Post No.: 0825
During negotiations, people often descend into a pattern of ‘I’ll take this option off the table if you take that option off the table’ and so forth until they meet at the middle option.
But this approach has no reliable logic to it because one option may not have an exact symmetrical mirror counter-option to take off from the other side. For example, ‘I’ll take off having to give you the hi-fi if you take off having to give me the television’. Many things that sound fair aren’t. Whilst it’s important to reciprocate in sharing information and making concessions, there’s nothing logically fair about taking turns to take options off the table until you meet in the middle. There may be dominated options that were never wanted by the other party anyway, or the majority of options may favour one side from the start hence the middle will end up in a skewed position.
The middle – a compromise – isn’t always the best result for both parties even if the concessions are symmetrical. For instance, if one side likes only jujubes and the other side likes only rambutans, then splitting the share of jujubes and rambutans equally makes no sense – one side could take all of the jujubes and the other side could take all of the rambutans thus no side needs to compromise at all. Going to extremes rather than trying to meet in the middle, in this case, can effectively increase the size of the pie. (Also in politics, standing in the middle of the road usually means getting knocked by traffic coming from both sides – you usually cannot please everyone!)
So don’t try to convince the other side that they ought to like something you like because they might be convinced, hence they’ll end up taking a share of what you would’ve liked taking all of! For example, if the other party thinks that the antiques are worth more than you think they’re worth – don’t try to convince them that they’re not worth that much. Instead, (subtly) try to make them believe they’re worth even more than they think. This way, they’ll be even happier to take (more of) something that you’re not that fussed about taking yourself so that you should be able to take (more of) something that you’ll prefer to take in return. This also gives the impression that you’re conceding a lot to them, which deserves a proportionally generous concession from them in reciprocation.
This also shows us that withholding your preferences from the other party as a form of information asymmetry may sometimes backfire because you might end up getting something that you don’t like. Woof!
Now if you’re not that fussed about the jujubes or rambutans but the other party absolutely hates rambutans, then you could first try evenly splitting all of the jujubes and rambutans between yous, and then subsequently trade a portion of your share of the jujubes for all of their share of the rambutans! Something you must watch out for though is if you state that you have no preferences then the other party could easily argue that you both might as well go with their preference!
It is also oversimplistic to strictly always first go low as a buyer, or high as a seller, and reject the first offer. If you’re making the first offer then indeed set a low anchor value as a buyer, or a high anchor value as a seller, but be careful – by going too low as a buyer, or too high as a seller, potential vendors or potential customers, respectively, may decide to not waste any more time on you and you’ll miss out on a deal altogether. And if you subsequently drastically change your offer then you may lose credibility for implying that you couldn’t move much from your initial offer but then you just did! Also, in auctions, if you actually start with a low starting price as a seller, it could attract more bidders and the item may ultimately end up with a much higher selling price. Of course, your first offer should never be equal to or worse than your BATNA or ‘best alternative to a negotiated agreement’ – otherwise if the other party accepts this offer then it’ll be quite difficult to later ask for something more!
Just like if you know nothing more about a person you’ve just met then you’ll likely judge them by the way they look – if you know nothing more reliable about the right market price for a product then you’ll likely be swayed by an arbitrary anchor value. If you are on the receiving end of an anchor value set by the other party – you should try your best to consciously ignore it and state your own counter-anchor (without being counter-aggressive about it, even if they were aggressive with their fuzzy lowball offer to you).
So do aim high because if you don’t ask then you won’t have a chance to get; but if you aim too high and give an opening offer that’s too extreme then you could lose credibility. The key is that any demand you make must be justifiable. You must always use principled arguments. If you cannot convince yourself with sensible reason why your demand is justified then why should anyone else?! If you’re the seller and you start dropping your asking price by massive chunks at a time because you started way too high, the other party is going to wonder when it’s going to stop based on the tapering rule (concessions usually get smaller as the negotiation advances, as if heading towards a limit). If you’re the buyer then your bid will simply be ignored. So if the other party comes up with a lowball offer then ask them to justify it – don’t return with an equally lowball counter-offer because this would just escalate the nonsense. Use humour to deescalate the situation without making them lose face.
A firm hard limit only makes sense if we learn no new information, or if things don’t even subtly change as the negotiation progresses – there shouldn’t really be only one answer that you or they will accept.
Certainly never ever state that you have a hard limit and then later exceed it. You’ll again lose all credibility, or get fired by your boss! If you truly are at your limit then it’s best to provide some support for why if you want to convince the other party that it’s true.
If you and the other party cannot seem to bridge the gap between your offer and theirs then instead of instantly walking away – you could say that you don’t have the authority to go that far but you’ll take their best offer (first negotiate to make sure it is indeed their best offer) to your boss or partner, and if it’s then approved by them then that’s the deal, but if it’s not approved by them then it’s no deal or a counter-offer may be returned to the other party after this internal discussion, and the ball shall be passed back onto their side of the court. This is better than just walking away so fast because you might find that the offer will be approved by your boss or partner, or the other party might consider the counter-offer.
The lower bound is the smallest percentage of the pie you should ever accept, which is worked out by calculating what you can be sure to get in the future if you turn something down today. The upper bound is the largest percentage of the pie you should really expect to get, which is so good that you cannot expect to do better than that in the future hence you should snap up that offer today. In the vast majority of cases though, the agreed offer will fall somewhere in the middle of these two bounds.
It’s fruitless arguing though about what the other party believes the valuation of their product is and disagreeing with them when you’ve reached your hard limit anyway – it becomes moot when you cannot even get near it. Just say good luck to them in getting what they’re looking for from elsewhere, but that you believe you can secure the best deal for them, and asking them to might as well work with you whilst they’re here right now to get the best deal they can with you. Think laterally beyond the bare cash price and think of how you can give them things that don’t cost you money but matter a lot to them; not only directly related to this deal but which adds value to their lives in general (e.g. how can you relieve their relocation worries or increase their excitement in the project?) You/they might receive less plain cash in the end but you/they will have a bigger pie that gets shared in the form of in-kind benefits, and a deal will more likely get done too. You could try convincing the other party that money shouldn’t be the only consideration for them (e.g. that agreeing to a deal would give them more freedom in their life because x is still a life-changing sum) so that they’ll consider a lower offer. You could try convincing them that their BATNA isn’t as good as they think it is and make them believe that rejecting your offer will be the worst decision for them.
If there is a deadlock between two parties on the issue of price then it can be hard to know whether the parties have a ZOPA or ‘zone of possible agreement’, or not, or whether they’re just being stubborn! One technique to see if there’s a possible deal on the table, or if the parties are wasting their time carrying on with the negotiations, is to use ‘settlement escrows’ – each party writes down in secret their absolute limit and hands this to a trusted and independent fluffy third-party (or computer program) who will then tell these parties whether there is a zone of possible agreement or not. The figures aren’t ever disclosed – only whether a deal can be made or not – thus no one will lose their bargaining power.
Woof! All in all, most of us intuitively think that the middle is always the fairest position for everyone – but it’s not always best to meet in the middle. There are possibly better ways to reach a win-win outcome (read Post No.: 0765) that don’t even involve a compromise for anyone. Your offers and counter-offers must always be justifiable too. And think laterally for solutions to reach a deal.