In his excellent book on hostage negotiation, “Never Split the Difference,” Chris Voss describes a method of negotiation, which he attributes to Mike Ackerman, “an ex-CIA type.” I have been using variations of it effectively for years. It’s simple and applicable in many negotiations, especially those that tend to be zero-sum games. I’ll describe it for you and then give Chris’ explanation of why it works so well.
Six simple steps:
- Set your goal (target price).
- Make an offer that is 65% of your target price.
- Make a concession plan, like this:
Second offer: go up to 85% of target price.
Third offer: go up to 95%.
Fourth and final offer: 100%
- “Use lots of empathy and different ways to say ‘No’ to get the other side to counter before you increase your offer.”
- “When calculating the final amount, use precise, nonround numbers, like, say, $37,893 rather than $38,000.”
- “On your final offer, throw in a nonmonetary item (that they probably don’t want) to show that you are at your limit.”
Chris adds a couple of good examples of how this plays out in actual negotiations. Otherwise, that’s it.
Sometimes I refer to this approach, generally, as “living from the inside out.” In other words, despite all of the good advice from our friends at Harvard, there is little or no room for such fuzzy exercises as exploring the “interests” of the other party. You decide what you want and stick with your concession plan to get you there.
When I have employed this model, I have had negotiations during which I could care less about my counterpart’s response to a proposal. I knew what my next offer was going to be. This allows me to respond quickly, if I want to do so (I may not).
Why is this effective? Let’s listen to Chris’ explanation:
The genius of this system is that it incorporates the psychological tactics we’ve discussed – reciprocity, extreme anchors, loss aversion, and so on – without you needing to think about them.
If you bear with me for a moment, I’ll go over the steps so you see what I mean.
First, the original offer of 65% of your target price will set an extreme anchor, a big slap in the face that might bring your counterpart right to their price limit. The shock of an extreme anchor will induce a flight-or-fight reaction in all but the most experienced negotiators, limiting their cognitive abilities and pushing them into rash action.
Now look at the progressive offer increases to 85, 95, and 100 percent of the target price. You’re going to drop these in sparingly: after the counterpart has made another offer on their end, and after you’ve thrown out a few calibrated questions to see if you can bait them into bidding against themselves.
When you make these offers, they work on various levels. First, they play on the norm of reciprocity; they inspire your counterpart to make a concession, too. Just like people are more likely to send Christmas cards to people who first send cards to them, they are more likely to make bargaining concessions to those who have made compromises in their direction.
Second, the diminishing size of the increases – notice that they decrease by half each time – convinces your counterpart that he’s squeezing you to the point of breaking. By the time they get to the last one, they’ll feel that they’ve that they really have gotten every last drop.
This really juices their self-esteem. Researchers have found that people getting concessions often feel better about the bargaining process than those who are given a single firm, “fair” offer. In fact, they feel better even when they end up paying more – or receiving less – than they otherwise might.
Finally, the power of nonround numbers …
Notice that you can’t buy anything for $2, but you can buy a million things for $1.99. How does a cent change anything? It doesn’t. But it makes a difference every time. We must like $1.99 more than $2.00 even though we know it’s a trick.
I like the Ackerman model.
One question that Chris does not address: how do you determine the “target price”? As I discuss in “Mastering Negotiation,” your initial offer should be the best price you can justify (your “best-case scenario”); if you just pick really big or really small numbers, for no good reason, because of “the norm of reciprocity,” to which Chris alludes, your counterpart will respond in kind, and it will take forever to get within striking distance of an agreement, if you ever do.
Ideally, if you wanted to try and follow this model as a purist, you would make sure that you had 35% of concessions you could make from your best-case scenario. If the margins are too tight, that may be unrealistic, but I always come to a negotiation with a concession plan. And, I like the idea of making increasingly decreasing concessions – effective and it has a nice ring to it.
What are “calibrated questions”? I’ll address that topic in future editions.
Finally, you must consider the leverage when you embark on this method. If you have strong leverage, you will negotiate differently than if your leverage is weak.
For a free consultation about your negotiation strategy, call me at 214-663-0488.