Longtime Wall Street lawyer James Freund, counsel in many of the 1980s corporate takeover battles, wrote in his book Smart Negotiating that he almost always wanted to make the first offer on price issues as it sets the “ballpark where the action will occur.”
He’s right – one advantage to first offers, like first impressions, includes a disproportionately large impact on the receiving party.
But Freund’s insight into the impact of setting expectations goes beyond a determination of whether to make the first offer (discussed at length in my column “Consider These Factors Before Making the First Offer,” The Business Journal of Phoenix, September 1, 2006).
In fact, parties’ expectations – and their perception of them – permeate almost every element of the negotiation process.
So how can you more effectively understand and manage parties’ perceptions and expectations?
1. Understand perceptions’ impact on the process.
Our perceptions and expectations create a level of reality in negotiations that often has a greater impact than the true factual situation.
How can this be? Here are some examples.
One, experts know that projecting a passionate positive attitude toward many endeavors increases your likelihood of success – regardless of how you might objectively feel. This is one reason many individuals, including top level athletes, “psyche themselves up” before significant events.
Two, if I can get you to believe I’m not desperate for a deal – even though I‘m really desperate – it often will strengthen my leverage. It does this as your counterpart’s perception of your need level, not the unknown reality, drives their behavior.
Finally, if I can get you to perceive an issue as important to me – even though I don’t care about it – I may be able to extract a greater concession from you in return when I finally concede on it.
Overall, then, become more sensitive to the perceptions and expectations in your negotiations.
2. Research parties’ historical perceptions and expectations
We are creatures of habit and tend to repeat what we do and how we approach many contexts, including in negotiations. As a result, in preparing for significant negotiations you should:
• Research what you and your counterparts have historically perceived and expected in terms of each major strategic element (including goals, issues, reputation/styles, aggressiveness of leverage, use of standards, type of offers and concessions, and efforts to control the agenda);
• Research what your counterparts have actually done in terms of these strategies (you can often find this by contacting those who have been across the table from your counterparts in the past); and
• Pay close attention to your counterparts’ perceptions and expectations early in your negotiation and how they act and react to your moves.
For example, consider the power of finding out that real estate agents in ABC City – and the agent for the house you want to buy – have traditionally recommended that their sellers list houses at about 15% over what a comprehensive objective market value might suggest.
This way, if necessary, the seller can concede that amount and give potential buyers the perception that they got a really good deal.
Is it important to find this out before you make an offer? Absolutely.
3. Take conscious steps to manage them to your benefit
The beauty of perceptions and expectations is that you can change them. How? By using strategies and tactics involving timing, deadlines, specific offer-concession language, and others.
For example, you might include a very short deadline on your house offer and let the seller know you are still looking for a house even after making the offer. This will create the perception that you want the house but aren’t desperate.
4. Don’t cross the ethical line
Some might suggest it’s unethical to promote a misperception that a party knows is false, even if that party did not misrepresent any fact. I would respectfully disagree as this relates to most negotiation contexts.
The practical reality is that most significant negotiations involve a certain acceptable element of misdirection which all the parties understand, accept and practice.
If I’m negotiating to buy an allegedly rare artifact in an open marketplace in Mexico, I’m not going to wear a suit, an expensive watch and volunteer that I’m a U.S. lawyer. Am I a U.S. lawyer? Yes. But I’m not going to volunteer it.
Instead, I will try to create a different level of reality for that shopkeeper in the world of perception and expectations. And he’ll try to do the same for me. That’s the playing field for most negotiations.
Published August 15, 2008 The Business Journal