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Understanding BATNA

Posted By Jim On 08/19/2009 @ 12:07 pm In Shopping | 4 Comments

BATNA is a well known negotiation acronym that stands for “best alternative to the negotiated agreement.”

If you’re familiar with the concept of opportunity cost, then BATNA will sound very familiar. The idea behind opportunity cost is that the price of something isn’t just the number listed on the tag. There’s an opportunity cost involved and that cost is the price of the next best alternative. Let’s say you have two potential events you can attend this weekend. You can either go to a movie or go to a concert. The opportunity cost of going to the movie is the enjoyment you would’ve experienced if you went to the concert instead. The opportunity cost of going to the concert is the enjoyment you would’ve experienced if you went to the movie instead. So the cost of the movie is not only the ticket but concert enjoyment. Got it?

BATNA is a similar idea. When you’re negotiating anything, it’s important to know the other side’s BATNA. You’re trying to create a win win situation, so you have to create wins for the other side. If you know their next best offer is worth $10, you can offer a $9 solution. They would simply say no and go to their BATNA. You want to know how much their next offer is worth and offer something better.

Here’s a simple example. You are walking around a flea marketwhen you eye a purse on the rack, priced at $30. You start talking to the store’s proprietor and try to haggle down the price. What is the store owner’s BATNA?

Is it the rack price? Maybe. If it’s been flying off the rack, then you probably can’t negotiate with the owner because the BATNA is to wait until the next shopper comes. But what if sales have been slow? If the BATNA is that the purse sits for a week or two before it sells, then maybe the owner takes less in profit but improves the store’s cash flow or reduces inventory?

Finally, sometimes you have to let the other side know what their BATNA is! If they don’t sell you the purse, maybe it sits around for a while. When the owner knows the BATNA, maybe he or she sells it to you for a little less.

That’s BATNA in a nutshell. You can read more about it on the Wikipedia page for BATNA [3].


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[3] Wikipedia page for BATNA: http://en.wikipedia.org/wiki/Best_alternative_to_a_negotiated_agreement

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