BATNA and Reservation Value

Discuss about the Impact of Celebrity Endorsements on Consumer.

In negotiation theory, BATNA is considered to be the best alternative which can be taken if negotiation fails or if the negotiating parties fail to come to an agreement (Notini, 2013). BATNA calls for some diverse actions such as the suspending the negotiations, looking for different negotiating partners, appealing to court’s ruling, forming other forms of alliances, among other actions. BATNA is one of the major driving forces of successful negotiators (Reynolds, 2014, pp.611-614). In our case, the client’s BATNA is the suspension of the negotiation until to a time when the two parties will reach the best price which will be reasonable and acceptable to both parties. Reservation value is the maximum price or value which a buyer or a consumer offers to buy a product or a service (Hao et al., 2014, pp.45-57). In our case, our client is the corporation by the name Sports-Bay Limited which manufactures and sells sports products and the other party is the celebrity to do the advertisement. The client’s reservation value is $150,000 which the other party (the celebrity) feels is not enough.

As already said, BATNA usually represents the alternative strategy which can be taken if negotiation fails (Saorín-Iborra, Redondo-Cano, and Revuelto-Taboada, 2013, pp.419-433). The BATNA of the other party where in our case the other party is the celebrity is similar to the client’s BATNA where the celebrity supports the idea that the negotiation and the contract (advertisement) should be suspended till the time when both parties (the corporation and the celebrity) will come to a reasonable price which will be fair and acceptable to both parties (Sebenius, 2017, pp.89-99). The reservation value of the other party (the celebrity) is $250,000. The reservation values for both parties differ by $100,000 which is quite a big value. The seller feels that $250,000 is a very high amount to be paid for an advert while the celebrity feels that $150,000 is quite low compared to his fame and the many customers he’ll attract to the company and the huge sales which will result from his advert (Belch and Belch, 2013, pp.369-389). The two parties decided to suspend the negotiation (BATNA) until a time when they’ll come to a price which is fair and friendly to both parties (Korobkin, 2014).

In negotiations, ZOPA stands for the zone of possible agreement (Foster, Mansbridge and Martin, 2015, pp.121-125). ZOPA is also referred to as the bargaining range and mainly describes the intellectual zones which exist in sales and negotiations between the associated parties and the possibilities of coming into an agreement (Patel and Rubin, 2016, pp.756-758). ZOPA is simply the zone of the possibility of coming into an agreement between two negotiating parties. Outside this zone of possible agreement, there exist zero chances that the two negotiating parties will come to an agreement on the prices being negotiated (Wertheim, Glick, and Larson, 2018, p.237). In our case, the zone of agreement can be seen as the difference between the corporation’s reservation value which is $150, 000 and the celebrity’s reservation value which is $250,000, which means the ZOPA range is $100,000. As the agent representing the company in the negotiation process to endorse the advertisement contract, I’ll use the negotiation skills and critical thinking skills to make sure the company will enjoy the many financial benefits which will result from the advertisement services of the celebrity (Aldhizer, 2015, pp.1-34).

ZOPA

Firstly, I’ll go through all the information given to me discussing the whole contract of endorsing the celebrity in the advertising campaign of the company. After going through all the information and understanding all the main points or ideas given by the information, I’ll engage in my detailed research to see how the contract of endorsing the celebrity in the advertisement campaigns of the corporation will impact the company both positively and negatively (Mansour and Diab, 2016, pp.148-166). It is in my research that I’ll visit different social media platforms (such as his Facebook, his twitter, among others) of the celebrity to know the approximate number of followers and this will help me to determine the possible number of new customers who the celebrity can bring in the company (Marwick, 2015, pp.333-350). I’ll also do some more research to see the improvements achieved by various corporations after contracting the celebrity to make some advertisements for them (Chaudhary and Asthana, 2015, pp.220-225). It’s after this research and some more research about the performance of the celebrity especially in making in adverts that I’ll be able to come into a good negotiation with the celebrity or his agent to come up with the best and the most reasonable price which is within ZOPA range and which will benefit both parties (Walch, Mardyks, and Schmitz, 2017). The celebrity can claim a greater proportion of ZOPA if he has the potential of earning the corporation many new customers and the company can give a maximum of $225,000 for the advert campaigns if the campaigns are likely to earn the corporation a total of over $5,000,000 in a duration of six months.

In the first part of the paper, we have discussed the major activities to be done in the pre-negotiation stage where we have seen that the main activities in that section involve the two parties (the corporation and the celebrity) giving their reservation values which help in defining the ZOPA range and then doing some research and some analysis to see what can make the celebrity earn a great portion of the ZOPA range. The celebrity demands to be paid $250,000 for the sixth months of the advert campaign periods and the corporation was proposing to give a maximum of $225,000 for the six months.

This second stage will discuss the actual negotiation of the corporation and the celebrity where the corporation is represented by its agent (me) and the celebrity is also represented by his agent. Firstly, looking at this case critically, we realize that the corporation has the fear of spending so much money on the advert campaigns which may end up not yielding reasonable profits to the corporation and that’s why the company is not willing to pay more than $225,000 for the entire advert campaigns. On the other hand, we see that the celebrity wants to have a minimum payment of $250,000 since he’s convinced that he’ll introduce many new customers to the corporation which will earn the corporation huge profits. To help in addressing this major difference, the negotiation proposed that the payments should be made depending on the sales or the revenue generated from the adverts. The following payment conditions were agreed:

Negotiation Process

If the total revenue generated from the sales of the entire six months of the advert campaign is more is more than $5,000,000, the celebrity will be paid $250,000.

If the total revenue generated from the sales of the entire six months of the advert campaign is more is less than $5,000,000, the celebrity will be paid $150,000.

Let me take this opportunity to thank you for taking the position of the contract of assisting our corporation in advertising various products and services offered by the company. I wish to officially confirm your position as our company’s agent in to help us in advertising our products to different clients or customers within and outside of Australia. We’ll be happy to engage you in our advertisement campaigns as we believe you are one of the most famous and popular celebrities especially in the field of sports and therefore we believe working with you will help to boost the sales of our sports products and services in a great way. In Sports-Bay Limited we sell different sports products and services which you can understand better by checking our website: www.sportsbayltd.com.

I wish to confirm that we came to an agreement after having a detailed negotiation with your senior agent on how this contract will go for the benefits of both parties (the corporation’s side and your side). I wish to let you know that these were the outcomes of the negotiations:

The celebrity’s side will be paid $250,000 if the corporation manages to generate a revenue of $5,000,000 or more from the total sales of goods and services made within the entire six months of the advert campaigns.

The celebrity’s side will be paid $150,000 if the corporation does not manage to generate a revenue of $5,000,000 or more from the total sales of goods and services within the entire six months of the advert campaigns.

We reached this outcome after having a detailed negotiation which helped to solve our differences. The agent from the celebrity’s side was convinced that the celebrity’s advert will help the company to make sales worth more than $5,000,000 within the six months of the contract and so wanted a payment of $250,000 for the contract. The corporation, on the other hand, was afraid it might spend all that money and fail to meet its target of a minimum of $5,000,000 which could be a great loss to the company and so the corporation was willing to give $150,000 for the contract so that it couldn’t suffer that much financially even if the target is not met. To resolve this difference, we agreed that the corporation will only pay $250,000 if the target is met and if the target fails to be met the company will pay $150,000. This is how the outcome was reached.

References

Aldhizer, G.R., 2015. Small firm audit partner hiring crisis: A role play for critical thinking and negotiation skills. Issues in Accounting Education Teaching Notes, 30(4), pp.1-34.

Belch, G.E. and Belch, M., 2013. A content analysis study of the use of celebrity endorsers in magazine advertising. International Journal of Advertising, 32(3), pp.369-389.

Chaudhary, U. and Asthana, A., 2015. Impact of celebrity endorsements on consumer brand loyalty: Does it really matter?. International Journal of Scientific and Research Publications, 5(12), pp.220-225.

Foster, C., Mansbridge, J. and Martin, C.J., 2015. Negotiation myopia. Political Negotiation: A Handbook, pp.121-125.

Hao, J., Song, S., Leung, H.F. and Ming, Z., 2014. An efficient and robust negotiating strategy in bilateral negotiations over multiple items. Engineering Applications of Artificial Intelligence, 34, pp.45-57.

Korobkin, R., 2014. Negotiation: Theory and strategy. Alphen aan den Rijn: Wolters Kluwer Law & Business.

Mansour, I.H.F., and Diab, D.M.E., 2016. The relationship between celebrities’ credibility and advertising effectiveness. Journal of Islamic Marketing, 7(2), pp.148-166.

Marwick, A.E., 2015. Celebrity in Social Media. A companion to celebrity, pp.333-350.

Notini, J., 2013. Effective Alternatives Analysis in Mediation: BATNA/WATNA Analysis Demystified (2005).

Patel, B.N., and Rubin, G.D., 2016. Deal or no deal? Negotiation 101. Journal of the American College of Radiology, 13(6), pp.756-758.

Reynolds, J.W., 2014. Breaking BATNAs: Negotiation Lessons from Walter White. NML Rev., 45, pp.611-614.

Saorín-Iborra, M., Redondo-Cano, A. and Revuelto-Taboada, L., 2013. How BATNAs perception impacts JVs negotiations. Management Decision, 51(2), pp.419-433.

Sebenius, J.K., 2017. BATNAs in Negotiation: Common Errors and Three Kinds of “No”. Negotiation Journal, 33(2), pp.89-99.

Walch, K.S., Mardyks, S.M. and Schmitz, J., 2017. Quantum Negotiation: The Art of Getting What You Need. New Jersey: John Wiley & Sons.

Wertheim, E., Glick, L. and Larson, B.Z., 2018. Teaching the Basics of Negotiation in One Class. Management Teaching Review, p.237.