In the Sunday, August 12, 2007 edition of the Los Angeles Times, Kathy M. Kristoff discusses mistakes that people often make in negotiating deals. Entitled “Negotiating a Deal? Don’t Make this Error,” Ms. Kristoff points to a study authored by Rick Larrick (Associate Professor of Management at Duke University’s Fuqua School of Business) and George Wu (Professor at the University of Chicago’s Graduate School of Business) that concluded “[p]eople almost always underestimate how far they can get the other side to go.”:
“In a series of experiments both buyers and sellers walked away from negotiations convinced that they’d won when their opponents in fact were willing to give considerably more. . . .” (Id.)
The study found that this result was true, even for experienced negotiators. . . they too, conceded too much, too early.
To counteract this tendency, consider these points: (1) “know your alternatives; (2) establish the product’s value; (3) know your priorities; and (4) don’t get cocky.” (Id.)
With respect to the first, know your alternatives, “. . . negotiators ought to be more aggressive and push harder for the best deal. . . . What stops them is fear of having their opponent walk away. Usually this is a mistake that could be avoided by simply taking stock of your options.” (Id.) Simply stated, knowledge of your options can dictate how aggressive you can be in negotiating a deal.
The second point, establish the product’s value, again, relates to knowing your options. Knowing the market price (or simply determining in advance how much a “deal” is worth to you or its “value” to you) is useful because it will take supply and demand into account. This knowledge helps to set not only your own level of expectations but that of your opponent as well. It will help you determine how far you can “push” without losing the deal and/or when is the “right” time to walk away and pursue your other options.
The third point, know your priorities, again relates to the first two points:
“Negotiations often have many moving parts. Think through what terms might be crucial to you and look at those when offers are relatively similar – or when you think you can’t do better with the bottom line. . . .” (Id.)
Again, knowing what your priorities are as you first enter the negotiations helps you determine on what points to concede or not concede and/or when to give your “bottom line” and/or walk away.
The final – and probably the most important point - is “don’t get cocky.” After you complete the deal, don’t walk away thinking you “won;” rather, take a moment to reflect on the negotiations and how the process could have gone better. Do a reality check and let your gut instincts and intuition be your conscience and guide. This way, you will not repeat the same mistakes but you will handle the next negotiations a bit differently. In sum, don’t be smug.
. . . Just something to ponder.