Negotiate small to win big
While at business school, I learned a negotiating technique that I have used a few times very successfully.
The technique is simple: when negotiating, avoid giving large concessions in just a few negotiating rounds.
Instead, move the negotiation along with smaller concessions.
The overall negotiation might require more rounds to complete, but in all likelihood the outcome will be closer to your original starting point, providing you a clear advantage.
Also, there is an excellent chance the overall boundaries of the negotiation will have been expanded through the additional rounds of negotiation, creating a “win-win” outcome for both sides.
Some advantage of negotiating in small concessions:
The person who moves in smaller increments moves through the same number of concession rounds, resulting in moving the final agreed value closer to their original offer.
It fosters additional discussion between the parties and pressures the parties to find ways to expand the boundaries of the agreement, fostering a “win-win” agreement.
If the other party is anxious about the negotiation, it leverages the opposing party’s anxiety and makes them move quickly to try to reach an agreement.
Below is a paper I wrote in business school about using small concessions for negotiation. It is a negotiation case study. Although it is a bit long, it is an easy read and explains in detail the above points.
If you have used this technique or similar techniques, please let me know, I would love to hear about them.
The Case Study:
Small steps of concessions improve negotiated outcomes
Negotiating typically involves two parties in a back and forth process of offering concessions to each other until an acceptable agreement is reached. Negotiating can be a confusing and emotionally distressing process and in an effort to quickly come to an agreement, a negotiator might tend to give larger rather than smaller concessions. To improve the outcome, it is important to be prudent and not to offer “too-much” with each round of concession. Smaller concessions improve the results for both distributive and integrative styles of negotiating.
In the Sally Soprano Negotiation, I was negotiating on Sally’s behalf as her agent. For the negotiation, the theater company was interested in having Sally fill in for the lead role for an opera. Several concerns were at stake for both parties, the most prominent and obvious being how much Sally should be paid for accepting the role. For the negotiation, I established a reservation point around $24,000 but was anticipating to settle somewhere around $28,000. I made an initial offer of $36,000, which I considered high, but reasonable. Even though I was prepared to go all the way down to $24,000, I decided to offer only small concessions, no larger than $1,000 per concession.
For every $1,000 I conceded, I tried to expand the boundary of the agreement by discussing a tradeoff for the $1,000. So at each round I brought the possibility of doing some cross-promotional work for the theater and Sally, some sort of job guarantee, or using the theaters connections to promote Sally for a spot on the upcoming television special about opera. Proceeding at a small incremental rate forced me to be creative and to continue to come up with ways to expand the boundaries of the agreement. If the agreement had been arrived at through making large agreements, there would not have been as much time or pressure to be creative, limiting the expansion of the boundaries of the agreement.
After I made the initial offer of $36,000, the theater responded with a counteroffer of $29,000, internally I was happy, since I was already above where I was expecting to settle. I was tempted to immediately agree to the deal, but realized there must be more opportunity to improve the agreement. I went a few rounds, countering with $1,000 decreases and eventually went down to $34,000, the theatre had raised its offer to $32,000. At this point, I had given up $2,000 dollars while the theater had given an additional $3,000. Each round of negotiation produced an uneasiness, which tempted me to settle on the agreement, but I resisted the temptation. Realizing that I was feeling uncomfortable, I wondered if the theater might be experiencing the same sense of uneasiness. While contemplating the last offer of $32,000, I realized we were close to a deal, but I decided to take extra time before making another offer. A somewhat stilled awkward silence existed between us while I considered the new offer. Without waiting for my counteroffer, the theater voluntarily responded with a new offer of $33,000 and accepted the agreements to cross-promote Sally and the theater, to support her effort to win a spot on the television opera special, and to provide some job security through a closer association with the opera company.
A common concern for negotiators is a feeling of discomfort or anxiety they experience in negotiations. Anxiety levels vary from person to person depending on a variety of factors such as experience, position of power, and knowledge of subject matter. For a negotiator experiencing anxiety, the idea of the opposing party moving in small incremental steps is likely to enhance the feeling of anxiety, since the outward appearance of the opposing party is that they are not willing to move much from their original offer. However, this might not be true, as in the Sally Soprano Negotiation, where I was willing to move from $36 to $24 thousand. If the opposing negotiator is indeed feeling anxious, it is reasonable to assume the negotiator might make larger counteroffers to speed up the negotiation. This behavior was apparent in Sally Soprano when out of sequence the theater offered an additional $1,000 dollars (moving the final offer to $33,000).
Another generalized concept of negotiations is the expectation that an agreement will be reached somewhere in the “middle”. If smaller concessions are used on one side and larger concessions are used by the other side, then that “middle” where the agreement is expected to be reached will move closer and closer towards the side offering the smaller concessions. This phenomenon was witnessed in the Sally Soprano case, after the first two rounds the theater had given up $3,000 and I had given up $2,000, resulting in a 3:2 ratio favoring Sally. The final agreement was at $33,000 dollars meaning the “middle” had shifted towards Sally. The final ratio of concessions was 4:3 in favor of Sally. Leigh Thompson provides support for the idea of the movement of the “middle” in her book, “The Heart and Mind of the Negotiator” (Thompson, Leigh, “The Heart and Mind of a Negotiator”, Prentice Hall, 2001). In her book, she explains a study by Hilty and Carnevale (Hilty, J., and Carnevale, P.J. (1993), Black-hat/white-hat strategy in bilateral negotiation, Organizational Behavior and human Decision Processes, 55(3), 444-469) which examined the results of negotiations when the magnitude of concessions is varied by negotiators over different points in the negotiation. The study contrasted “Black Hat/White Hat” negotiators with “White Hat/Black Hat” negotiators. The BH/WH negotiators began with a tough stance, made few early concessions, and later made larger concessions. WH/BH negotiators did the opposite; they began with generous concession stand then became tough and unyielding. The BH/WH concession strategy proved to be more effective than the WH/BH strategy to eliciting concession from an opponent.
In negotiations, the notion of extending the boundaries or “expanding the pie” is referred to as integrative negotiations and is a crucial aspect of creating “win-win” negotiations. Small incremental concessions effectively work to create integrative style negotiations. An important aspect of creating integrative negotiations is to create dialog, which explores creative solutions for both parties. The nature of smaller concessions means it is going to take longer to reach an agreement, since it will take longer to reach the “middle” ground. While performing the Sally Soprano case, I was aware I was going to proceed in small increments and appreciated that to do so meant, I would have to provide ways to “expand the pie” otherwise the conversation would be awkward and the anxiety would likely increase. With the small increment strategy, for each concession round, I offered some “creative solution” to satisfy Sally’s needs. With each round, the boundaries of the possible agreement were being increased. This strategy allowed me to better understand the interest of the theater and to create an integrative solution that went beyond an agreement consisting of just salary.
The experience of the Sally Soprano case supports the above hypothesis. Using smaller incremental concessions provides advantages for the following three reasons: (1) it takes advantages of the opposing parties anxiety and makes them move to try to reach an agreement, (2) it takes advantage that the person who moves in smaller increments moves through the same number of concession rounds and will have the middle move towards their position, (3) it fosters discussion between the parties and pressures the parties to find ways to expand the boundaries of the agreement. Using small incremental concessions worked well in the Sally Soprano Negotiation to create a good distributive solution for Sally’s salary and in an integrative fashion by extending the boundaries of the agreement. For the most part using small incremental concessions seems to be a good strategy, however, some judgment is required, since it is expected that by focusing too much on small increments, it is foreseeable that some parties might become frustrated or angry and prefer to walk away from the negotiations instead of come to an agreement.