Master the Art of Business
A world-class business education in a single volume. Learn the universal principles behind every successful business, then use these ideas to make more money, get more done, and have more fun in your life and work.
Understanding the other party's Next Best Alternative is extremely helpful: you can structure the agreement to make it more attractive than the other option.
In every negotiation, the power lies with the party that is able and willing to walk away from a bad deal. The more attractive your alternatives, the more you're willing to walk away, and the better your deals.
When negotiating, it's always useful to know what the other party is likely to do in the event that an agreement can't be reached. Sometimes, it's just not possible to reach an agreement-there's no common ground, so both parties agree to go their separate ways. What then?
Your Next Best Alternative is what you'll do in the event you can't find Common Ground with the party you're negotiating with. Imagine you're looking for a job, and there are three companies interested in hiring you. You may prefer to work at Company A, but if you can't reach a mutually acceptable agreement, it's easier to be a confident negotiator if you know that Company B & C are also interested. If Company A is your only option and they know it, you're not likely to get a good deal.
The other party always has a Next Best Alternative as well-that's what you're negotiating against. If you are selling a product that costs $100, you are selling against the next-best thing that they could do with that $100: saving, investing, or purchasing something else. If you're trying to hire an employee, you're competing against the next best offer they have from another company. The more options the other party has, the weaker your negotiating position.
Understanding the other party's next best alternative gives you a major sales advantage: you can structure your agreement so it's more attractive than their next best option. The more you know about the other party's alternatives, the more attractively you can Frame your total offer by Bundling / Unbundling various options.
Having a strong next best alternative keeps negotiations moving quickly. Many professional sports players who are approaching free agency use the opportunity to renegotiate or renew their contracts with their current teams, particularly if other teams express interest in them. If the original team doesn't want to lose the player, they have an incentive to reach an acceptable deal quickly.
In every negotiation, the power lies with the party that is able and willing to walk away from a bad deal. In almost every case, the more acceptable alternatives you have, the better your position. The more attractive your alternatives, the more willing you'll be to walk away from a deal that doesn't serve you, resulting in better deals.
"When others sense your willingness to walk away, your hand is strengthened... Sometimes you are better off not getting to yes."Robert Rubin, former U.S. secretary of the treasury
Master the Art of Business