BATNA, or best alternative to a negotiated agreement, is the course of action that a party in a negotiation would take if they are unable to reach an agreement with the other parties. Estimating BATNA is important in negotiations because it helps parties determine how hard they can push for their desired outcome. For example, if a party has a strong BATNA and their negotiation counterpart has a weak BATNA, they may be able to push harder for their desired outcome. Gathering information and developing an accurate estimate of one’s own BATNA and that of the other parties is often a key focus of negotiations. The following are illustrative examples.
A salesperson knows that a customer needs their product to solve a problem and that there are no feasible alternatives on the market. As such, the customer’s BATNA is to live with the problem. In this situation the salesperson may offer a small discount but not be pushed any further as they have a strong position.
A customer can sense that a salesperson hasn’t hit their sales target and it is almost the end of the financial year. As such, the salesperson’s most likely BATNA is to miss their sales quota. As such, the customer is confident to push for heavy discounts and is willing to close the deal quickly so that the salesperson can achieve their sales target.
A salesperson gets the sense that a customer strongly prefers their product to alternatives in the market. The customer’s BATNA is purchasing their second preference. The salesperson is therefore confident that a minor discount will be enough to close the deal.
An employer is aware that a particular candidate is in high demand and likely has other offers to consider. The employer is also aware that the candidate’s knowledge is critical to their strategy. Therefore, the candidate has many good alternatives to a deal and the employer will risk strategy failure if a deal isn’t reached. In this situation it is in the candidate’s interests to push hard and the Employer’s interests to be accommodating.
An employer is aware that the economy is in recession and jobs are difficult to find. As such, they have a strong hand in negotiation as candidates may have no other offers.
A manufacturer of high capacity batteries is in short supply due to industry conditions and extremely high demand. Each customer they meet is highly motivated to close a deal as their alternative is to cut back production of their products. The manufacture has many alternatives with each negotiation as customers are eager to buy. As such, they push each customer to offer the highest price that is possible given the economics of their production.
A business customer who is purchasing software has decided that a particular product is far superior to all alternatives. In other words, their BATNA is to buy an inferior product and they are therefore highly motivated to buy. However, they attempt to bluff and downplay their motivation with a bogey.