Subtitles section Play video Print subtitles 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,