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  • Now, when we look at distributive

  • bargaining, what do we see? In

  • distributive bargaining, we see that you

  • have, basically, like a scale here. (Let me

  • show you here. Nope, not there. Here

  • may be, about here. Here we go. Let me go on

  • my monitor here. That's nice. Oops, turned off

  • my screen. okay there we go.) All right, so we

  • have a scale. So on this scale, I put a

  • little picture of a pizza. Now, why pizza?

  • Because remember Fred and Jane were

  • arguing about the pizza, right? Now why is

  • pizza good example of this? Well, on the

  • scale, you see, if one side goes up the

  • other side goes down. If one side goes

  • down, the other side goes up. That's

  • distributive bargaining. Anytime, this

  • side goes up, the other side goes down.

  • What one side wins, the other side loses.

  • What one side loses, the other side wins.

  • So you win, I lose. I win, you lose. So

  • that's what distributive bargaining is.

  • Both sides are in direct conflict, and

  • there's really not a lot you can do to

  • change that. The resources are fixed. What

  • does it mean to be fixed? Just like in

  • this picture, here. It's a pizza. It's a

  • round pizza. There's no more pizza. That's

  • it. We cannot go buy more. There's no more.

  • We gotta split up this pizza. If you get

  • one piece, I get one piece less. If I get

  • one piece, you get one piece less. So in

  • the case of Jane and Fred, that was

  • extreme. They had only one little tiny piece,

  • but same thing. If I cut it in half, one

  • person gets half, the other person gets

  • half. Would that be okay? Well, no.

  • Because Fred and Jane want to be full. They

  • want to eat enough, so that they are not

  • hungry.

  • And half is not enough, so they both want

  • to eat the whole piece. In any case, Fred

  • wants more, and Jane once more. They both

  • want more, so someone is going to have to

  • win, and somebody's going to have to lose.

  • And you say, "Well, Professor Warden, what

  • if they just cut the pizza in half and

  • their both are a little bit happy, isn't

  • that good? I mean, yeah, they still might

  • be hungry but at least Fred gets a

  • little bit, and Jane gets a little bit."

  • And the answer to that is, in that case,

  • yes, you're right. Fred will get a little

  • bit, and Jane will get a little bit, and

  • Fred will be a little bit less hungry,

  • and Jane will be a little bit less

  • hungry. But in this way, they're both

  • still hungry, so they both lose. So

  • thinking win-win, it's not so easy. Just

  • cutting something in half does not mean

  • win-win. That just means I get half

  • of what I want, which is the same as

  • losing, right? It's the same as losing, and

  • in distributive bargaining both sides do

  • not want to lose. And later, when we study

  • win-win, both sides don't want to lose

  • either. It's not just cutting something

  • in half. That is not the way it works. So

  • in this case, I use the scale to show one

  • side goes up, one side goes down. There's

  • just no way to stop it. Or the pizza, if

  • you get something, I get something less,

  • and in Fred an Jane's case, a very small

  • amount. So they're both going to end

  • up being hungry no matter what we do.

  • Okay. So I think I kind of made the point

  • there clear. For the buyer, a distributive

  • negotiation begins with what the best

  • deal is-- the target point. Now, let's begin

  • looking at this very, very carefully, step

  • by step, because I want you to remember

  • this, because it's a really key idea, right?

  • very, very important. So if you're the

  • buyer, a distributive negotiation begins

  • with the best deal, which means getting

  • the lowest price, right? I want to buy at

  • the lowest price. OK. So I want to buy

  • this cup,

  • and I want to get the lowest price. This

  • cup costs one hundred dollars, and I

  • would like to get less than 100, and

  • lower is better, right? if I am the buyer.

  • So the target point is the best deal, and

  • the worst deal is still acceptable.

  • That's called the resistance point. So

  • let's say this cup here, this cup, maybe

  • the retail price, the sticker price is

  • 100, okay, whatever. It doesn't really

  • matter to me. I have my price. So for me,

  • what is my target price? Well, if i could

  • pay 50, that is what i would like to pay.

  • Of course, I'd like to pay zero, right? but

  • remember what we talked about in the

  • previous units? that i need to have what

  • is my target. So in this case, let's say

  • my target is 50. OK. Now, then I'm the

  • buyer, so I would like to go lower, so 50

  • is my target price. That's my target

  • point. Now, how much does the price go up

  • and I'm not going to buy? 50 is what I

  • what I'm targeting, target point. Ofcourse,

  • if it's lower than 50, I'm

  • happy. That's fine, right? But 50 is my

  • target. Now, how much higher does the

  • price go and I'm just not going to buy

  • it if it goes higher? In that case, let's

  • say that my upper price, my resistance

  • point, I will not go past the

  • resistance point. Let's say that my

  • resistance point is... let's say 80, OK.

  • The sticker price maybe 100. We

  • don't care. That sticker price is

  • not important, the retail price is not

  • important to us. If that retail price is

  • 100, that is over my resistance point of

  • 80. So if somebody tells me you must pay

  • the price that's on there, the sticker

  • price, the retail price, the list price

  • I'm going to say no. I don't want to

  • spend that because that is over my

  • resistance. So we have two things here:

  • target and resistance. I want you to

  • remember.

  • So the resistance point for the buyer is

  • the highest price i will pay. Higher than

  • that, I will not buy, right? Higher than

  • that, i will not buy. The target point is

  • the desired price for me, 50. Anything

  • beyond the resistance point cannot be

  • accepted. 80, if it's 81 dollars, I will

  • not accept. If it's 82 dollars, I will not

  • accept it. If it's ninety dollars, no. If 143 00:07:07,860 --> 00:07:15,569 it's one hundred dollars, no. If it's

  • $79, then yes. I can accept that. That

  • doesn't mean I will accept it, but I can

  • accept that. If it's eighty dollars, can I

  • accept that? Yes, that's my, that is my

  • actual resistance point, right? but 81?

  • no. Both the target point and the

  • resistance point are secret information

  • that you should not tell the seller. Now,

  • here, we get into the next important

  • point in negotiation. And that is this

  • idea of secret information. So this is

  • the cup Ii want to buy. This cup I want to

  • buy it for 50. That's my target, my target

  • point, the most i will pay is 80. So 50 to

  • 80 in here, right? If you are going to

  • sell to me, and I told you, "Sir I would

  • like to buy that cup, and I would like to

  • buy that cup somewhere from 50 to 80.." And

  • what would you say to me? You would say,

  • "Oh, no problem, 80." And then what would I

  • say? "Well, 80 OK." 80 because 80 is still

  • within my resistance, right? Resistance

  • point, target point, resistance, it's

  • inside. Now, that was pretty stupid of me

  • to tell you that, right? I should just

  • tell you that 100 is way too much. I'm

  • not going to

  • spend that much, and then you say well

  • how much do you want? and then maybe I

  • begin by saying how much do I want. Maybe

  • I begin by saying 40, and then we can

  • work up like that, right? So we begin with

  • two ideas here, both of them are secret.

  • Resistance point and target point-- please

  • remember those. Those are so awesomely up

  • here, right? Resistance point and target

  • point. Okay. Secret information-- you never

  • want to tell the other side, in this case,

  • the seller. You never want to tell the

  • seller. Okay, now then let's change

  • perspective a little bit. Now the seller

  • is a little bit different, right? If the

  • seller is selling this cup, then the

  • seller must begin with a price, right?

  • Because he's selling it, I mean you

  • cannot go and ask, "I would like to buy

  • that cup. How much is it?" and the seller

  • says, "Hmm. I don't know. How much money do

  • you have?" Right? That doesn't work,

  • right? No, I don't think that works,

  • although there are some companies that

  • do that kind of thing. So if you come to

  • me you say, "Mr. warden, I'd like to buy

  • that cup." And I say, "Hmm.. the price of this

  • cup, let me tell you.. How much money is in

  • your pocket right now?" I don't think that

  • would be a good way to begin. What do we

  • normally begin with? Normally, you go to

  • the seller, and there's a price there, a

  • sticker price or a list price or retail

  • price, and that price is listed there. Or

  • you can ask me and I tell you 100. This

  • cup is 100. So the seller must always

  • begin. The seller must always begin with

  • some public information, and that public

  • information is going to be the price.

  • So we call this the seller's asking price,

  • the sellers asking price. OK. Now, after

  • the seller is asking price what comes

  • next? Let's take a look. "At the start of

  • the negotiation, one value is public

  • everyone can see it. While two values are

  • secret." So the asking price, the selling

  • price, the retail price, the list price

  • this in fact is public. Two other values

  • or secret, but we'll talk about that in a

  • second. So the first step is for the

  • buyer to decide how much to offer or the

  • initial starting offer, right? So if i go

  • to buy the cup, and the list price is 100,

  • I must decide what do I say to begin

  • with. Do I say 0? "You should give me that

  • cup for free, please." Well, I can't start

  • with zero. I guess I could start with 0, but no

  • one's going to take me serious, right? So

  • what do I begin with? That's going to be

  • the opening or first offer. The first

  • offer needs to be lower than the target.

  • Remember my target, right? Remember my

  • target? My target was 50. Since the seller

  • will try to raise the price, the seller

  • will always try to make the price go up.

  • So the buyer should begin under the

  • target. If my target is 50, I would like

  • to get 50. How do I get 50? I must begin

  • below 50. I say i'll give you 40. So here

  • we have this little chart. I like this a

  • lot. We can see, on this graph here, on

  • this line, we have three things so far. On

  • the right side, we have the buyers

  • resistance point, that is I will not

  • spend more than this. In my case, the

  • example was 80. I will not spend

  • more than 80. Then you have the buyer's

  • target point. In my case was 50 for the

  • cup, so I will spend more. I will

  • definitely spend less than this. I'm

  • happy to spend less. The question is

  • though, what do I want to get? I wanted to

  • get 80, and then we have the first offer.

  • So maybe I begin my offer down around 40.

  • And then in this chart, we have a

  • different example. So we have 12,000. It's

  • the buyers resistance point. More than

  • 12,000, too much. He wants to get 9,000,