BATNA is an acronym which stands for Best Alternative To a Negotiated Agreement, proposed by Roger Fisher, William L. Ury and Bruce Patton in the book Getting to Yes, which means that if the two parties in the negotiation cannot reach an agreement, it is the most advantageous alternative you or your opponent can turn to to achieve the goal.
This alternative determines the reservation point of your current negotiation and it can be understood as a “sub-optimal solution”.
Two BATNA Examples
1. Price Negotiation
For example, due to a 25% increase in U.S. tariffs imposed on China products, the US customer asked the supplier to reduce the price by 10%, otherwise, he would cancel the order because he has already found a new supplier who is willing to cut his price by 10%. If this is true, then the new supplier is the customer’s BATNA.
The Trump Administration requested US companies not to supply Huawei with hardware and software in May 2019. I believe you may have seen the follow-up Huawei’s approach in the news.
Huawei immediately announced that it had been working on related chips and operating system HongMeng, saying that Huawei will not be affected by this ban, and released a lot of evidence and programs.
Huawei’s performance was different with ZTE, who was fined 1 billion dollars after being sanctioned. The government may not expect that Huawei had BATNA to face such a situation.
From this case we can know that BATNA is not a temporary plan, it must have been planned and prepared in an early stage before the negotiation.
How to Use BATNA in Your Negotiation?
1. Know your BATNA before the negotiation.
Any negotiation without the best alternative is not recommended, because you don’t know whether the contract terms and conditions are reasonable or not, and you don’t know when you should reject conditions that are not good for you.
With BATNA, you have the negotiating power and bottom line in the negotiation agreement.
2. BATNA is not Static, it can Change.
A qualified negotiator will always seek the optimization of BATNA. For example, you, as a customer, have reached a cooperation with a very good supplier, but you may not stop contact with other suppliers. Because other suppliers may raise your BATNA, and at the same time, raise your bottom line in the negotiation.
3. Try to Identify the Opponent’s BATNA.
If we don’t know the opponent’s BATNA, we also won’t know when to put pressure on the opponent. For example, if we know that a customer has only contacted one supplier (you) on a certain product, and has no other alternatives at all. Would you still quote the customer at a very low price?
Use BATNA in Your Negotiation Example
Regarding the above three points, the following is a practical case to deepen the understanding of how to use BATNA in your business negotiation.
Suppose your product had a quality problem, and the customer angrily asked you to compensate 100,000 USD, otherwise, the 100,000 USD would be directly deducted from the payment of your product.
This problem can be said to be an industry problem, and it cannot be regarded as you or your company’s responsibility.
You have said it was an industry problem, but the customer didn’t agree. It was difficult to convince him with facts and logic.
Your goal is clear, no compensation. But if you don’t compensate 100,000 USD, the customer will deduct it from the payment, what should you do?
1. Find your BATNA.
If the negotiation fails to achieve our goal, then your best alternative may report the loss to the China Export & Credit Insurance Corporation (SINOSURE), pay the insurance fee 10,000 USD, and recover 100,000 USD.
This means that the indemnity amount cannot exceed 10,000 USD, otherwise we would rather report the loss to the SINOSURE.
2. What Might the Customer’s BATNA be?
In the eyes of the client, his best alternative is to deduct directly from the payment of the goods.
This is where the customer’s confidence comes from as he thinks he can receive 100,000 USD either way.
However, if we tell the customer that “direct deduction is impossible, SINOSURE will put you on the blacklist, and there would be little possible to import goods from China with the after shipment payment in future”, his BATNA instantly becomes unstable. – This is our adjustment to the customer BATNA.
Then the customer came up with another tactic, saying “If you don’t agree to compensate, I will cancel the placed 1 million USD order to your company and place it to other factories.” – At this time, the customer’s BATNA has become a “threat to cancel the order.”
However, at the very beginning, we said that this is an industry problem. Even if the customer places the order to other factories, the problem will still exist.
Moreover, it may take several weeks to place the order to other suppliers after canceling the order, as the buyer and seller both need to negotiate and confirm every detail once more.
So the customer has preparations for the late delivery?
In this case, the customer almost lost BATNA, even if we do not compensate, he has nothing to do, and the problem is solved.
3. Not only Focus on BATNA
Through this example, you can find that in the field of negotiation, sometimes the focus of solving problems is not the problem itself. It doesn’t matter whether you pay or how much you pay. Knowing the BATNA between you and your opponent is the key to the negotiation.
However, the above case cannot be called an excellent negotiation.
Why? Because your best plan happened to fall on the worst plan of the client. The relationship between you and your client is a zero-sum game in which you win but your customer loses.
It can only be recognized as the junior stage of negotiation. It is not good for you in the long run. Even if the customer compromises this time, and keeps the order for you without compensation, but what about next time?
I think he will leave you without hesitation when having a good option, as the trust between you and the customer has been destroyed. Meanwhile, he has not achieved real unity of interests with you even if the customer has reached an agreement with you.
What should be done?
The best way is to optimize the customer’s BATNA, that is, to help the customer find a better alternative, what needs to be used is the sales strategy.
BATNA is actually an advanced plan. Have you used it in negotiations?