Session 6-Frank Lio:Practical Product Management,

Marketing, Strategy and Life

4/23/2013

Zone of Possible Agreement (ZOPA)

In life and Sales, there exists the Zone of Possible Agreement.  The Zone of Possible
Agreement is considered an area where negotiating parties may find common ground -
where parties will often compromise and strike a deal.  In a traditional sales negotiation, it is
defined by the highest possible price that the buyer is willing to offer, and the lowest possible
price that the seller is willing to accept. (Remember that ZOPA is not necessarily just about price
in terms of money. It can include other terms and conditions.)

Suppose that you want to sell a product that costs you $18,000.  You calculate that you can
reluctantly let it go at the break-even sell price of $20,000 but would like to sell it for $30,000 to
meet target margins.  A buyer wants to buy it for $15,000 but is willing to pay up to a maximum
of $25,000.  The ZOPA where both buyer and seller can negotiate within would be between
$20,000 to $25,000.  You (the Seller) would not entertain a bid at $15,000 because you would
lose money and the Buyer would not consider your asking price of $30,000.

Beware the dangers of not understanding the ZOPA.  If you, the seller, start your offer at
$40,000, so far outside the buyer’s ZOPA, the buyer will walk away since he or she may think
that any discounting will never reach their buying range. The Seller had demanded too much and
shut down negotiations. Likewise, the Buyer may make such a starting bid so low that the Seller
might not think that he/she is serious and decides to walk away.
 Negative ZOPA - Example with N. Korea Standoff
Negative ZOPA
In Sales, a negative ZOPA exists when the walkway points of both parties are too far apart with
no common area of overlap – a negative ZOPA.  With a negative bargaining zone both parties
may (and should) walk away.  

If we study the current North Korea standoff, we see this negative bargaining zone. North
Korea’s current walkaway point is that the US and world must drop sanctions before talks.  The
US walkaway point is that N. Korea must abandon pursuit of nuclear weapons.

Moving a ZOPA
Can you move the ZOPA?  Yes, but it requires combining common interests to create a
“win/win” for all.  I, as the Seller, might be able to offer a demo or refurbished version of my
product at a slightly reduced price which reduces my break-even sell price. The Buyer may be
willing to offer me a testimonial for my promotional material or offer to buy in volume to reduce
the Seller’s transportation and installation costs.  

Likewise, a Seller or Buyer can shrink a ZOPA by adding terms and conditions during
negotiations.  True Story: A couple was getting very serious about marriage.  The woman kept
mentioning “little” things which got the man’s spiderman senses tingling (their ZOPA was
shrinking).  Finally, she mentioned that she would be in charge of their future finances and ration
him $50 per week – their ZOPA went completely negative and he ran for the hills...and is still
running.

Frank Lio is a Product Manager, Strategist, and Change Agent in the Hi-Tech industry. His growing track
record of successes include creating 3 winning software products, leading nationwide
seminars, and turning around a failing business unit.  He is currently serving a dual role as Product
Manager and Business Team Support Manager at Instron ITW.