Here's the setup.
Our friend is buying a car at the dealership.
What is wrong with this picture?
Car dealer.
The sticker price for this fantastic vehicle is $38,000.
Friend.
Look, I'm willing to pay 33,000.
I'm not making any profit, and my boss will probably kill me, but
since I think you're a nice person, I will offer you 37,500.
I think I can get my spouse to agree to 34,000.
I'm not supposed to do this, and I won't be able to go on vacation or
send my kids to college, but for you, 37,000.
The most I can spend is 35,000.
I've got a great idea.
Let's just split the difference, $36,000.
Do you see anything wrong with this picture?
On the surface, it looks like it was a fair deal.
Each party is making concessions and eventually they split the difference.
If you look at the situation closely, however, we see a real inequity.
The car dealer was making a series of small concessions
while our friend was making steep concessions.
This hurts our friend and it will hurt us, too.
The key to remember is that we negotiate in long-term
relationships with people who have short-term memories.
By the time the car dealer suggests splitting the difference,
he has forgotten that the customer made much bigger concessions.
As far as how to play the game of negotiation, I have four pieces of advice.
First, it is far better to make a large number of
small concessions than a small number of large concessions.
Second, do not make unilateral concessions.
Never make two or more concessions in a row.
Negotiation needs to be a quid pro quo.
I tell my students to keep track of their offers and counteroffers.
If necessary, remind the other party where you started and where you are now.
Three, be precise.
People habitually use round numbers as first offers and for their concessions.
However, counterparties respond more aggressively to round numbers
than to precise numbers.
I watched this myself in a simulated job negotiation between MBA candidates and
employers.
Candidates who ask for
$100,000 were most often countered with 90,000 from the employer.
Candidates who asked for $98,500 were
countered with 95 or $96,000.
Negotiators who make precise offers are viewed as more
informed than negotiators who make round offers.
Fourth, provide a rationale.
Look, negotiation should not be like an auction with numbers flying back and
forth over the table.
It's a conversation.
You have far more leverage with your offers if you provide a rationale.
Did you know that professional sports agent Scott Boras travels with
an encyclopedic-sized binder detailing the accomplishments of
every one of his clients, including seemingly obscure charts of
a player's potential impact on a team's bottom line?
When Scott Boras was negotiating on behalf of Prince Fielder,
he walked around with a 730-page binder of stats,
personal information, and accomplishments and netted the 27-year-old
a nine-year $214 million contract with the Detroit Tigers.
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