BATNA, or Best Alternative To a Negotiated Agreement, is the most advantageous alternative that a negotiating party can take if negotiations fail and an agreement cannot be made.

Importance of BATNA

The value of knowing the BATNA is that:

  1. It provides an alternative if negotiations fall through.
  2. It provides negotiating power.
  3. It determines the reservation point (the worst price you are willing to accept).

Where:

  • 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 acceptable to the seller.
  • Buyer’s settlement range is a biddable range acceptable to the buyer.
  • Buyer’s/Seller’s worst case is the reservation point of the respective parties.

If:

  • Buyer offers a price lower than the seller’s worst case, then the seller is better off going with an alternative.
  • Seller offers a price higher than the buyer’s worst case, then the buyer is better off going with an alternative.

Example of BATNA

Jane needs a car. Helen offers to sell the car for $10,000. Jane finds a similar car for $7,500. Jane’s BATNA is $7,500 – if Helen does not offer a price lower than $7,500, Jane will consider her best alternative to a negotiated agreement. Jane is willing to pay up to $7,500 for the car but would ideally want to pay $5,000 only:

BATNA - Example 1

If Helen wants more than $7,500, they won’t agree. But if Helen can sell the car to someone else for $8,000, then $8,000 is Helen’s BATNA. As Helen is willing to sell for a minimum of $8,000, while Jane is willing to purchase at a maximum of $7,500, there will be no deal.

If Helen’s best alternative to the deal is selling the car to a dealership for $6,000, then both parties can come to an agreement because Helen’s reservation point would be $6,000.

BATNA - Example 2

So, a zone of potential agreement is $6,000 to $7,500. Within this range, the two parties are able to come to an agreement.

How to find your BATNA

  1. List all alternatives to the current negotiation
  2. Evaluate the value of each alternative
  3. Select the alternative that would provide the highest value to you (your BATNA).
  4. Calculate the lowest-valued deal that you’re willing to accept

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