I bought my first car in 1987. It was the shortest negotiation in my life. My dad offered to sell me his 1981 Datsun 280ZX for its “Blue Book” value, $5,500. I said, “OK.” End of negotiation.
“Wait a second,” some of you might say. “Didn’t you once write that first offers almost always include room to move? Don’t you practice what you preach?”
Well, I did write that about first offers. The key word, though, is almost. This is an exception.
Why? Because your offer and concession strategies — whether and when you make a first offer and what you should do regarding the timing, speed and size of your moves — should vary depending on the nature of your negotiation.
I recently purchased a new house. That negotiation involved two weeks of back-and-forth offers and concessions before we signed. Radically different offer and concession dynamics characterized that negotiation versus my first car purchase. Both were appropriate.
So, what kind of offer/concession strategies should you use, and when and where should you use them?
Overall, most offer and concession strategies fall into one of two general categories: Competitive Offer/Concession Strategies or Problem-Solving Offer/Concession Strategies. Each occupies opposite ends of an “aggressiveness” scale.
On one end, Competitive Offer/Concession Strategies are characterized by the most aggressive offer/concession behavior. To start, this might include either 1) a first offer that falls well outside the range of any reasonable standard-based result, or 2) a long negotiation over which party even makes the first offer.
Regarding the timing and size of subsequent moves, the number of back-and-forth moves tends to be high here as does the size of the moves relative to the starting point. Some describe those who regularly use these tactics as “hagglers.”
If you’ve ever negotiated in a free-wheeling marketplace or experienced a full court press by a salesman, you know what I mean.
On the other end of this “aggressiveness” scale, Problem-Solving Offer/Concession Strategies are characterized by the least-aggressive-appearing moves. Here, either side may start with a first offer. And the timing and size of the subsequent moves will be relatively minimal, at least compared to its competitive counterpart. My dad’s offer to sell me his Datsun based on its “Blue Book” value falls squarely into this category, as does my quick acceptance.
By the way, it’s critical to keep two caveats in mind here. One, these Offer/Concession strategies track the bigger-picture Competitive and Problem-Solving negotiation strategies described by many negotiation scholars. (And described in my July 28, 2000 column, available at http://www.negotiationinstitute.com/articles.)
And two, most parties’ offer/concession behavior is neither purely Competitive nor purely Problem-Solving. Instead, they fall somewhere in between.
So how should you select the most appropriate Offer/Concession strategy and determine the right level of aggressiveness? Take the following four factors into account:
1. Evaluate the importance of a future relationship.
The more you see your long-term interests satisfied with a future relationship with your counterpart, the more likely you should use Problem-Solving Offer/Concession Strategies. Put on your reasonable hat, start at a place that will appear credible based on legitimate standards and will not offend your counterpart, and look to quickly find a final result with a minimum of moves.
Proposals to current clients fall squarely in this category.
On the other hand, if you see no value to a future relationship, be aggressive and use Competitive Offer/Concession Strategies. When you’re buying a used car on a sales lot, start with a relatively lowball offer and haggle away.
2. Consider the number of issues on the table.
The more issues, the more likely you should use Problem-Solving Offer/Concession Strategies. The fewer issues, the more likely you should be on the Competitive end of the scale.
If you want to merge your highly complex corporation with your competitor and need to resolve a whole host of issues to make it work, pull out that reasonable hat again and find those legitimate standards.
But if you’re suing your ex-boss for sexual harassment and just want to maximize your cash award, start high and only reluctantly move, and then only in small chunks.
3. Assess the zero-sum vs. pie-expanding nature of the issues.
The more zero-sum the issues (where more for one side is necessarily less for the other), the more likely you should use Competitive Offer/Concession Strategies. Let’s say you’re buying used office furniture for your home office. One dollar more for the furniture store is one dollar less for you. Be aggressive with your offers and concessions.
By contrast, let’s say you’re interviewing for a job and you covet the management responsibility and perks traditionally given to the vice president of sales. Plus, your salary would be largely commission-based and tied to your sales team’s success.
Here, the potential exists to “expand the pie,” not just slice it up. So use more Problem-Solving Offer/Concession Strategies.
4. Make sure your offer/concession strategies invoke reciprocal moves.
Don’t get caught Problem-Solving in the offer/concession stage while your counterpart goes Competitive. If you do, you’ll get taken. Thus, make sure your counterpart acts and reacts in a reciprocal way.
To this day, I know I got a good deal on my dad’s Datsun. He sent me a reasonable, problem-solving message with his first offer, and I responded in kind. Of course, I could have lowballed him. But that would have been counterproductive — for both of us.
Published February 7, 2003 The Business Journal