Something to Think About

“Is that the best you can do?” - Whether you are a buyer or seller, you always want the “best” price, right?  But who defines “best?” Which side of the table gets “best?" What are the rules for doing that when conflict is certainly at play?  

It’s a competition, and the name of this game is negotiations.  Winners and losers could happen in this game too as both sides compete to define “best” to their satisfaction.  It doesn’t matter which side you are on, your responsibility is to be a good negotiator. And in this game of sport, if you are really, really good, everybody wins.  Never anticipate what the other side is thinking. Go into every negotiating situation with an open mind and listen to what the other party is saying. "Why don't you throw out a number?"  

There are differing schools of thought on this, and many people believe you should never be the first person in a negotiation to quote a price. Let the other side start the bidding, the thinking goes, and they will be forced to show their hands, which will provide you with an advantage. But some research has indicated that the result of a negotiation is often closer to what the first mover proposed than to the number the other party had in mind; the first number uttered in a negotiation (so long as it is not ridiculous) has the effect of "anchoring the conversation." 

And one's role in the negotiation can matter, too. In the book Negotiation, Adam D. Galinsky of Northwestern's Kellogg School of Management and Roderick I. Swaab of INSEAD in France write: "In our studies, we found that the final outcome of a negotiation is affected by whether the buyer or the seller makes the first offer. Specifically, when a seller makes the first offer, the final settlement price tends to be higher than when the buyer makes the first offer." When constructing an aggressive (but not absurdly aggressive) first offer, there are generally two values on which you should focus. 

First, consider your alternatives to agreement and create a reservation price—a specific value at which you'd prefer to walk away rather than reach a deal. Now you'll be prepared to accept any agreement that exceeds your reservation price and reject any value that falls below it. Second, determine your ideal outcome, or target price—the agreements or values that would fulfill all of your negotiation hopes and desires. Knowledge of your reservation price is crucial, but it's your target price that you should pay attention to when constructing a first offer. Mussweiler, my colleague Victoria Husted Medvec, and I have found that negotiators who focus on their target prices make more aggressive first offers and ultimately reach more profitable agreements than those who do not.  http://hbswk.hbs.edu/archive/4302.html