Let’s say I want to buy the house at 123 Negotiation Lane and it’s listed at $300,000. I do my research, analyze comparable sales in the neighborhood, find out its length on the market, evaluate its renovations and conclude it’s worth $290,000.
Figuring I’ll pay $290,000, I offer $270,000. After all, it’s my first offer. To my shock, the seller accepts.
My response? Do I jump with joy that I got such a great deal? Probably not. In all likelihood, I’ll feel I could have done better or something must be wrong.
Why? Because the seller defied my expectations. In doing this, the seller caused me to question my analysis and my offer and concession strategy. It’s natural. Even though my reaction may be completely unjustified.
Many, in fact, evaluate offers and concessions based on their expectations. They ask: To what extent is my counterpart’s behavior consistent with my expectations, and why?
I call this the “Negotiation Expectation Game,” and it’s a critical psychological element underlying offer and concession behavior. We need to understand the basis for parties’ expectations, and make our negotiation decisions accordingly.
Here are three common offer and concession expectations and some rules of thumb to follow as a result. For maximum effectiveness, these tactics should be used in conjunction with objective criteria and independent standards. Such criteria and standards might include market valuation, precedent, expert opinions, tradition and professional standards.
Expectation: First offers and first counteroffers always have negotiating room built into them.
Rule of Thumb: Almost never say yes to the first offer or counteroffer.
While exceptions apply to practically every rule, this one is pretty sacrosanct. Almost everyone includes substantial flexibility in their first offer and anticipates making significant concessions.
So don’t accept right away. Counter it. Even if you’re substantively accurate according to your analysis of the objective standards, you still may leave items on the table. Consider their expectations in your counter.
Expectation: Parties’ offers and concessions will follow a consistent pattern. Thus, equal-size concessions create the perception of unending concessions, and consecutively smaller concessions suggest parties are nearing their end point.
Rule of Thumb: Taper your concessions so they become smaller and smaller and make your last concession a particularly small one.
Let’s say I’m asking $19,500 for my 1991 Nissan 300ZX. After your first offer of $14,000, I move $1,500. You then counter at $14,500, and I subsequently move another $1,500 (down to $16,500).
What have I communicated from my concession behavior? Every time you push, I concede an additional $1,500. If I were you, I’d just keep on pushing.
Alternatively, let’s say I first conceded $1,500 to $18,000, then conceded $500 to $17,500, and then conceded $100 to $17,400. I just communicated to you, more powerfully than stating it, that I was right near the end.
In making your offers and concessions, figure out where you want to go, how you want to get there, and be aware of patterns. Consecutively tapering your offers and concessions sends the appropriate message. Likewise, analyze your counterparts’ patterns. They’re sending signals, too.
Expectation: You rarely if ever get something for nothing.
Rule of Thumb: Always ask for a reciprocal concession.
This sounds basic. Yet many don’t do it, especially near the end of negotiations. Perhaps you sell computers to large corporations and a new customer recently ordered 500 laptops. After the contract is signed, your customer asks if you can deliver two weeks earlier than expected. If the laptops will be ready, you might be inclined to say “no problem.”
Resist the urge. Instead, ask for something in return, a trade-off, even if it’s just a future IOU. Let them know it’s costing you something, if only your time. You don’t want your customer to get the impression you give value away for nothing. If they do, they’ll just keep grinding until there’s nothing left to give.
Of course, don’t respond in a demanding or confrontational way. That would be counter-productive. But don’t worry either. They’ll likely be expecting it.
Published July 27, 2001 The Business Journal