Last week, in our series on negotiations, we discussed the concept of SAM. This week I’d like to address the concept of ZOPA (no it’s not a Greek dessert); ZOPA stands for Zone of Possible Agreement. One way of visualizing a ZOPA is as a timeline, with overlapping line segments.
Dr. Jared Curhan (Professor, MIT Sloan Mgmt) states: “If every offer made to resolve a negotiation becomes more attractive to the party offering it, and less attractive to the party receiving it, then the ‘gap’ to be bridged before a mutually acceptable agreement can be reached will be widened rather than narrowed by the very process of negotiation.”
If a seller’s minimum acceptable price is substantially greater than a buyer’s maximum offer no can say there is a “zero” ZOPA.
When the seller’s minimum is exceeded by the buyer’s maximum willingness; one can say that there is a zone of possible agreement. The negotiation then deals more with getting the seller to get more than his minimum, or the buyer to spend less than his maximum (depending upon whom you represent). Many factors will influence the eventual outcome of such a negotiation; among these may be:
Market power (supply and demand)
Alternative sources for product
Skill of the negotiator
Based upon the above factors (as well as others); one could elect to be “reasonable”: “My clients believes a reasonable price to be $X, however if you could present credible reasons to go higher, my client might take that into consideration.” One might put forward a “contrast” offer: “My client only wanted to offer $X, but after more consideration and input from me, he has decided to offer the more attractive $X plus Y” North Americans (especially) tend to ending “in the middle” in negotiating; therefore considering making the initial offer at a point where the mid point would be acceptable to your side. The first offer would still however, still be defensible.