How should I negotiate the price/salary with a potential customer/employer if there's a large gap between our BATNAs?

Question

I am an undergraduate student and earn money by giving private lessons as well as by writing and translating texts, and recently I lost a potential customer because we couldn't agree on the price. The case is a bit too complex to describe here, and I also don't really want to reveal some details on the Internet, but, in short, the culprit was that there was a huge gap between his BATNA (Best Alternative to a Negotiated Agreement) and my BATNA. The job he wanted me to do was pretty unusual and highly specialized, and he knew me personally and knew that I happened to have the rare knowledge and skills to do that particular job, so he offered me that job and offered paying me somewhat more than the rate I usually earn money at. He knew that rate. But I knew that if he failed to reach an agreement with me, he would have a hard time looking for specialists capable of doing the job, and end up paying at a rate at least a few times higher than what he offered me. So I made a counteroffer, in which I frankly told him how I saw our BATNAs, and offered a price at the midpoint between our BATNAs to make our benefits equal. He rejected the very idea of bringing his BATNA into the equation, and then we spent a lot of time and effort trying to persuade each other as to whose offer is fair, with him even comparing me to a shopkeeper who tells different customers different prices, and eventually broke the negotiations altogether.

I don't really regret rejecting his offer, because I didn't lose much with respect to what I can earn otherwise by spending the same amount of time or effort, and I would definitely hate doing a job knowing I'm being taken advantage of, but I regret that we were unable to reach a fair deal and missed such an opportunity for a great mutual benefit. He rejected my offer because he didn't want to lose face by accepting what he believed was unfair, even despite my offer being actually much better than what he could get elsewhere.

I am at a loss as to what I should learn from that experience, and I'm especially curious because I know I will face many negotiations in my future professional career - salary negotiations, price negotiations, etc. - and I guess some of them will be, likewise, with a large gap between the BATNAs, so I'm posting my question here in order to learn how to professionally deal with such situations. For instance, what if I have unique knowledge and skills of great value for a particular employer, and that employer offers me a salary just slightly above what I can get elsewhere, and much below what he will have to pay to employ someone else?

So my question is: In general, how should I negotiate the price/salary with a potential customer/employer if there's a large gap between our BATNAs and we both know them? Are there any established theories or practical methods about that? In particular, what is the fair price/salary is such a situation, and how do I convince my negotiation partner to accept it?

Answer 1

Your mistake was how you presented it. Saying "I know I normally charge X, but I also know you can't find someone else to do this for less than Y, so I'll do it for halfway between the two," isn't wrong, but it can feel unfair, whether it actually is or not. It focuses on what you can extract from the customer because they have no better choice, not on providing a reasonable value for the money they pay.

Instead I would focus on what makes the task different from your typical tasks. "I know I typically charge X, but this task is more complicated and requires specialized skills, so I'm going to charge you Z instead. That's still considerably lower than what most people charge for this type of work." You're essentially saying the same thing, but the focus is in a different place. Tasks that require more specialized skills typically cost more, there's nothing controversial about that. They're not just paying for your time spent on the task, but also for all the time and effort you spent learning your trade. Putting it in that light may help the customer feel like they're getting an appropriate value for their money rather than being extorted.

Answer 2

how should I negotiate the price/salary with a potential customer/employer if there's a large gap between our BATNAs and we both know them?

Don't negotiate, give a price and stick to it. It saves time and grief. You're basically quoting for the task, just like anyone else. Not doing retail with someone elses product.

Answer 3

Taking their BATNA into account sounds unethical, shady and probably illegal in some jurisdictions.

Just imagine some scenarios:

• You and your buddy go buy a pizza. Your buddy pays 5. You get charged 10 for the same pizza. Because your buddy, if charged 10, would just go over and get a burger for 5, but you hate burgers and the pizza shop owner knows that.

• A cure is found for a virus. Everybody can be cured with one dosage and you can make as much as you want. However, since those that are affected more seriously have a higher BATNA, you charge accordingly. People with mild symptoms pay 10, people in hospitals pay 1000. People already on a respirator are charged 100.000. It's all about their BATNA, obviously people that would otherwise die should pay more, right?

This does not look very professional to me.

You should charge what you think your work is generally worth, not how much you can possibly extort from a specific victim.

Answer 4

I think what you should consider here is that BATNA is not solely about monetary value, it's about the total value of the option as perceived by the person receiving the offer.

For example, in future salary negotiations you won't only be negotiating salary but rather a full package of benefits - holidays, flexible working, special privileges or assignments, training costs, higher pension contributions, healthcare, etc... And you'll be negotiating on the total value of that package to you and the business, some of which is hard to directly convert into a cash equivalent value.

The main problem you had with your potential client was that your analysis of his BATNA didn't include his perception of the value of not losing face. Apparently, he would rather spend that extra time and money finding someone else who could do the work rather than feel he was being taken advantage of or treated unfairly.

The other thing that's probably worth mentioning is that not every interaction should be treated as a one-off negotiation. You may have lost the opportunity to build a strong business relationship that could have provided repeat business (the value of this should have been considered as part of your BATNA).

Also as mentioned by Killsi in his answer, not all things carry an expectation of negotiation and in some contexts it's considered unusual. Many 'off the shelf' goods and services are not usually negotiated. Although expectations about which things are appropriate to negotiate will depend on the local culture.