What is BATNA?
BATNA is an acronym that stands for Best Alternative To a Negotiated Agreement. It is defined as the most advantageous alternative that a negotiating party can take if negotiations fail and an agreement cannot be made. In other words, a party’s BATNA is what a party’s alternative is if negotiations are unsuccessful. The term BATNA was originally used by Roger Fisher and William Ury in their 1981 book entitled “Getting to Yes: Negotiating Without Giving In.”
Importance of BATNA
BATNA is often used in negotiation tactics and should always be considered before a negotiation take place. Therefore, it is never wise to enter into a serious negotiation without knowing your BATNA. The value of knowing your best alternative to a negotiated agreement is that:
- It provides an alternative if negotiations fall through.
- It provides negotiating power.
- It determines your reservation point (the worst price you are willing to accept).
Illustration of BATNA
The following diagram illustrates each party’s best alternative to a negotiated agreement (seller and buyer):
- ZOPA stands for “Zone Of Potential Agreement.” It is the overlap between the seller’s and buyer’s settlement range.
- Seller’s settlement range is a biddable range by the seller.
- Buyer’s settlement range is a biddable range by the buyer.
- Buyer’s/Seller’s worst case is the reservation point of respective parties.
- Buyer offers a price that is lower than the seller’s worst case, seller is better off going with an alternative.
- Seller offers a price that is higher than the buyer’s worst case, seller is better off going with an alternative.
Example of BATNA
Colin needs a car and is negotiating with Tom to purchase his car. Tom offers to sell his car to Colin for $10,000. Colin scours through Craigslist and finds a similar car to which he assigns a dollar value of $7,500. Colin’s BATNA is $7,500 – if Tom does not offer a price lower than $7,500, Colin will consider his best alternative to a negotiated agreement. Colin is willing to pay up to $7,500 for the car but would ideally want to pay $5,000 only. The relevant information is illustrated below:
In the diagram above, if Tom offers a price higher than $7,500, Colin will take his business elsewhere. In the example, we are not provided with Tom’s BATNA. If we assume that Tom can sell his car to someone else for $8,000, $8,000 is Tom’s BATNA. In such a scenario, an agreement will not be made as Tom is willing to sell for a minimum of $8,000 while Colin is willing to purchase at a maximum of $7,500.
If Tom’s best alternative to the deal is selling the car to a dealership, which would offer him $6,000, both parties can come to an agreement. In the situation described, the diagram would look as follows:
In such a case, there is a zone of potential agreement – $6,000 to $7,500. In this range, both parties can come to an agreement.
Identifying Your BATNA
As illustrated in the example above, having a best alternative to a negotiated agreement before entering into negotiations is important. Had Colin not have a BATNA, Tom would have more bargaining power. Knowing Colin’s BATNA is at $7,500, the highest price that Tom would be able to sell his car to Colin for is $7,500.
Here is a process developed by Harvard Law School to develop the best alternative to a negotiated agreement:
- List all alternatives to the current negotiation – what could you do if negotiations fall through?
- Evaluate the value of each alternative – how much is each alternative worth to me?
- Select the alternative that would provide the highest value to you (this is your best alternative to a negotiated agreement).
- After determining your BATNA, calculate the lowest-valued deal that you’re willing to accept.
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