In extended negotiations over price, be careful that you don't set up a pattern in the way that you make concessions. Let's say that you're selling a used car and you've gone into the negotiation with a price of $15,000, but you would go as low as $14,000. So, you have a negotiating range of $1,000.
The way in which you give away that $1,000 is very critical. There are several mistakes that you should avoid:
This means giving away your $1,000 negotiating range in four increments of $250. Imagine what the other person's thinking if you do that. She doesn't know how far she can push you, all she knows is that every time she pushes she gets another $250. So, she's going to keep on pushing. In fact, it's a mistake to make any two concessions of equal size. If you were buying the car, the owner made a $250 concession, and when pushed made another $250 concession, wouldn't you bet that the next concession would be $250 also?
Making the Final Concession a Big One
Let's say that you made a $600 concession followed by a $400 concession. Then you tell the other person, “That's absolutely our bottom line. I can't give you a penny more.” The problem is that $400 is too big a concession to be your final concession. The other person is probably thinking that you made a $600 concession, followed by a $400 concession, so he's sure that he can get at least another $100 out of you. He says, “We're getting close. If you can come down another $100, we can talk.” You refuse, telling him that you can't even come down another $10, because you've given him your bottom line already. By now the other person is really upset, because he's thinking, “You just made a $400 concession and now you won't give me another lousy $10. Why are you being so difficult?” So, avoid making the last concession a big one, because it creates hostility.
Never Give It all Away Up Front
Another variation of the pattern is to give the entire $1,000 negotiating range away in one concession. When I set this up as a workshop at my seminars, it's amazing to me how many participants will turn to the person with whom they're to negotiate and say, “Well, I'll tell you what he told me.” Such naivet is a disastrous way to negotiate. I call it “Unilateral Disarmament.”
So you're thinking, “How on Earth would a person be able to get me to do a stupid thing like that?” It's easy. Someone who looked at your car yesterday calls you up and says, “We've located three cars that we like equally well, so now we're just down to price. We thought the fairest thing to do would be to let all three of you give us your very lowest price, so that we can decide.” Unless you're a skilled negotiator, you'll panic and cut your price to the bone, although they haven't given you any assurance that there won't be another round of bidding later.
Another way that the other side can get you to give away your entire negotiating range up front is with the “we don't like to negotiate” ploy. Let say you're a salesperson trying to get a new account with a company. With a look of pained sincerity on his face, their buyer says, “Let me tell you about the way we do business here. Back in 1926, when he first started the company, our founder said, ‘Let's treat our vendors well. Let's not negotiate prices with them. Have them quote their lowest price, and then tell them whether we'll accept it or not.' So that's the way we've always done it. So just give me your lowest price and I'll give you a yes or a no. Because we don't like to negotiate here.” The buyer is lying to you. He loves to negotiate. That is negotiating-seeing if you can get the other side to make all of their concessions to you before the negotiating even starts.
Giving a small concession to test the waters. Giving a small concession first to see what happens tempts us all. You initially tell the other person, “Well, I might be able to squeeze another $100 off the price, but that's about our limit.” If they reject that, you might think, “This isn't going to be as easy as I thought.” So you offer another $200. That still doesn't get them to buy the car so in the next round you give away another $300 and then you have $400 left in your negotiating range, so you give them the whole thing.
You see what you've done there? You started with a small concession and you built up to a larger concession. You'll never reach agreement doing that, because every time they ask you for a concession, it just gets better and better for them.
So all of these are wrong because they create a pattern of expectations in the other person's mind. The best way to make concessions is first to offer a reasonable concession that might just cinch the deal. Maybe a $400 concession wouldn't be out of line. Then be sure that if you have to make any future concessions, they're smaller and smaller. Your next concession might be $300, then $200, and then $100. By reducing the size of the concessions that you're making you convince the other person that he has pushed you about as far as you will go.
If you want to test how effective this can be, try it on your children. Wait until the next time they come to you for money for a school outing. They ask you for $100. You say, “No way. Do you realize that when I was your age my weekly allowance was 50 cents. Out of that, I had to buy my own shoes and walk ten miles to school in the snow, uphill both ways. So I would take my shoes off and walk barefoot to save money (and other stories that parents the world over tell their children.). No way am I going to give you $100. I'll give you $50 and that's it.”
“I can't do it on $50,” your children protest in horror.
Now you have established the negotiating range. They are asking for $100. You're offering $50. The negotiations progress at a frenzied pace and you move up to $60. Then $65 and finally $67.50..” By the time you've reached $67.50, you don't have to tell them that they're not going to do any better. By tapering your concessions, you have subliminally communicated that they're not going to do any better.
Key points to remember:
The way that you make concessions can create a pattern of expectations in the other person's mind.
Don't make equal size concessions because the other side will keep on pushing.
Don't make your last concession a big one because it creates hostility.
Never concede your entire negotiating range just because the other person calls for your “last and final” proposal or claims that he or she “doesn't like to negotiate.”
Taper the concessions to communicate that the other side is getting the best possible deal.