A practical look at the zone of potential agreement

The zone of potential agreement (ZOPA) is an important concept when trying to figured out whether or not you stand a chance of getting a deal from the negotiation.

Granted there are a number of aspects that will contribute to your success when negotiating but identifying the zone of potential agreement or ZOPA is key to these aspects.

Negotiation is not free

One should not negotiate just for the sake of negotiating, in fact you only get into negotiation if the alternative, that is not negotiating, will mean that you are worse off. In short negotiation is not free, because in addition to spending time on it you also can end up investing other resources in it.

In any negotiation you need to understand what your targets are. Is it price related or other factors that make up the total cost of acquisition, is it quality related etc. You also need to know what you are going to do if your intended targets are not achieved which is where the “walk away position” comes in, or you best alternative to the negotiated agreement (BATNA)

Understanding your zone of potential agreement (ZOPA)

The only way negotiation works out is if there actually exits a chance or potential for some type of agreement, otherwise you are best of just walking away since the entire thing is pure wastage of time.

Example

If a supplier is supplying an item for $2000, this being the lowest they are willing to go, and a buyer is only capable of going as high as $1500 then holding all other factors constant, there is no point in wasting time negotiating since there is no chance for an agreement.

Establishing you zone of potential agreement (ZOPA) is therefore important if you are setting your targets and the point at which you walk away.

How does this work practically?

Both the buyer and the supplier have their own perception about the price they are interested in as far as the negotiation is concerned.

Let’s say the buyer’s maximum price (highest acceptable price) is $1500, this just means given a chance they prefer to pay less so what do they do? They open the negotiation with $1000. This then becomes their preference in short, the hoped-for price

The supplier is motivated to sell at high price so their opening price or list price which is hope-for price could be $2000. Lets assume they are flexible since they know that few buyer will pay the price so they (suppliers) are willing to allow for a downward bargain, depending on the number of volumes or something. However they are not willing to go below $1200 (lowest acceptable price)

So the Zone of potential agreement (ZOPA) lies between $ 1200 -1500