Basic Principles Make You a Smarter Negotiator
by Roger Dawson
The way that you conduct yourself in a negotiation can dramatically affect the outcome. I’ve been teaching negotiating to business leaders throughout North America since 1982 and I’ve distilled this down to five essential principles. These principles are always at work for you and will help you smoothly get what you want:
Get the Other Side to Commit First
Power Negotiators know that you’re usually better off if you can get the other side to commit to a position first. Several reasons are obvious:
- Their first offer may be much better than you expected.
- It gives you information about them before you have to tell them anything.
- It enables you to bracket their proposal. If they state a price first, you can bracket them, so if you end up splitting the difference, you’ll get what you want. If they can get you to commit first, they can then bracket your proposal. Then if you end up splitting the difference, they get what they wanted.
The less you know about the other side or the proposition that you’re negotiating, the more important the principle of not going first becomes. If the Beatles’ manager Brian Epstein had understood this principle he could have made the Fab Four millions more on their first movie. United Artists wanted to cash in on the popularity of the singing group but was reluctant to go out on a limb because United Artists didn’t know how long the Beatles would stay popular. They could have been a fleeting success that fizzled out long before their movie hit the screens. So they planned it as an inexpensively made exploitation movie and budgeted only $300,000 to make it. This was clearly not enough to pay the Beatles a high salary. So United Artists planned to offer the Beatles as much as 25 percent of the profits. The Beatles were such a worldwide sensation in 1963 that the producer was very reluctant to ask them to name their price first, but he had the courage to stay with the rule. He offered Epstein $25,000 up front and asked him what percentage of the profits he thought would be fair.
Brian Epstein didn’t know the movie business and should have been smart enough to play Reluctant Buyer and use Good Guy/Bad Guy. He should have said, “I don’t think they’d be interested in taking the time to make a movie, but if you’ll give me your very best offer, I’ll take it to them and see what I can do for you with them.” Instead, his ego wouldn’t let him play dumb, so he assertively stated that they would have to get 7.5 percent of the profits or they wouldn’t do it. This slight tactical error cost the group millions when the director Richard Lester, to every one’s surprise, created a brilliantly humorous portrait of a day in the group’s life that became a worldwide success.
If both sides have learned that they shouldn’t go first, you can’t sit there forever with both sides refusing to put a number on the table, but as a rule you should always find out what the other side wants to do first.
Act Dumb, Not Smart
To Power Negotiators, smart is dumb and dumb is smart. When you are negotiating, you’re better off acting as if you know less than everybody else does, not more. The dumber you act, the better off you are unless your apparent I.Q. sinks to a point where you lack any credibility.
There is a good reason for this. With a few rare exceptions, human beings tend to help people that they see as less intelligent or informed, rather than taking advantage of them. Of course there are a few ruthless people out there who will try to take advantage of weak people, but most people want to compete with people they see as brighter and help people they see as less bright. So, the reason for acting dumb is that it diffuses the competitive spirit of the other side. How can you fight with someone who is asking you to help them negotiate with you? How can you carry on any type of competitive banter with a person who says, “I don’t know, what do you think?” Most people, when faced with this situation, feel sorry for the other person and go out of their way to help him or her.
Do you remember the TV show Columbo? Peter Falk played a detective who walked around in an old raincoat and a mental fog, chewing on an old cigar butt. He constantly wore an expression that suggested he had just misplaced something and couldn’t remember what it was, let alone where he had left it. In fact, his success was directly attributable to how smart he was-by acting dumb. His demeanor was so disarming that the murderers came close to wanting him to solve his cases because he appeared to be so helpless.
The negotiators who let their egos take control of them and come across as a sharp, sophisticated negotiator commit to several things that work against them in a negotiation. These include being the following:
- A fast decision-maker who doesn’t need time to think things over.
- Someone who would not have to check with anyone else before going ahead.
- Someone who doesn’t have to consult with experts before committing.
- Someone who would never stoop to pleading for a concession.
- Someone who would never be overridden by a supervisor.
- Someone who doesn’t have to keep extensive notes about the progress of the negotiation and refer to them frequently.
The Power Negotiator who understands the importance of acting dumb retains these options:
- Requesting time to think it over so that he or she can thoroughly think through the dangers of accepting or the opportunities that making additional demands might bring.
- Deferring a decision while he or she checks with a committee or board of directors.
- Asking for time to let legal or technical experts review the proposal.
- Pleading for additional concessions.
- Using Good Guy/Bad Guy to put pressure on the other side without confrontation.
- Taking time to think under the guise of reviewing notes about the negotiation.
I act dumb by asking for the definitions of words. If the other side says to me, “Roger, there are some ambiguities in this contract,” I respond with, “Ambiguities . . .ambiguities . . . hmmm, you know I’ve heard that word before, but I’m not quite sure what it means. Would you mind explaining it to me?” Or I might say, “Do you mind going over those figures one more time? I know you’ve done it a couple of times already, but for some reason, I’m not getting it. Do you mind?” This makes them think: What a klutz I’ve got on my hands this time. In this way, I lay to rest the competitive spirit that could have made a compromise very difficult for me to accomplish. Now the other side stops fighting me and starts trying to help me.
Be careful that you’re not acting dumb in your area of expertise. If you’re a heart surgeon, don’t say, “I’m not sure if you need a triple by-pass or if a double by-pass will do.” If you’re an architect, don’t say, “I don’t know if this building will stand up or not.”
Win-win negotiating depends on the willingness of each side to be truly empathetic to the other side’s position. That’s not going to happen if both sides continue to compete with each other. Power Negotiators know that acting dumb diffuses that competitive spirit and opens the door to win-win solutions.
Think in Real Money Terms but Talk Funny Money
There are all kinds of ways of describing the price of something. If you went to the Boeing Aircraft Company and asked them what it costs to fly a 747 coast to coast, they wouldn’t tell you “Fifty-two thousand dollars.” They would tell you eleven cents per passenger mile.
Sales-people call that breaking it down to the ridiculous. Haven’t we all had a real estate salesperson say to us at one time or another, “Do you realize you’re talking 35¢ a day here? You’re not going to let 35¢ a day stand between you and your dream home are you?” It probably didn’t occur to you that 35¢ a day over the 30-year life of a real estate mortgage is more than $7,000. Power Negotiators think in real money terms.
When that supplier tells you about a 5¢ increase on an item, it may not seem important enough to spend much time on. Until you start thinking of how many of those items you buy during a year. Then you find that there’s enough money sitting on the table to make it well worth your while to do some Power Negotiating.
I once dated a woman who had very expensive taste. One day she took me to a linen store in Newport Beach because she wanted us to buy a new set of sheets. They were beautiful sheets, but when I found out that they were $1,400, I was astonished and told the sales clerk that it was the kind of opulence that caused the peasants to storm the palace gates.
She calmly looked at me and said, “Sir, I don’t think you understand. A fine set of sheets like this will last you at least 5 years, so you’re really talking about only $280 a year.” Then she whipped out a pocket calculator and frantically started punching in numbers. “That’s only $5.38 a week. That’s not much for what is probably the finest set of sheets in the world.”
I said, “That’s ridiculous.”
Without cracking a smile, she said, “I’m not through. With a fine set of sheets like this, you obviously would never sleep alone, so we’re really talking only 38 cents per day, per person.” Now that’s really breaking it down to the ridiculous.
Here are some other examples of funny money:
- Interest rates expressed as a percentage rather than a dollar amount.
- The amount of the monthly payments being emphasized rather than the true cost of the item.
- Cost per brick, tile, or square foot rather than the total cost of materials.
- An hourly increase in pay per person rather than the annual cost of the increase to the company.
- Insurance premiums as a monthly amount rather than an annual cost.
- The price of land expressed as the monthly payment.
Businesses know that if you’re not having to pull real money out of your purse or pocket, you’re inclined to spend more. It’s why casinos the world over have you convert your real money to gaming chips. It’s why restaurants are happy to let you use a credit card although they have to pay a percentage to the credit card company. When I worked for a department store chain, we were constantly pushing our clerks to sign up customers for one of our credit cards because we knew that credit card customers will spend more and they will also buy better quality merchandise than a cash customer. Our motivation wasn’t entirely financial in pushing credit cards. We also knew that because credit card customers would buy better quality merchandise, it would satisfy them more, and they would be more pleased with their purchases.
So, when you’re negotiating break the investment down to the ridiculous because it does sound like less money, but learn to think in real money terms. Don’t let people use the Funny Money Gambit on you.
Concentrate on the Issues
Power Negotiators know that they should always concentrate on the issues and not be distracted by the actions of the other negotiators. Have you ever watched tennis on television and seen a highly emotional star like John McEnroe jumping up and down at the other end of the court. You wonder to yourself, “How on Earth can anybody play tennis against somebody like that? It’s such a game of concentration, it doesn’t seem fair.”
The answer is that good tennis players understand that only one thing affects the outcome of the game of tennis. That’s the movement of the ball across the net. What the other player is doing doesn’t affect the outcome of the game at all, as long as you know what the ball is doing. So in that way, tennis players learn to concentrate on the ball, not on the other person.
When you’re negotiating, the ball is the movement of the goal concessions across the negotiating table. It’s the only thing that affects the outcome of the game; but it’s so easy to be thrown off by what the other people are doing, isn’t it?
I remember once wanting to buy a large real estate project in Signal Hill, California that comprised eighteen four-unit buildings. I knew that I had to get the price far below the $1.8 million that the sellers were asking for the property, which was owned free and clear by a large group of real estate investors. A real estate agent had brought it to my attention, so I felt obligated to let him present the first offer, reserving the right to go back and negotiate directly with the sellers if he wasn’t able to get my $1.2 million offer accepted.
The last thing in the world the agent wanted to do was present an offer at $1.2 million-$600,000 below the asking price-but finally I convinced him to try it and off he went to present the offer. By doing that, he made a tactical error. He shouldn’t have gone to them; he should have had them come to him. You always have more control when you’re negotiating in your power base than if you go to their power base.
He came back a few hours later, and I asked him, “How did it go?”
“It was awful, just awful. I’m so embarrassed.” He told me. “I got into this large conference room, and all of the principals had come in for the reading of the offer. They brought with them their attorney, their CPA, and their real estate broker. I was planning to do the silent close on them.” (Which is to read the offer and then be quiet. The next person who talks loses in the negotiations.) “The problem was, there wasn’t any silence. I got down to the $1.2 million and they said, ‘Wait a minute. You’re coming in $600,000 low? We’re insulted.” Then they all got up and stormed out of the room.
I said, “Nothing else happened?”
He said, “Well, a couple of the principals stopped in the doorway on their way out, and they said: ‘We’re not gonna come down to a penny less than $1.5 million.’ It was just awful. Please don’t ever ask me to present an offer that low again.” I said, “Wait a minute. You mean to tell me that, in five minutes, you got them to come down $300,000, and you feel bad about the way the negotiations went?”
See how easy it is to be thrown off by what the other people are doing, rather than concentrating on the issues in a negotiation. It’s inconceivable that a full-time professional negotiator, say an international negotiator, would walk out of negotiations because he doesn’t think the other people are fair. He may walk out, but it’s a specific negotiating tactic, not because he’s upset.
Can you imagine a top arms negotiator showing up in the White House, and the President saying, “What are you doing here? I thought you were in Geneva negotiating with the Russians.”
“Well, yes, I was, Mr. President, but those guys are so unfair. You can’t trust them and they never keep their commitments. I got so upset, I just walked out.” Power Negotiators don’t do that. They concentrate on the issues, not on the personalities. You should always be thinking, “Where are we now, compared to where we were an hour ago or yesterday or last week?”
Secretary of State Warren Christopher said, “It’s okay to get upset when you’re negotiating, as long as you’re in control, and you’re doing it as a specific negotiating tactic.” It’s when you’re upset and out of control that you always lose.
That’s why salespeople will have this happen to them. They lose an account. They take it into their sales manager, and they say, “Well, we lost this one. Don’t waste any time trying to save it. I did everything I could. If anybody could have saved it, I would have saved it.”
So, the sales manager says, “Well, just as a public relations gesture, let me give the other side a call anyway.” The sales manager can hold it together, not necessarily because he’s any brighter or sharper than the salesperson, but because he hasn’t become emotionally involved with the people the way the salesperson has. Don’t do that. Learn to concentrate on the issues.
Always Congratulate The Other Side
When you’re through negotiating, you should always congratulate the other side. However poorly you think the other person may have done in the negotiations, congratulate them. Say, “Wow-did you do a fantastic job negotiating that. I realize that I didn’t get as good a deal as I could have done, but frankly, it was worth it because I learned so much about negotiating. You were brilliant.” You want the other person to feel that he or she won in the negotiations.
One of my clients is a large magazine publishing company that has me teach Power Negotiating to its sales force. When I was telling the salespeople how they should never gloat in a negotiation, the founder of the company jumped to his feet and said, “I want to tell you a story about that.” Very agitated, he went on to tell the group, “My first magazine was about sailing, and I sold it to a huge New York magazine publisher. I flew up there to sign the final contract, and the moment I signed it and thanked them, they said to me, ‘If you’d have been a better negotiator, we would have paid you a lot more.’ That was 25 years ago and it still burns me up when I think about it today. I told them that if they had been better negotiators, I would have taken less.” Let me ask you something. If that magazine publisher wanted to buy another one of his magazines, would he start by raising the price on them? Of course he would. However harmless it may seem, be sensitive to how you’re reacting to the deal. Never gloat and always congratulate.
When I published my first book on negotiating a newspaper reviewed it and took exception to my saying that you should always congratulate, saying that it was manipulative to congratulate the other side when you didn’t really think that they had won. I disagree. I look upon it as the ultimate in courtesy for the conqueror to congratulate the vanquished. When the British army and navy went down the Atlantic to recapture the Falkland Islands from the Argentineans, it was quite a rout. Within a few days, the Argentine navy lost most of its ships and the victory for the English was absolute. The evening after the Argentinean admiral surrendered, the English admiral invited him on board to dine with his officers and congratulated him on a splendid campaign.
Power Negotiators always want the other parties thinking that they won in the negotiations. It starts by asking for more than you expect to get. It continues through all of the other Gambits that are designed to service the perception that they’re winning. It ends with congratulating the other side.
If you let these five principles guide your conduct when you’re negotiating, they will serve you well and help you become a Power Negotiator.