Negotiation plan
Negotiating involves convincing the other party that they should receive what they want. However, knowing what they want from negotiation is just a small part of what it takes to anticipate the negotiation process. The success of a firm emanates from developing effective negotiation strategies that convince the other side that what they want is reasonable and fair. This negotiation plan will indicate the position of Excalibur Engine Parts Company’s Vice President for Sales, Mr. Simon in convincing Knight Engines Inc. to purchase their pistons.
Issues in the negotiation
The negotiation between Knight and Excalibur has a number of issues including:
The price at which the pistons should be sold to Knight
the conditions to be attached to the order considering the process of completing a rush order of 8,000 pistons
the possibility of advertising the pistons to the Swiss government through Knight
settlement of a rush fee
the opportunity of developing a lasting relationship with Knight if they are affiliated with the government
offering of an excellent quality control insurance program
BATNA
Goals
1. Tangible foals:
Sell all 10,000 pistons
Get Knight to agree to advertise our brand on their chassis fitted with our pistons
Attain a rush fee of 10% of the selling price
Offer the Insurance Program at 15% of the selling price
2. Intangible goals:
Regain shareholder’s confidence
Make the negotiation a fair deal
Uphold reputation on quality
Establish and foster long-term relationship with the other party for future business opportunities.
Strategy
Collaborative-
Integrative-
We would also like to be integrative but distributive if Knight Engines fails to honor our bargain. Integrative bargaining is a negotiation strategy in which all parties collaborate with the intention of finding a balance point in the negotiation process (Lewicki, Barry and Saunders, 2010). The reasoning behind using integrative but distributive approach will enable Excalibur to get other avenues to sell their pistons in case the negotiation process with Knight fails. Using integrative strategy will enable both Excalibur and Knight to reach a point of creating a joint value. This will enable Excalibur to get market for its pistons as well as enable Knight to get the confidence of the government for supplying quality engines.
Choice of tactics
The tactic chosen was open-ended questions as it helps in gaining accurate information as much as possible from the other party. Open-ended questions always starts with what, who, where, how or why (Kolb and Williams, 2001). The other reason why I chose this method is because it provides unsolicited information to you. In addition, it allows the other party to speak more openly, thereby providing me with more valuable information about where the interest of the other party lies.
Resistance point(s), target point(s) and opening offer(s)
Issue
Opening offer
concession
Target point
Resistance point
Links to
Price of piston
Rush fee
insurance
Advertising
-
Will lower price/ rush fee or insurance for free advertising
Will lower price/ rush fee or insurance for free advertising
Free
5%
Selling price for each piston
The opening price for the offer will be $950, while the target point is $600. The pistons we manufacture are very high in quality, with the best standards in the current market. Even though this price is above the industry average, it guarantees that our engines are 100% and they undergo through our random testing program. Ordering 10,000 units within a period of two weeks require us to add a rush fee of 5%, and I feel that this price is justifiable. Even though the opening offer is set relatively higher at $950, it allows space for price adjustments during the negotiation process. Studies have also shown that high opening offers culminates to high settlement (Crump, 2011).
Rush Fee
The target point for the rush fee is 10%, while the opening offer is 20% of the selling price. Excalibur requires a minimum rush fee of 5% of the selling price. The company has set the opening offer more than twice the value since the bargain range give space for movement and high probability of high yield (Tinsley, O‟Connor and Sullivan, 2002).
Quality Control Insurance Program
The target point is 15% and opening offer is 20%. The reasoning behind this decision is that Excalibur undergoes a cost of 10% to ensure this guarantee. Since the firm is seeking to make a profit in the short-term, setting the target above the break-even figure allows for future adjustments during the negotiation process (Lewicki, et al., 2006).
Advertising
The target point is free advertisement while the opening offer cannot be determined until the negotiation process is underway. Excalibur requires advertisement at minimal cost and in order to come up with an initial offer, Excalibur needs to acquire more information about the other party including their affiliation with the government. None the less, the opening offer can be made to the other party such as free advertisement for lower price for pistons.
The resistance point is 8,000 units. This is because that is the minimum amount that Knight has ordered even though this is subject to change during the negotiation process as the number of units is attached to price.
Concession plan
Waive the 10% quality fee in exchange for free advertisements on their Knight’s engines. Excalibur will also waive the 5% rush fee if the other party agrees to advertise our name and agree to purchase 10,000 units. Waiving the quality fee by 10% will enable Excalibur to persuade Knight to purchase more units since the price for each piston will be considerably lower. Waiving the rush fee of 5% will also enable Excalibur to get free advertisement for their pistons to the government. This will enable Excalibur to be in a better position to secure government contracts in the future if the government is able to confirm the quality of their pistons.
Waiving the 10% quality in exchange for advertisement of our pistons on their engines will be possible since we will be able to advertise our pistons at a lower cost. This will have benefits including increased sales, high profits, and recapture stakeholder’s confidence (Masschelein, Cardinaels and Abbeele, 2012). In addition, if Knight agree to advertise our pistons and purchase 10, 000 units, we will waive the 5% rush fee since we will be able to reach the break-even point. Purchasing pistons from our company will work into the goof of Knight by maintaining their reputation with the government so they should not consider purchasing from competitor who is selling pistons at $400. In addition, we are willing to establish a long-term relationship with Knight and as such, we are able to provide them with the supplies at a lower price.
About the other side
How important is each issue to them?
Sales price – this is probably the most important factor in the negotiation process
Advertising Excalibur pistons on their engines – this maybe not of great importance if we cannot guarantee quality.
Individual testing fee – this maybe very important
Rush fee – this important because it has implications on their bottom line.
What is their BATNA?
Considering purchasing the pistons from our competitors who sell the pistons at $400 per piece
i. Does the inferior quality make a valuable option for Knight?
ii. Will the competitors avail the required 8,000 pistons within two weeks
What is their resistance point?
The resistance point for the other party is $580 per piston.
Based on the importance the other party attaches to each issue, their BATNA, and resistance point, our target will be $525 per piston.
Situation
Knight requires 8,000 quality pistons within duration of two weeks. There exists a competitor who sells inferior quality pistons at a price of $400 per piston. Even though this is an option for Knight, they may not be in a position to compromise the quality of the engines they supply to the government. This leaves them with only one option, to buy quality pistons at an attractive price offered by our firm. The least price that we are offering is $560 per piston even though a competitor selling inferior quality sells their pistons at $400 per piston.
Bibliography:
Crump, L., 2011, 'Negotiation Process and Negotiation Context', International Negotiation, 16, 2, pp. 197-227, Business Source Complete, EBSCOhost, viewed 20 August 2012.
in bargaining, San Francisco: Jossey-Bass.
Kolb, D.M. and Williams, J., 2001, “Breakthrough Bargaining‟, Harvard Business Review, 79, 2, pp. 212-231, Business Source Complete, EBSCOhost, viewed 20 August 2012.
Kolb, D.M. and Williams, J.,2003. Everyday negotiation: navigating the hidden agendas
Lewicki, R. J. et al., 2006, Negotiation: readings, exercise and cases, 5th ed. Boston: McGraw-Hill/Irwin, Boston.
Lewicki, R. J., Barry, B. and Saunders, D.M., 2010, Negotiation, 6th ed. Boston: McGraw-Hill/Irwin.
Masschelein, S., Cardinaels, E, and Abbeele, A., 2012, 'ABC information, fairness perceptions, and interfirm negotiations', Accounting Review, 87, 3, pp. 951-973, Business Source Complete, EBSCOhost, viewed 20 August 2012.
Thompson, L., 2005, The mind and heart of the negotiator, 3rd ed. Upper Saddle River NJ: Prentice Hall.
Tinsley, C.H., O‟Connor, K.M. and Sullivan, B.A., 2002, “Tough guys finish last: the perils of a distributive reputation,‟ Organizational Behavior and Human Decision Processes, 88, pp.621-642.
