Bargaining for Advantage Page 6

  FIGURE 2.1

  The Positive Bargaining Zone

  ◆ Here is an example of a positive bargaining zone. The seller is selling a used CD player. The seller will not sell the CD player unless he receives at least $100. The buyer will not pay more for the purchase than $150. All deals between $100 and $150 are possible, depending on how the parties negotiate. Normally, each party knows only his or her own bottom line and must guess what the other party’s bottom line might be.

  Researchers have discovered that humans have a limited capacity for maintaining focus in complex, stressful situations such as negotiations. Consequently, once a negotiation is under way, we gravitate toward the single focal point that has the most psychological significance for us. Once most people set a firm bottom line in a negotiation, that becomes their dominant reference point as discussions proceed. They measure success or failure with reference to their bottom line. Having a goal as your reference point, by contrast, prompts you to think you are facing a potential “loss” for any offer you receive below your goal. And we know that avoiding losses is a powerful motivating force. This power is not working as strongly for you when you focus solely on your bottom line.

  Thus, if you are selling your used CD player and have focused on getting at least $100 in order to buy some other item that costs about that much, you will tend to relax once the buyer makes an offer above $100. You can now end your search for a buyer and begin mentally possessing the other item you want. If the buyer is alert (and most are when it comes to money), he will sense your relaxation and stop the bidding. If, instead of focusing on your bottom line, you orient toward your goal of getting $130 based on comparable store prices, you don’t stop striving quite so soon. And if the buyer is focused on his bottom line of $150, chances are you will end up with a higher price than you otherwise would receive.

  What is the practical effect of having your bottom line become your dominant reference point in negotiations? Over a lifetime of negotiating, your results will tend to hover at a point just above this minimum acceptable level. For most reasonable people, the bottom line is the most natural focal point. Disappointment arises if we cannot get the other side to agree to meet our minimum requirements (usually established by our available alternatives or our needs away from the table), and satisfaction arises just above that level. Meanwhile, someone else who is more skilled at orienting himself toward ambitious goals will do much better. Not surprisingly, research shows that parties with higher (but still realistic) goals outperform those with more modest ones, all else being equal.

  To avoid falling into the trap of letting your bottom line become your reference point, be aware of your absolute limits, but do not dwell on them. Instead, prepare your bottom line, then set it aside while you work energetically on formulating your goals. Like Akio Morita, test the other side’s reaction to your goal. Then, if you must, gradually reorient toward your bottom line as that becomes necessary to close the deal. With experience, you should be able to keep both your goal and your bottom line in view at the same time without losing your goal focus. Research suggests that the best negotiators have this ability.

  If setting goals is so vital to effective preparation, how should you do it? Use the following simple steps:1. Think carefully about what you really want—and remember that money is often a means, not an end.

  2. Set an optimistic—but justifiable—target.

  3. Be specific.

  4. Get committed. Write down your goal and, if possible, discuss the goal with someone else.

  5. Carry your goal with you into the negotiation.

  What Do You Really Want?

  Begin your preparation for negotiation by considering your own underlying needs and interests. In business or consumer negotiations, a good price is usually an important goal because it is precise and quantifiable; it helps you “keep score” and measure success. But it is easy to forget that price is often a means to an end, not an end in itself. The goal is to achieve more value or profit, not a victory on the price term.

  This is not as paradoxical as it sounds. If you are on the buy side, you want to make sure that you get a specified level of quality for the money you spend, not just a low price. And sellers need to be careful that their sales create the conditions for future business. Canceled orders and one-time sales do not make for a profitable enterprise, even if the price achieved on any given sale looks good.

  The founder of CBS, William Paley, was having a hard time making money in the radio broadcast marketplace in its early days. He was negotiating with local stations over prices for CBS shows the local stations would run, and the stations had all the power. They did not have to buy and often did not. Paley revolutionized radio and created the modern network by realizing that the price for his shows was a means, not an end in itself. In the late 1920s, he started giving away CBS’s radio programming in exchange for the right to run advertisements on local stations during prime-time slots. The strategy earned him millions. Later, in the 1940s, Paley took the U.S. recording industry by storm with a similar move: cutting the prevailing price of records in half.

  Experienced negotiators often report that price can be a relatively easy term to resolve compared with less obvious but more explosive issues such as control, turf, ego, and reputation. In the legendary fight over RJR Nabisco chronicled in Barbarians at the Gate and discussed in Chapter 10, a multibillion-dollar bid from one of Henry Kravis’s rivals for RJR collapsed when two major investment banking firms—Drexel Burnham Lambert and Salomon Brothers—could not agree on which firm’s name would appear on the left-hand side of the Wall Street Journal ad announcing the financing of the transaction. The position of the firm’s name in the ad would signal to the financial community which of the two banks was the “lead bank” in the deal and neither would accept second-place status.

  So when you formulate your goals, consider carefully what really matters to you. Sure, money is important. But identify your underlying interests and needs clearly. Once negotiations start, it is all too easy to become preoccupied with competitive issues such as price and forget what you are really trying to accomplish.

  Set an Optimistic, Justifiable Target

  When you set goals, think boldly and optimistically about what you would like to see happen. Research has repeatedly shown that people who have higher aspirations in negotiations perform better and get more than people who have modest or “I’ll do my best” goals, provided they really believe in their targets.

  In one classic study, psychologists Sydney Siegel and Lawrence Fouraker set up a simple buy-sell negotiation experiment. They allowed the negotiators to keep all the profits they achieved but told the subjects they could qualify for a second, “double-their-money” round if they met or exceeded certain specified bargaining goals. In other words, Siegel and Fouraker gave their subjects both concrete incentives for hitting a certain specified level of performance and, perhaps unintentionally, a hint that the assigned target levels were realistically attainable (why else would subjects be told about the bonus round?). One set of negotiators was told they would have to hit a modest $2.10 target to qualify for the bonus round. Another set of negotiators was told they would have to hit a much more ambitious target of $6.10. Both sides had the same bottom line: They could not accept any deal that involved a loss. The negotiators with the more ambitious $6.10 goal achieved a mean profit of $6.25, far outperforming the median profit of $3.35 achieved by those with the modest $2.10 goal.

  My own research has confirmed Siegel’s and Fouraker’s findings. In our experiment, unlike the one Siegel and Fouraker conducted, negotiation subjects set their own bargaining goals. And instead of letting everyone keep whatever profits they earned, we gave separate $100 prizes to the buyer and the seller with the best individual outcomes. The result was the same, however. Negotiators who reported higher prenegotiation expectations achieved more than those who entered the negotiation with more modest goals.

  Why are we tempted to set modest
bargaining goals when we can achieve more by raising our sights? There are several possible reasons. First, many people set modest goals to protect their self-esteem. We are less likely to fail if we set our goals low, so we “wing it,” telling ourselves that we are doing fine as long as we beat our bottom line. Modest goals thus help us avoid unpleasant feelings of failure and regret.

  Second, we may not have enough information about the negotiation to see the full potential for gain; that is, we may fail to appreciate the true worth of what we are selling, not do the research on applicable standards, or fail to note how eager the buyer is for what we have to offer. This usually means we have failed to prepare well enough.

  Third, we may lack desire. If the other person wants money, control, or power more urgently than we do, we are unlikely to set a high goal for ourselves. Why look for conflict and trouble over things we care little about?

  Research suggests that the self-esteem factor plays a more important role in low goal setting than many of us would care to admit. We once had a negotiation speaker who said that the problem with many reasonable people is that they confuse “win-win” with what he called a “wimp-win” attitude. The “wimp-win” negotiator focuses only on his or her bottom line; the “win-win” negotiator has ambitious goals.

  I see further evidence of this in negotiation classes. As students and executives in negotiation workshops start setting more ambitious goals for themselves and strive to improve, they often report feeling more dissatisfied and discouraged regarding their performance—even as their objective results get better and better. For this reason, I suggest raising one’s goals incrementally, adding risk and difficulty in small steps over a series of negotiations. That way you can maintain your enthusiasm for negotiation as you learn. Research shows that people who succeed in achieving new goals are more likely to raise their goals the next time. Those who fail, however, tend to become discouraged and lower their targets.

  Once you have thought about what an optimistic, challenging goal would look like, spend a few minutes permitting realism to dampen your expectations. Optimistic goals are effective only if they are feasible; that is, only if you believe in them and they can be justified according to some standard or norm. As I discuss more fully in Chapter 3, negotiation positions must usually be supported by some standard, benchmark, or precedent, or they lose their credibility. No amount of mental goal setting will make your five-year-old car worth more than a brand-new version of the same model. You should also adjust your goal to reflect appropriate relationship concerns, a subject I address in Chapter 4.

  With the preliminary work done, you are ready to enter the negotiation process and encounter the values and priorities the other side is bringing to the deal. Until you know for sure what the other side has for goals and what the other side thinks is realistic, you should keep your eyes firmly on your own defendable target. The other party will tell you if your optimistic deal isn’t possible, and you will not offend him or her by asking for your goal so long as you have some justification to support it, you advance your ideas with courtesy, and you show a concern for his or her perspective.

  Be Specific

  The literature on negotiation goal setting counsels us to be as specific as possible. Clarity drives out fuzziness in negotiations as in many other endeavors. With a definite target, you will begin working on a host of psychological levels to get the job done. For example, when you land your new job, don’t just set a goal to “negotiate a fair salary.” Push yourself to take aim at a specific target—go for a 10 percent raise over what you made at your last job. Your specific goal will start you thinking about other, comparable jobs that pay your target salary, and you will begin to notice a variety of market standards that support a salary of that amount.

  Be especially wary of goals such as “I’ll do the best I can” or, worst of all, “I’ll just go in and see what I can get.” What we are really saying when we enter a negotiation with goals such as these is, “I do not want to take a chance on failing in this negotiation.” Fear of failure and our natural desire to avoid feelings of disappointment and regret are legitimate psychological self-protection devices. But effective negotiators do not let these feelings get in the way of setting specific goals.

  Commit to Your Goal: Write It Down and Talk About It

  Your goal is only as effective as your commitment to it. There are several simple things you can do that will increase your level of psychological attachment to your goal. First, as I suggested above, you should make sure it is justified and supported by solid arguments. You must believe in your goal to be committed to it.

  Second, it helps if you spend just a few moments vividly imagining the way it would look or feel to achieve your goal. Visualization helps engage our mind more fully in the achievement process and also raises our level of self-confidence and commitment. One of my better MBA students, a young man from India who came to the United States via a career in Hong Kong, once confided to me that before he had applied to the Wharton School he had come to Philadelphia and had his picture taken in the school’s main building. He then kept that picture over his desk for several years as he directed all his professional energies toward gaining admission. After being turned down once, he was finally admitted. When he arrived on campus, he had another picture taken of himself in the same building, and he now displays the two pictures together with great satisfaction. He credits the visual image of his goal with keeping him on track toward its achievement. The same visualization techniques work for negotiation goals.

  Third, psychologists and marketing professionals report that the act of writing a goal down engages our sense of commitment much more effectively than does the mere act of thinking about it. The act of writing makes a thought more “real” and objective, obligating us to follow up on it—at least in our own eyes. According to psychologist Robert Cialdini, successful door-to-door sales companies sometimes ask all their sales representatives to write down their sales goals, declaring in their training manuals that “there is something magical about writing things down” that improves salespeople’s performance.

  You can begin your practice of writing down negotiation goals by referring to Appendix B, the “Information-Based Bargaining Plan.” Note the space provided for recording your “specific, optimistic goal.” I discuss the use of this plan in more detail in Chapter 7.

  To commit yourself even further to your goal, tell another person about it and show him or her your written goal. If other people know about the goal, you begin to feel subtly accountable to them, and research indicates that negotiators bargain harder when they must explain to someone why they failed to achieve a goal. Labor, sports, and political negotiators go to extreme lengths to mobilize this power: They sometimes announce their bargaining goals to the press, thereby putting everyone (including their constituents and the other side) on notice as to what they want to achieve. This sort of public commitment is a powerful way of binding yourself to your goals.

  Of course, as in all other aspects of negotiation, one should use judgment in committing to goals. If both parties engage in dramatic forms of public commitment, with press conferences and do-or-die statements to their respective audiences, they can paint themselves into a corner from which it is impossible to escape. Labor strikes, political showdowns, and wars are examples of failed negotiations, not successes.

  Finally, any type of material investment you can make in the goal that would be lost if you fail to achieve it will add greatly to your commitment. A major airline recently announced that it had signed a deal to acquire as many as four hundred new planes to expand and upgrade its fleet. It went on to state that the airline would be forced to cancel that order if it failed to reach a favorable wage agreement with its pilots before the deadline for closing the purchase. With that one move, the airline secured three negotiation advantages: a public commitment to its stated wage target, a credible deadline for concluding negotiations with its pilots, and, most important, a vision of what
it (and the pilots) would lose if the airline failed to achieve its wage goals. The negotiations ultimately closed by the deadline and within the wage constraints the airline had set.

  Carry Your Goals with You into the Negotiation

  It is sometimes easy to get knocked off your target by the other party during a negotiation. It therefore pays to carry your goals with you and, if you feel yourself getting swept away, take a break and review them before going forward. I find it sometimes helps to literally carry a short summary of my goals in my pocket or wallet. Even if you just carry it in your head, however, the point is not to lose sight of your goals in the confusion of actual negotiation.

  Barry Diller, the successful television executive and entrepreneur, learned this lesson the hard way when he got caught up in bidding for the rights to the first television showing of the movie The Poseidon Adventure in the early 1970s. Representing ABC, Diller ended up bidding $3.3 million—by far the highest amount ever paid for such a property at the time—and losing money for his network. The reason Diller paid so much? He agreed to participate in the first (and, for him, the last) open-bid auction for TV rights to a movie. In the frantic bidding that followed, he forgot about his primary goal—making a profit—and got caught up in what one CBS executive who bid against him called the “fever” of winning a competition.

  Negotiation scholars have observed this phenomenon so often both in experiments and in real life that they have a name for it: “escalation of commitment.” People lose sight of their real goals in competitive situations and pay far too much money, spend too much time, or sacrifice too many other interests for the privilege of saying they have won. It usually does not take long for regret to set in after such a victory, teaching the winners that it is not enough to prepare goals—you must remember them during the negotiation. In auction situations, the final bidder overpays so often that economists call the accompanying feeling of regret the “winner’s curse.”