Price Tactics for Win-Lose Negotiations
Skillfuly make first offer when negotiating on price. Learn about anchoring, counter anchoring and offering a package to gain the best value.
There are some terms that need to be understood when you are involved in one-on-one negotiations. These are negotiations that pit two parties against each other, where the only interest is to wrest out the best value for themselves. this typically results in a win-lose or lose-lose outcome. When it comes to issues involving the price of a product or service, and there is little interest in forming a relationship, you need to know how to use the right tactics to gain the most for your side.
Here are five terms that will outline some powerful techniques to gain the best value, in fixed pie distributive negotiations, also known as plain old market style haggling.
Just as the word suggests, you want to set a reference point around which the negotiation will revolve. Making the target first offer can be to your advantage, as this offer might set the height for your negotiation bar. This anchor is the arena where the two parties will wrangle in a tug and pull negotiation scenario. Interestingly enough, many studies have shown that the first offer has a strong psychological pull, almost a magnetic lure. The resulting agreement is often strongly attracted towards the person who proposes the first offer.
How do you determine where to place your first offer or anchor? Obviously, your counterparty will have some notion of the price range where they may accept an offer. If your offer is beneath their minimal reservation price, the deal is unlikely to happen. So, the ideal point is trying to gauge the minimum amount they will accept. Negotiators often feel each other out by using low-ball first negotiation offers as a tactic.
Naturally, this also depends on how much you want, or are willing to pay, also known as your aspiration base. If the price range you want to pay, doesn’t overlap the price range your counterpart is prepared to accept, then you aren’t going to get anywhere. Figuring the minimal amount they will accept, will likely take some guesswork and possibly some research. Remember one thing though; the offer should be based on practical considerations, as you may need to justify your reasons for making a particular offer. Be prepared to back up the reasons for your first offer.
What if the other side make the first offer ?The first thing you need to do is to resist the urge to let yourself get tied to their offer. Anchors only have an effect when one or both of the parties are uncertain about the value of the market price of the product or service. A piece of equipment can be researched to ascertain a fair market value. The more you know about the product being bought or sold, the more you can substantiate the price you are willing to pay. Your decision can be based squarely on the facts.
Either way, don’t let the other side set the anchor bar. Essentially, if you believe their offer is unrealistic, the best thing to do is to ignore it. If they persist,you should ask them to justify their reasons for arriving at their offer. This information may serve as a valuable guide.Then,you could put forth your own counter offer or anchor, and present your reasons. as this will shore up and add strength to your position.
In many situations, the other party may make a concessionary move, such as to lower their price. A large concessionary move, telegraphs the possibility there is some latitude to play with and negotiate further. Likewise, the same will apply if you give too large a concession. The ball goes back and forth, with each side trying to nudge the other into making further concessions. Small concessionary moves suggest that the other party may be moving close to their reservation price.
Before engaging in concessionary moves there are several things to consider.
- What’s your BATNA? – This isan acronym for Best Alternative to a Negotiated Agreement. It means, that if you have a strong alternative, then you may not need to make any concessions whatsoever. If you have good options sitting on the sidelines, why lose value when you don’t have to?
- Be Patient – ‘All good things come to them that wait ‘- Well, mostly they do. Be patient in your negotiations. Any concession that you make, is money out of your pocket and into the pocket of the other person. You don’t have to decide to make a concession right away. Remember this – there are plenty of people out there who will be more than happy to take advantage of you, so why make it easy for them?
The clock is ticking
Another useful tactic to employ is to set a definite time expiration for the offer. This prevents the other side from sitting on the fence, while you wait for either a decision or for them to make another counter offer. The other side could also be using the delay, hoping to get a better offer from someone else.
Make a multiple offer
One effective negotiation tactic that also has some punch to it, is to make several offers simultaneously. A package offer, doesn’t paint your counterpart into a corner like some form of ultimatum, as a single offer does. Secondly, your counterpart now has a chance to compare the different offers in the package, instead of solely reflecting on their own objectives. Another reason to present a package offer is to see whether the other side is inclined, or appears especially interested in one of the offers.
There are several things to consider before you decide how to put together a proposal package.
- Evaluate and think about how much value the offer might actually mean to each side. What would each side lose or gain by this offer?
- Adjust the offer to meet your own needs so that you are comfortable with your decision. Don’t make an offer that makes you feel uncomfortable, there’s probably a good reason behind that feeling.
- If any of the offers being considered appears to diminish the potential return – if you are losing out in other words – try and see if this can be offset by increasing the return in some other manner, such as a side deal for example.
‘Don’t throw good money after bad money.‘ In distributive negotiations, there’s a winner and a loser. It may not be readily apparent, but you have to remember that their gain is your loss. Why not try and strike the best deal or bargain that you possibly can get, right?
- Roger Fisher and William Ury, Bruce Patton, ‘Getting to Yes-2nd Edition’, Penguin Books, (1991).
- Harvard Business Essentials ‘Negotiation’ Harvard Business School Press, (2003).