The Intelligent Negotiator (14 page)

When I work with attorneys as a negotiation consultant, they do a wonderful job of explaining their own side’s weaknesses. When I place myself in the shoes of their opponents and articulate the problems they have to confront, the lawyers with whom I am working are shocked. They have completely failed to consider the difficulties affecting their opponents. At this point, they begin to appreciate the bargaining power they possess.

Use Principled Positions When Making Concessions

Position changes must be carefully formulated and strategically disclosed. When properly used, a concession can signal both a cooperative attitude and sufficient firmness to indicate the need for a counteroffer should the negotiator intend to continue the negotiation process. Intelligent Negotiators begin the distributive stage with principled positions that rationally explain the basis for what they want. Plan to make principled concessions you can rationally explain to your counterparts. When you put a new position on the table, explain why you have decided
to make that particular move. You may suggest that you have under- or over-valued a specific item by a certain amount—and then change your current position accordingly. You may alternatively indicate that you have failed to adequately consider a relevant piece of information—and then modify your present offer in an appropriate way. This technique gives you a reason to stop at your counterparts’ new position rather than at a higher or lower level, and it induces them to question whether their own positions are still valid or need to be reevaluated in light of the new disclosures that have just been made.

When a concession is made in an unplanned manner, it signals anxiety and a loss of control. This is especially true when a position change is made in a tentative and unprincipled fashion by a person who continues to talk nervously and defensively after making the concession. Such behavior suggests a lack of confidence and lets the other side know that the person who has just changed positions does not expect immediate reciprocity. When you encounter such concession-makers, subtly encourage them to keep talking, because this approach will usually generate further unanswered concessions. If you can induce counterparts to bid against themselves through consecutive position changes, you should be able to seize control of the interaction and obtain beneficial results for yourself.

As soon as the concession is announced, you should become quiet and look to your counterpart for an appropriate response. If none is immediately forthcoming, patiently wait for the receiving party to continue the interchange. This lets him or her know that you do not plan further action until your initial movement has been reciprocated.

Carefully Time Your Concessions

The timing of concessions is critical. If you move too quickly, you seem over-eager, and opponents will consider this a sign of weakness. If you make consecutive concessions—or overly generous concessions—you similarly exude weakness. You must remain patient and not move too quickly. You should be certain your opponents reciprocate your position changes to avoid bidding against yourself. On the other hand, persons who are hesitant to make concessions when position changes are expected are likely to anger their counterparts and cause them to think that further talks would not be productive. Such inaction might thus disrupt the entire bargaining interaction.

Plan the Size of Your Concessions

Plan the size of each concession. As you progress in talks, each successive concession should be smaller than the previous one. This will indicate that you are getting closer to your bottom line. When a negotiator makes a concession that is more substantial than his or her prior position changes, this suggests a lack of control that skilled counterparts will try to exploit. Each concession will usually be made in response to an appropriate counteroffer from the other side, but not in an anxious or hurried manner. So take the time to carefully consider your counterpart’s concessions, using objective criteria, before announcing another position change of your own.

Let’s consider a discussion between a car buyer who hopes to purchase a particular new car for about $23,500. The vehicle has a MSRP (manufacturer’s suggested retail price) of $27,000, but it is late in the model
year. The prospective purchaser knows that the dealer cost for the car was initially about $24,000, but has learned that the manufacturer has provided dealers with at least a $1,000 rebate. The dealer “holdback” (the amount the dealer will be able to retain if the vehicle is sold within a limited time, often 90 days) is 3 percent (.03 of $24,000 is $720). If the dealer meets this month’s sales incentives, he or she will get an additional $500 from the manufacturer. The dealer-buyer discussion might go something like this:

D
EALER:
You have selected a great automobile; one of our most popular models.

It has a great reputation for quality and safety, and is one of the best-selling cars in the country. The MSRP is $27,000. In addition, a $400 transportation cost, a $150 dealer prep, and a $250 processing fee result in a total of $27,800.

B
UYER:
I’ve gotten some information from the Edmunds car-buying service. (See
chapter 10
pertaining to car buying.) Your cost for this car was initially $24,000. I know that the manufacturer has provided you with a $1,000 to $1,500 dealer rebate and that you have a 3 percent holdback. If you sell the car now, you should get a manufacturer incentive payment of several hundred dollars. I am willing to include the $400 transportation cost, but am unwilling to pay the $150 dealer prep and the $250 processing fee since they are simply profit enhancers for the dealer. I am willing to give you the incentive as profit and begin the discussions with an offer of $22,180. That includes $24,000 initial cost + $400 transportation cost - $1,500 estimated manufacturer rebate - $720 (3 percent holdback).

D
EALER:
I can appreciate what a sophisticated car buyer you are. It is always a pleasure to deal with a knowledgeable person, but I must note that your estimate of the manufacturer’s rebate is high. It is well below the $1,500 figure you cited.

Furthermore, since it is late in the model year and these cars have been on our lot for several months, we are no longer eligible for the holdback you mentioned.

Nonetheless, I would be in a position to reduce the $27,800 figure by a $2,000 dealer sales incentive and by our $1,000 manufacturer rebate. While I can waive the $150 dealer prep, I must include the $400 transportation cost and the $250 processing fee. This leaves you with a great price of $24,650.

B
UYER:
I am willing to correct my offer in light of the $1,000 manufacturer rebate, resulting in a figure of $22,680.

D
EALER:
Based on our end-of-the-month sales incentives, I could come down by another $500 to $24,150. You should appreciate the fact that the specific car you have been considering comes with floor and trunk mats that list for $250 and with mudguards that list for $135.

B
UYER:
Your actual cost for the mats is only $150 and for the mudguards is $100. I would thus be willing to increase my offer by $250 to $22,930.

D
EALER:
We have a great deal on our top-of-the-line CD/cassette player. They list for $550, but I could include it in the deal for the $24,150 price.

B
UYER:
While I would be satisfied with the factory-installed radio, I would not mind the CD/cassette capabilities.
I know that your cost for this player is $400. I am thus willing to give you $23,330.

D
EALER:
I think I could get the sales manager to come down several hundred dollars if we could finalize the deal today. I believe I could get him down to $23,650, but I don’t think he would go below that figure.

B
UYER:
That seems to be a fair price. If you include the CD/cassette player, I would be willing to accept that price.

It is important to note the principled explanations given by the buyer and the dealer for their initial offers and for each successive position change. When each new offer was made, it was accompanied by a rational explanation. The concessions got smaller until the parties reached their agreement. When the parties began to approach an impasse, the dealer avoided a possible deadlock by offering to include the CD/cassette player. The inclusion of this player expanded the pie and allowed the buyer to come up to the dealer’s preferred price in a face-saving manner. Furthermore, the dealer cost for the CD/cassette player may have been the $400 figure cited by the buyer, and the dealer could presumably have used the replaced factory-installed radio in another vehicle, thus saving a couple of hundred extra dollars. Through their bargaining exchange, the buyer was able to get the car for a beneficial price, and the dealer was able to make a few hundred dollars on the sale of an end-of-the-year model. This would be a win-win transaction for both participants.

The use of principled concessions allows negotiators to counteract a tendency of their counterparts to devalue the amount of movement involved. They assume that if
their adversaries are willing to concede the terms in question, those items must not be of significance to those participants. By indicating why particular concessions are made, those making the offer explain the true value of those changes. This reduces the likelihood the concession recipients will misinterpret the moves and undervalue those position changes.

The aforementioned buyer-dealer negotiation shows how useful it is to plan your anticipated concession patterns in advance. If you initially determine the areas in which you are willing to make concessions, and have your explanations already developed, it will be easier for you to make persuasive position changes. But you cannot plan everything. Since counterparts do not always react as expected, you must be willing to alter your behavior as you learn more about their strengths, weaknesses, and preferences. You must be ready to modify your aspiration level, when appropriate, and also be prepared to alter your concession strategy accordingly.

Be patient during the Distributive Stage. Bargaining interactions take time to complete. When concessions are small and a number of issues must be resolved, allow the process to unfold slowly. Your patience increases the likelihood of agreement and may generate more beneficial results for you. If you attempt to rush the process, the objectivity and the rational criteria you have expressed will lose out to emotional position changes.

Always Remember Your Own and Your Counterpart’s Non-Settlement Alternatives

When you enter the Distributive Stage, you must be prepared to make a final offer to your counterparts that
would be likely to produce a final agreement. That entails appreciating the non-settlement options available to them and contemplating a final offer that should appeal to reasonably risk-averse opponents. If your final offer is not as appealing as the alternatives available to them, they will reject your offer with confidence. On the other hand, if your final offer is even just slightly better than the other side’s external options, they would probably accept it over the uncertainty associated with non-agreement.

Throughout the Distributive Stage, be sure to remember your
own
non-settlement options. You should recognize that it would be irrational to accept proposed terms that are worse than your external alternatives. Keep in mind that as the Distributive Stage evolves and you approach your bottom line, you may feel greater pressure to reach agreement. It is important to realize that when your opponents offer terms that are not much better than what would happen if you reached no agreement, you actually have more—not less—bargaining power. Since there is minimal difference between what you are being offered and what you would have if no deal were achieved, you have little to lose by holding out for better terms.

Don’t be afraid to reject marginal offers. Always remember that as you are approaching your bottom line, your counterparts are most likely doing well. Rarely is the settlement range so narrow that both sides must move toward their respective bottom lines in order to reach an agreement. Therefore, in this situation it is likely that your opponents have more to lose from non-settlement than you would. This means that you actually possess greater bargaining power and can afford to demand further opponent concessions as a prerequisite to any agreement.

D
EALING WITH
I
MPASSES AND
B
ARGAINING
C
ONFLICTS

As the Distributive Stage develops, you and your negotiating counterpart may reach temporary impasses. If your non-settlement options are better than what is on the table at that moment, do not hesitate to disclose—at least minimally—the alternatives you have. The more your counterparts appreciate the external options available to you, the more they are likely to move in your direction. Don’t convey this information about non-settlement alternatives in a confrontational manner, but rather in a calm and non-confrontational way that is most likely to influence opponent behavior.

A cooperative or an innovative approach is more likely to generate beneficial results than an adversarial strategy. The former styles allow participants to explore the opportunities for mutual gain in a detached win-win manner, while the latter win-lose approach is likely to generate mistrust and create difficulties.

When you are facing stereotypical adversarial opponents who seek win-lose results, try to avoid the seemingly natural quid pro quo response. If both parties behave in an adversarial fashion, the process will break down. Explore the relevant circumstances patiently and calmly. Do not focus on the areas of conflict; instead, explore the areas of overlap. As you succeed in finding areas of mutual gain, both sides will become psychologically committed to settlement.