Worked Walkthrough: Calculate a Reservation Price
Calculate a procurement reservation price from BATNA and TCO assumptions.
Incumbent renewal is $510,000. A runner-up supplier can sell for $430,000, but switching has migration, internal labor, parallel run, and risk costs. Reservation price equals the point where the supplier's offer is no better than your best TCO-adjusted alternative. The common trap is to call the competitor's quoted price your BATNA. That ignores switching cost and encourages a bluff the incumbent may test. Before The team says, "Our BATNA is $430,000 because that is the competitor quote." After The team says, "Our year-one alternative costs about $559,000 after transition and risk. We target $470,000, but we should not walk below…
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