Welcome to Week 2 of our NegoAI series.

Did you know that leverage in negotiations isn't just about facts or power - it's primarily about perception? Research shows that leverage is determined by which party feels they have more at stake if no agreement is reached. The stronger their need for a deal and concern about walking away empty-handed, compared to yours, the greater your negotiating advantage.

Let me share how understanding BATNA and leverage can transform your negotiation outcomes.

This newsletter will first present the theory of power, followed by practical applications using ChatGPT.

BATNA: Your Foundation of Power

BATNA—Best Alternative To a Negotiated Agreement—represents your most favorable option if you walk away from the current negotiation.

It establishes your reservation value and provides leverage by defining when no deal becomes better than accepting unfavorable terms.

But here's what most negotiators miss: while many focus solely on their own BATNA, those who analyze their counterpart's BATNA often achieve superior outcomes.

Here's a systematic approach to developing your BATNA.

1. Identify all alternative options

2. Estimate the value of each alternative

3. Select your best alternative as your BATNA

4. Evaluate the other party's BATNA by developing multiple scenarios.

The Three Dimensions of Leverage

Leverage comes in three distinct forms, each offering unique advantages:

1. Positive Leverage: Based on the ability to provide what the other party needs 

2. Negative Leverage: The ability to make the other party worse off if no deal is reached 

3. Normative Leverage: Using standards, norms, and precedents to strengthen your position 

Remember: leverage is dynamic, contextual, and based on perception rather than facts. It shifts constantly as circumstances change and as parties reassess their positions.

Practical Application: Building Your Leverage

Here's where theory meets practice. To enhance your leverage:

• Focus on understanding what your counterpart has to lose if the deal falls through 

• Look for opportunities to leverage differences in perspectives, interests, constraints and time preferences 

• Consider building coalitions to enhance your negotiating position 

• Research applicable standards and norms that support your position 

• For deeper insights, try asking your counterpart, "What would it take for you to say yes?" This simple question can reveal hidden leverage points 

This week’s analysis with ChatGPT

This week's analysis examines a negotiation scenario based on a Harvard Business School role-play. We will show how to use ChatGPT 4.5 strategically by giving it only the seller's perspective, then analyzing how it:

1. identifies the seller's BATNA and leverage points (positive, negative and normative)

2. creates several negotiation scenarios by considering potential buyer alternatives and leverage points (positive, negative and normative)

Prompt

Hi Brama. You are tasked with analyzing a seller's negotiation position and creating hypothetical buyer scenarios. Follow these steps carefully:

• Key Facts Summary: Extract and concisely summarize the essential details from the seller's instructions.

• Analyze the seller's BATNA (Best Alternative To a Negotiated Agreement): o Carefully examine the seller's instructions.
  o Identify any explicit alternatives mentioned.
  o Infer potential alternatives based on the seller's position.
  o Consider the consequences of not reaching an agreement.

• Identify the seller's leverage points:

  o List potential items or concessions the buyer might want.

  o Determine what the seller could potentially withdraw or withhold.

  o Consider unique advantages or strengths in the seller's position.

• Standards and norms: o Identify any industry standards, market norms, or common practices mentioned. o Consider how these could be used to persuade the buyer.

• Create three hypothetical buyer scenarios. For each scenario:

  o Hypothesize a plausible BATNA for the buyer.

  o Suggest potential leverage points the buyer might have.

  o Ensure each scenario is distinct and realistic given the context.

• Present your analysis in the following format:

  Analysis

  Seller's BATNA: [Detailed analysis of the seller's BATNA]

  Seller's Leverage Points: [List and explanation of the seller's leverage points]

  Standards and Norms: [Discussion of relevant standards and norms]

  Buyer Scenarios

  Scenario 1

  Buyer's BATNA: [Buyer's hypothetical BATNA]

  Leverage Points: [Buyer's potential leverage points]

  Scenario 2

  Buyer's BATNA: [Buyer's hypothetical BATNA]

  Leverage Points: [Buyer's potential leverage points]

  Scenario 3

  Buyer's BATNA: [Buyer's hypothetical BATNA]

  Leverage Points: [Buyer's potential leverage points]
  

• Ensure your analysis is thorough, well-reasoned, and directly based on the information provided in the seller's instructions. If you need to make any assumptions, state them clearly.

ChatGPT’s Response
 

Key Facts Summary

• The Taylors own a house at 43 Cedar Lane and an adjacent 10,000-square-foot parcel.

• The parcel does not meet the minimum building lot size required by local zoning but has potential value if integrated into another property.

• The Taylors bought the parcel eight years ago for $20,000, intending to use it for a tennis court but only occasionally used it as a vegetable garden.

• The Taylors are relocating out of state after securing a favorable price for their house (not including the parcel) and are seeking to sell the parcel before leaving.

• They have a standing $17,000 offer from their house buyer for the parcel, which is less than their purchase price but would be acceptable if no better offer arises.

• Their primary focus is on selling the parcel to their neighbors, the Riveras, who previously declined to purchase it jointly.

Seller’s BATNA

The Taylors' BATNA (Best Alternative To a Negotiated Agreement) is clear and explicit: they have a standing offer from the private buyer of their main property for $17,000 for the extra parcel.

While this amount is lower than the original purchase price ($20,000), accepting this offer ensures the land does not remain an unnecessary burden after their relocation.

The consequence of not reaching an agreement with the Riveras would simply be to accept this lesser offer. Thus, the BATNA is firm and relatively risk-free, providing the seller with a solid fallback.

Seller's Leverage Points

• Exclusivity of Location: The parcel uniquely borders the Rivera's property, making it specifically valuable to them.

• Future Development Potential: Although currently below building regulations, the parcel can increase the Rivera's lot size sufficiently to meet minimum requirements, thereby potentially enhancing their property's value.

• Buffer Zone and Privacy: The parcel can serve as additional yard space or a buffer, providing privacy from new neighbors at 43 Cedar Lane.

• Immediacy and Convenience: An immediate, straightforward cash deal can save the Riveras from future uncertainty or possible negotiations with other buyers.

Standards and Norms

• Real Estate Market Trends: Recent modest rebound in real estate values can justify holding or increasing property value, even though this specific property lacks a direct market equivalent.

• Local Zoning Regulations: Minimum lot-size regulations may encourage the Riveras to secure additional land now rather than later.

• Historical Cost and Maintenance: The Taylors can appeal to a normative expectation of recovering original costs plus upkeep expenses as standard practice in property transactions.

Buyer Scenarios

Scenario 1

• Buyer's BATNA: The Riveras decide not to purchase the parcel, preferring to maintain their current property configuration and save money.

• Leverage Points: Minimal interest in expanding property or privacy, the ability to use existing land sufficiently, and no immediate incentive to invest in additional land.

Scenario 2 

• Buyer's BATNA: The Riveras have identified another nearby property parcel that, although slightly less conveniently located, meets similar needs and is priced competitively.

• Leverage Points: Availability of alternative property, lower price comparison, and the flexibility to choose based on cost-effectiveness and convenience.

Scenario 3

• Buyer's BATNA: The Riveras are considering major renovations to their property, which would greatly benefit from additional space, thus lacking alternative nearby parcels.

• Leverage Points: Desire for immediate land acquisition to facilitate property improvements, increased property value due to potential upgrades, urgency to finalize purchase quickly.

This Week’s Exercise

Take 20 minutes to apply these concepts to your next negotiation:

• Identify all alternative options in an important upcoming negotiation

• Estimate the value of each alternative

• Select your best alternative as your BATNA

• Identify three ways to improve your BATNA

• Map out the potential leverage points (positive, negative, and normative)

• Evaluate the other party's BATNA by developing multiple scenarios.

• Ask yourself: "What does the other party have to lose if we don't reach a deal?"

Preview of Next week

Next week, we'll explore the Zone of Possible Agreement (ZOPA) - how to identify where deals are possible and how to expand that zone to create better outcomes.