Okay so you’ve done your planning and the negotiation is about to start. And just like Chess, you need an opening gambit, a mid-game and an end-game. Read below on first offers, concessions and how to close a good deal.
Opening Gambit – First Offers
We know from studying tactics that leading with an offer (an anchor) can seriously affect the outcomes. So when should you lead, and when should you follow?
The key question around first offers is how much information you have.
For a job offer, you can do your research on market salaries, and somewhat reliably form a view of your employers target and resistance points. Therefore, when they ask “What kind of salary are you expecting?” you have good information and could pitch an opening offer.
Where should you pitch your opening offer?
Remember that you’ll almost never get your target point; the negotiation will always go down from there. If you pitch your opening offer too low, you’ll never get the outcome you want.
Even if you opened with a low offer, it will then have to go even lower. This is because parties want to feel like they got a ‘good deal’. They feel this by negotiating you away from your target point. So it’s critical you set the target point with buffer that you can come down from and still be happy.
Product Manager, opening offer: “I’ve done my research and great Product Managers are paid $145K.” <- target point
Asking for them to make an offer
In most salary negotiations, you should be able to do enough research to put forward a credible opening offer.
Let’s say you are a web-design firm and a Client is asking for price on a potential project. You know web design has a massive range of possible prices, there are many variables, and you have no idea what this Client is willing to pay (distance between their target point and resistance point).
Without any information, you could lead with a number below their target point. You’ve given them an amazing deal (and lost a lot of money) without knowing it.
You also risk quoting a price so far above their resistance point that they suffer from sticker-shock, and end the negotiations; convinced you are trying to cheat them.
In the absence of information, a better strategy is to ask them. “What is your budget?”
As we know from setting our own opening offer, we know their opening offer is going to be closer to their target point than their resistance point. However it gives us information to work with. We can reasonably guesstimate a high anchor to counter with, and play it from there.
Client: “Well we were looking at $2,000 for the website” <-their target point, low-ball
Product Manager: “Ah – it’s true you can buy a cheap websites these days. But you get what you pay for. Our most popular packages start at $5,000”. <- your target point
Mid-Game – Managing Concessions
You’ve both made your opening offers and counter-offers. You’re now in the mid-game. Both sides expect some give-and-take to enter into the bargaining zone.
Outside of your opening offer, the mid-game is where all the value is created – and divided.
Each time you make a concession, you are signalling something to the other party. Here are five tactics to make the most of your concessions.
Imagine you are walking down the street and found a $20 note. Sweet, right?
Now imagine another time you walk down the same street, you found a $10 note. Then 5 minutes later, you found another $10 note. How lucky is that!
In both situations we have the same value, however the second one feels ‘luckier’. So keep this in mind when planning concessions from your target point. By breaking up the total ground you’re willing to give, it will make the other person feel more gratitude.
2. Start large, go small
Having said that, don’t just give the same amount each time. Let’s say you are negotiating on price of a used car. The buyer asks you for a discount. You discount $100. They ask for another; you discount $100. They ask for a third discount. Again, you give them $100. The buyer is asking themselves “Wow, when do these discounts end?!”
Instead, if you gave incrementally smaller discounts – say $150, $100, $50 – it signals to the buyer that you are at a resistance point and you can’t keep going.
3. No double-dipping
Don’t let them double dip by getting two concessions in a row. This is a give-and-take process, not a give-and-give one.
If you give something, you need to get something before you can give ground on the next issue.
Back to our salary negotiation, let’s say Sam opened with $145K, and they countered with $125K. Sam was willing to come down to $135K. They then held firm on $125K.
Sam should restate the value he brings and his evidence this is reasonable (e.g. market research that these roles pay $135K+).
If they again state they can’t move on $125K, ask them for more information. What makes you worth $125K & not $135K? What kinds of performance targets do you need to hit for $135K?
To get that concession from them, you might have to switch focus.
4. Switching Focus
You can also switch the focus from price. State that for you to move down from $135K, you’d need a concession on something else.
Mention something important to you, such as guaranteed training budget. They finally budge: “We can offer $1,500 annual training budget.”
You can now continue with concessions, having avoided giving two in a row.
In the absence of good information, you can gather more through a tactic called bundling.
Create some bundles of various issues – that are of equal value to you – and see which one they go for. This will help you understand which things they can move on and which they can’t.
Sam goes on: “Great. With that training budget, I could do either $132K straight-up or $130K with work-from-home options. Which works for you?”
End Game – Closing the Deal
Note that people naturally get decision fatigue. Even the most hard-edged negotiators reach a point where they just want to get the deal done. And asking for too many concessions right at the end (known as “the nibble”) can just piss people off and make you seem unreasonable.
So after the concessions on both sides are getting smaller, consider a final concession and the option to close it then and there.
From the bundle above, perhaps the employer offered a counter-bundle; $127K with 1 day a fortnight at home.
Sam looks to close it out: “Let’s lock this in – $127K now and $130K in 6 months – and we have a deal.”
They’ll either accept on the spot, or perhaps counter with their final offer. Either way, there’s not much value on either side left, and everyone has other things to do too.
Congratulations – you’re now equipped to negotiate your salary – or anything else – as a Product Manager.
Ganegoda, D 2019, Class 3: Claiming Value (Distributive Bargaining), lecture notes, Negotiations, Melbourne Business School, delivered 2 March 2019