People often act on impulse. At times you may be distracted by shiny baubles that are appealing but are not among your negotiating priorities. How many people have ever bought a cosmetic product just to get the “free gift” that comes with it? Or a candy bar they didn’t know they wanted until they saw it while waiting in the checkout lane? Keep your impulses in check and focus on what you’re negotiating for.
It is never too late to walk away. Focus on your interests, remember your Plan B, and remain cordial. You may be able to resume negotiations later.
A win-win negotiator recognizes his own emotions and biases, and he takes steps to compensate for them. He also pays attention to the emotions and biases of his negotiating partner. Some of these can be used tactically, as when the Volkswagen salesman used an emotional outburst in an attempt to get me to cave in. There are many other tactics beyond emotional outbursts. As we will see in the next chapter, the win-win negotiator understands a wide range of negotiating tactics and is able to respond with the appropriate counter-tactic.
* Multiple Equivalent Simultaneous Offers, discussed in Chapter 3.
CHAPTER 7
NEGOTIATING TACTICS AND COUNTER-TACTICS
“When the only tool you have is a hammer, every problem begins to resemble a nail.”
—Abraham Maslow
Negotiation is a game, and as in most games, there are many different tactics and counter-tactics. Tactics—the plays, the parries and thrusts—are a part of nearly every negotiation. For every tactic (offensive maneuver) there is a counter-tactic, or defense. If you want to be a great negotiator, you will need to be familiar with a wide range of tactics, and you must also know how to defend against them with an appropriate counter-tactic. You need to be able to juggle them around and choose the best ones for any given situation.
WHY DO WE NEED TACTICS?
We have discussed a number of reasons why win-win negotiation, or “principled negotiation,” is the way of the future. Business today values long-term relationships rather than one-off, win-lose contests. There is a need for collaboration, even among competitors. We see more joint ventures, co-branding arrangements, and strategic partnerships. The law of the jungle is no longer the norm.
Some of the hallmarks of win-win negotiating are joint problem solving, effective communication, trust, fairness, and maintaining healthy and mutually rewarding long-term relationships. The relationship issue is key here because we are, in essence, negotiating with partners rather than adversaries.
With all of these high-minded ideals, you may be wondering, “Why bother with tactics? Aren’t tactics just a bunch of dirty tricks?” Sometimes they are, sometimes they’re not, and sometimes it depends.
Have you ever noticed that, in a bargaining situation, sellers tend to ask for a higher price than they are willing to accept? And that a buyer’s first offer is usually less than he is willing to pay? It’s a classic example of the old dictum “Buy low and sell high.” This highball and lowball opening gambit is one of the most frequently used negotiating tactics.
As this simple tactic is so common, we almost expect to encounter it whenever we bargain. In fact, we would find it hard to believe that an opening bid could be anyone’s true bottom line. Consequently, when we hear the opening price stated, we naturally begin to bargain. No doubt our counterpart would respond in the same way.
Remember, negotiation is a game. Some tactics are expected, even between such intimate negotiating partners as husbands and wives. We are expected to use certain tactics as part of the game.
There is another reason why you need tactics and counter-tactics. You are learning how to become a win-win negotiator. However, your counterpart may be an old-school, adversarial negotiator. She may use tactics against you, so it’s important that you are able to recognize and counter them.
Finally, there may be times when you want to use tactics. In a one-off, distributive negotiation (such as buying a used car), you may not be concerned about how the other party fares. You may choose to use tactics to get the best deal for yourself.
Negotiation tactics are not always black and white, fair or unfair, ethical or unethical. There is a lot of gray. You need to be prepared for whatever may come your way.
INITIAL OFFERS AND COUNTER-OFFERS
As we’ve just seen, most negotiations involve a dance around high and low opening offers and counter-offers. If you want to dance, you need to learn the steps.
No one expects a first offer to be the best offer. This is one reason why you should never accept an opening offer. You know your counterpart is highballing or lowballing. You know you can negotiate for a better offer, and it would be foolish not to.
But there is another reason you should not accept a first offer: it would make the other person feel like he has been taken advantage of. If you’re wondering why, imagine you are at a neighbor’s yard sale and see a wonderful antique cabinet. You ask the owner how much, and he replies $200. Immediately, you say “I’ll take it!” and whip out your wallet. The seller would have been willing to accept less after a little give and take bargaining. When you quickly agreed to his first highball offer, he was surprised. Now, he feels that you must know something that he doesn’t and you’ve gotten a fantastic deal, and he is a sucker. Even though you accepted his price, he feels like he is on the losing end of a win-lose transaction. He expected to play the game, his expectations were not met, and he is dissatisfied. Your neighbor would probably resent you, and the bad feeling could impact any future relationship.
On the other hand, suppose you had counter-offered $150, and after a bit of bargaining, ultimately agreed on $175. You would have gotten a better deal, and the seller would feel that he got a fair price. His expectations of haggling and meeting in the middle would have been satisfied, and he would be happy. Never accept the first offer. Even if you are delighted with the first offer, make an effort to haggle. Your counterpart will feel better.
WHO GOES FIRST?
The opening offer and counter-offer dynamic is simple to understand. More complicated is the question of who should make the opening offer.
Some people feel it is better to open the negotiation themselves. Others advocate never making the first move. Which is correct? It depends! There is evidence in support of both positions. Let’s consider each approach.
Approach #1: Let the other party make the initial offer whenever possible
You might be pleasantly surprised. Your counterpart’s initial offer might be more favorable than you expected. It might be better than anything you would have dared to ask for. If so, good for you, but remember, don’t accept a first offer immediately. Haggle a bit so your counterpart feels like a winner. People are more satisfied when they work for it.
You learn something. Regardless of whether the first offer is high or low, it tells you something about your counterpart’s mindset, aspirations, confidence, and perhaps his sense of reality. It gives you a bit more information about him before you begin bargaining.
If his initial offer is not favorable, you can start bargaining. If you do not like his first offer (or even if you do), you can always make a counter-offer and begin bargaining. You have nothing to lose by listening, as long as you heed the next paragraph.
If the initial offer is way out of line, dismiss it firmly but politely. Do not respond to an unrealistic offer. Flinch (see page 193) and explain that you really cannot respond to such an offer, then wait for something more reasonable. Once you make a counter-offer, you have in effect legitimized his initial offer, which becomes an anchor point for the entire negotiation. That first offer, combined with your counter-offer, establishes a negotiating range. Chances are that any agreement will be somewhere near the middle of that range, and how favorable that middle figure turns out to be will depend on the first figure from your counterpart that you respond to.
As you can see, there is ample support for letting the other party make the initial offer. Let’s consider the alternative.
Approach #2: Make the initial offer yourself
The initial offer is a powerful anchor. It establishes one end of the negotiating range, and thus affects the settlement price. It is to your advantage to set the initial anchor point yourself, rather than allow your counterpart to do so.
Your initial offer should be at the high end of your aspiration range, and within or close to your counterpart’s acceptable range. As you will probably have to make concessions anyway, it’s best to start from a high figure and make your counterpart work for any concessions. Don’t give anything away before you begin bargaining.
However, you don’t want to start out too high. Try to set a high anchor, but a realistic one. If you set it too high, you could lose credibility, and your counterpart will resent you. Make sure your initial offer is attractive to you and something your counterpart could conceivably accept.
Use an odd number. Exact figures look as if they were calculated according to a precise mathematical formula and have an aura of permanence about them. It is harder to dispute an odd number than a nice round figure that looks as if it were made up without any thought.
Imagine a salesman saying “$10,000 is my absolute bottom line.” Would you believe him? Probably not. You’d wonder why not $9,999.95 or $9,990? If he had said “I can’t go a cent below $9,987.64”, you might think he had sharpened his pencil as much as possible, and you would probably accept the figure without question.
Support your offer with reasons, but invite and be open to their counter-proposal. Once you have presented your initial offer—an odd figure from the high end of your aspiration range— in writing, explain why that figure (which probably seems high to your counterpart) is fair. Ask him what he thinks, and listen attentively. Wait for his counter-offer and carry on from there. Just remember that if his initial counter-offer is unrealistic, do not allow it to take hold as an anchor point.
There are certain situations where it is especially advantageous for you to make the first offer. If it is a complicated negotiation with many elements other than price, your proposal becomes the benchmark. Your counterpart may use your proposal as the basis for future discussion, or as a reference for comparison with his own ideas. Your offer sets the tone for the negotiations that follow.
If you are the seller and think you know more about the subject of the negotiation, make the first offer and set an aggressive anchor. However, if it’s a unique item (a fine painting or antique rather than a five-year-old Toyonda), you may not want to name a price in the hope that a very interested buyer will make a high offer. The range of likely bids for a unique item is wide, and a determined buyer might just make an offer beyond your wildest expectations. We often hear of paintings by top tier artists being sold at auctions at prices way beyond the experts’ estimates. However, a five-year-old Toyonda is just a commodity and a buyer is not likely to pay a premium for it.
If you are the buyer and think you know more about the item’s value, let the seller name a price. Hope for a pleasant surprise but be prepared for anything, and always have a Plan B.
If you are the buyer (or seller for that matter) and don’t have a good idea of the item’s value, you are not ready to negotiate! Do your homework first.
ANCHORS
The first offer in a negotiation and the ensuing counter-offer serve as anchor points. These anchor points establish the settlement range, as the price you ultimately agree to will be somewhere in between those points. These anchors are references that we use to make comparisons that guide our decisions about whether to accept an offer or what counter-offer to make.
Other references also serve as anchors. The list price of an item at retail is perhaps the best known example of an anchor. Have you ever been impressed with an item’s “sale” price as compared with its regular price? Taken on its own, a sale price may not be attractive by any objective standard, but when compared with a higher figure it looks more appealing.
A list price, a bid price, the price of a similar item, or a previous price for a similar or identical item can also be seen as anchors. In non-price negotiations, a previous instance or precedent can serve as a standard of comparison. An anchor draws us to a figure—often arbitrary—and makes the eventual settlement price appear more attractive by comparison.
We use references and comparisons as short cuts. Short cuts are intended to save time and make our life easier, but they can be dangerous. By relying on an anchor point, we suspend our objectivity. We rely on anchor points all the time, even if they have no basis in reality. A number thrown out at random, completely unrelated to the subject of the negotiation, can affect the settlement price in the negotiation. And while you may make some correction when evaluating anchors (“I know he’s trying to highball me, let me compensate by making a lowball counter-offer …”), it is not usually enough to overcome the anchoring effect.
The important thing is to understand how anchor points work, and be vigilant against their effects. This example may help.
Imagine you are on holiday on some exotic tropical island. A local approaches you in the market with a string of beads made by the natives. “Good morning, sir. Would you like to buy this beautiful necklace? The usual price is $30, but for you, only $15.” You might think you’re getting a huge discount and take it. Or you might remember that you should never accept a first offer, and make a counter-offer of $10. In that case, you may end up buying the necklace for about $12 or $13. Or you might counter-offer $5, in which case you would probably end up paying about $10 if you decide to buy it. If the initial pitch had been “Usual price is $30, but for you, only $20,” you would have paid more, depending on your counter-offer. The price you ultimately agree on is a function of the range set by the anchor points.
Based on the four scenarios above, we see that the buyer is better off when the range is lower, that is, when the seller’s first offer is lower, or when his own counter-offer is lower, or both. The buyer should not respond to a high first offer from the seller; instead, he should try to get the seller to make a lower offer before making his counter-offer, thus avoiding the high anchor. The buyer should also make a lower counter-offer than he would otherwise be comfortable making, which would also tend to result in a lower settlement price. This is all intuitive, but easier said than done. Many buyers are easily led by a high anchor, and are reluctant to make a lowball counter-offer. They might be worried that their counterpart will perceive them as stingy, or they might be uncomfortable bargaining hard. However, if you can push yourself beyond your comfort zone, you will capture more value in all of your future negotiations.
Similarly, the seller is better off when she makes a higher first offer, rejects a lowball counter-offer, or both, as this will raise the settlement range. Many sellers are uncomfortable doing this. They may be afraid that the buyer will think they are greedy or unreasonable. Or they may not believe that their product or service is worth much, and so they ask for less. But if the seller can get comfortable with a more aggressive first offer, she will make more money in her subsequent negotiations.
Our discussion of initial offers, counter-offers, and anchor points yields a few rules:
• As part of your preparation, know where the range of reasonable lies and what is extreme.
• Always ask for more than you expect to get.
• Always offer less than you think the other party will accept.
• Never accept the first offer.
• Be aware of the anchoring effect and how anchors determine the negotiating range and influence the settlement price.
• Don’t let your counterpart set an unrealistic anchor. If his offer is too extreme, don’t make a counter-offer.
• If your counterpart feels your offer is too ambitious, don’t concede—justify your offer.
• Be more ambitious when making your first offer or counteroffer. Go as far as you can without crossing the line between reasonable and extreme.
CONCESSIONS
Almost every negotiation requi
res concessions before you can reach an agreement. Like so much of negotiating, making and receiving concessions is natural and intuitive. The danger comes when we think we already know it all and miss out on the nuances that can make a difference in many of our negotiations.
A concession is when you moderate your position to move closer to your counterpart. For example, raising the amount of your offer, lowering your asking price, forgoing a demand, or offering other value to your counterpart are all forms of concession. The way you pattern your concessions will send important signals to your counterpart and influence his responses. It is important that you make concessions the right way to avoid being eaten alive.
My daughter Cherisse grew up in Asia, where the Chinese New Year is a major holiday. Part of the celebration involves visiting relatives, who always have a wide array of snacks on hand. One popular treat is chocolate “coins” wrapped in gold foil, which comes in two sizes. During one such visit when Cherisse was about two years old, she spied the coins (and somehow knew there was chocolate inside) and said, “Daddy, I want two big coins.”
I replied, “You cannot have two big coins.”
“One big and one small.”
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