from experts you know.
2. On the basis of the information you collected, make your preliminary assumptions. Try to visualize them in the same way as is shown above.
3. Test and adjust your assumptions during the negotiation round.
Visualizing and testing your assumptions in terms of BATNA's, Reservation Values and ZOPA is a powerful method to improve your performance in every negotiation.