When streamlining costs it is essential to make sure you’re getting the best deal possible; here are Forbes’ six top tips for a successful negotiation
We often approach negotiation by being very guarded and wary of showing our cards. Yet, while we believe this is a smart approach, it has a negative impact on our outcomes and inhibits trust; if we want to be trusted, we must first offer it. Studies have shown that revealing some information, even when it’s unrelated to the negotiation, increases the outcome. You don’t have to put all of your cards on the table at the outset; simply putting something of yourself out there – your hobbies, personal concerns, or hopes – can set a positive tone that’s conducive to gaining agreement.
Rank order your priorities
Typically, when we negotiate, we know what our key issues are, and we sequence them. Research shows that you are able to achieve better outcomes by ranking and leaving all the issues on the table and being transparent about it – that way both parties can compare their rankings and determine what the full set of options really are.
Go in knowing your target price and your walk away terms
Your walk away price (or terms) is your reservation price. Your target price is what you’re hoping for. Often we go into negotiations with one or the other – or let our partner start the bidding. This puts us at a huge disadvantage. It’s critical to do the research ahead of time here. You need your research to be based on firm data as, not only will it provide more confidence and power to you, but it also reduces the chance that you’ll throw something crazy out there. By knowing your own range, it will help you make better decisions in the moment and be clear about your limits.
Make the first offer
This is one piece of advice that clearly defies conventional wisdom. In negotiations, information is often equated with power. We believe it’s best to extract as much as possible from the other person before tipping our own hand. People who make first offers get better terms that are closer to their target price. The reason is the psychological principle of anchoring. Whatever the first number is on the table, both parties begin to work around it. It sets the stage.
Often we are reluctant to go first because we may be way off, and disengage the other party but research has shown that most people make first offers that aren’t aggressive enough. There’s a reason we have the adage, ‘You get what you pay for’. Higher prices make the buyer focus on the positives, while lower ones invite focus on the downsides. The best first offer is one that’s just outside your partner’s reservation price, but not so far that they have ‘sticker shock’.
Don’t counter too low
If you aren’t able to make the first offer, you need to also protect yourself against the anchoring effect; caution: most people go too low, too quickly. Your counter should be based on the same information you would have used if you’d made the first offer. You may also want to consider re-anchoring. Let the other person know that their offer is way off and go back in with a new reset. It also may be helpful to call out what you’re observing to redirect the conversation, i.e. you may be trying to test my thinking with that first offer, but here’s more of what I had in mind.
Counter offers make both parties more satisfied
Every buyer wants to feel that they got a good deal; every seller wants to feel as if they drove a hard bargain. Parties are most satisfied on both fronts if there was some back and forth. This may come as a surprise if you’re someone who abhors negotiation; research has shown that you shouldn’t take the first offer, even if it meets your needs. By going back and asking for concessions you can ensure that you got the best deal and increase your partner’s satisfaction as well. More satisfied parties are more likely to work harder, and be more committed to the end result, which is the ideal outcome from the start.