Not all of our negotiations are sales negotiations, but it sure seems like a lot of them are. When we find ourselves in one of these negotiations it sure would be nice if we were able to draw on the experiences of negotiators who had come before us. We’d like to be able to learn from them – what negotiation styles or negotiating techniques work best in a negotiation like this? It turns out that this information is available to us and we can put it to good use in our next sales negotiation.
It’s All About The First Offer
Most of us know that in a sales negotiation, making the first offer is often a smart move. The reason is because the first offer can anchor the discussion that follows and can have a powerful effect on the final outcome. However, if the other party makes the first offer, you’ll need to be prepared to frame your counteroffer carefully. So what is framing in negotiation? Framing involves crafting your offer to improve its appeal. During a negotiation when you frame your counteroffer with a strong rationale, you may increase your odds of re-anchoring the discussion.
How To Choose the Best Rationale
When we are negotiating there are two common types of rationales (1) constraint rationales and (2) disparagement rationales. A constraint rationale focuses on what may be holding you back from accepting the other side’s offer, such as not being able to afford what they’re asking. By contrast, a disparagement rationale focuses on critiques of what the other party is offering – for example, by suggesting the quality is low.
In study, the effectiveness of these two types of rationales were compared. It found that sellers were significantly more swayed by buyers’ constraint rationales than by their disparagement rationales. Why is this? First, it was noted that sellers may view the criticism in a disparagement rationale as inaccurate and rude, and react by standing firm on price. Second, when a buyer describes their financial constraints, sellers may take them at their word when they say they can’t afford the deal on the table.
Thus, when they are responding to a seller’s offer, a buyer is likely to get a better deal if he accompanies his counteroffer with information about his financial constraints than if he tries to diminish the value of what’s being sold. Similarly, a seller facing a buyer’s first offer may get a better deal if they say they can’t afford to go lower than if they disparage the buyer’s BATNA, or best alternative to a negotiated agreement.
Focus On Losses Instead Of Gains
Negotiators need to understand that people are more motivated to avoid losses than they are to achieve gains. Since losses weigh heavily on our minds, framing the exact same price as a loss likely will have a greater effect than framing it as a gain. It also turns out that that people prefer to gain money in installments but to lose money in one lump sum. For example, most people would prefer to find a $5 bill two days in a row ($10 total) than to find a $10 bill once. Conversely, most people would prefer to lose a $10 bill than to lose a $5 bill two days in a row. Thus, during a business negotiation, when making a price concession, it can be smart to divide it into two or more smaller concessions. But when asking for a concession on price, be sure to make one demand rather than two or more partial demands.
Always Take Steps To Avoid Over Justifying
During a negotiation, even a lame justification for a first offer can be more effective than none at all. In a study that was done, an experimenter who tried to cut in line to use a copier to make five copies was far more successful using the rather weak justification “May I use the Xerox machine, because I have to make some copies?” than when giving no justification at all for cutting in (“May I use the Xerox machine?”). However, we need to realize that people tend to rebel against more significant requests with weak justifications. Additionally, when a justification for an offer is easy to counter, it can inspire a backlash. What this means is that during a negotiation if you have shown off the many attractive features of your product, you can let your first price offer stand on its own.
What All Of This Means For You
A sales negotiation can always be a challenge. During this type of principled negotiation, we want to be able to convince the other side to select our product or take an action. They may have alternatives or they may not be willing to spend their money on what we are offering. As negotiators, our job is to find ways to convince the other side that our offer is the best one for them.
We need to understand that the party that makes the first offer during a sales negotiation will find themselves in a good positon. You may want to use framing to make your offer seem even more attractive. During a negotiation, buyers are more swayed by constraint rationales than by disparagement rationales. When positioning our proposal, we need to keep in mind that people are more motivated to avoid losses than they are to achieve gains. Making even a poor justification for our first offer is better than no justification at all.
The good news about sales negotiations is that we have a large number of tools that we can use. We need to understand what the other side will respond to and then we need to select the approach that we feel will be the most successful. Use the sales negotiating techniques that we’ve discussed in your next sales negotiation and discover just how much more successful you can be.
– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Negotiating Skills™
Question For You: How important do you think it is to make the first offer in a negotiation?
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What We’ll Be Talking About Next Time
When we enter into a negotiation, our goal is to use our negotiation styles and negotiating techniques to get the best deal for ourselves that we can get. However, the other side enters the negotiation with the same goal in mind. Clearly we are working at cross purposes. The only way that both parties can leave the negotiation feeling as though they got the best deal possible is if there is enough value in the negotiation to go around. What this means for you as a negotiator is that you are going to have to find ways to create value in your next negotiation.