Skilled negotiators know that making strategic concessions at the right time can be an effective tactic in a negotiation. In this article, Deepak Malhotra, a professor at Harvard Business School and PON-affiliated faculty member, suggests four ways to make your concessions work to your best advantage. PON stands for the Program on Negotiation at Harvard Law School. [Some of the examples have been changed to family law examples.]
1. Label Your Concessions
In negotiations, don’t assume that your actions will speak for themselves. Your counterparts will be motivated to overlook, ignore, or downplay your concessions. Why? To avoid the strong social obligation to reciprocate. As a result, it is your responsibility to label your concessions and make them salient to the other party.
When it comes to labeling, there are a few rules to follow. First, let it be known that what you have given up (or what you have stopped demanding) is costly to you. By doing so, you clarify that a concession was, in fact, made.
Second, emphasize the benefits to the other side. My own research suggests that negotiators reciprocate concessions based on the benefits they receive, while tending to ignore how much others are sacrificing.
Third, don’t give up on your original demands too hastily. If the other side considers your first offer to be frivolous, your willingness to move away from it will not be seen as concessionary behavior. By contrast, your concessions will be more powerful when your counterpart views your initial demands as serious and reasonable. Accordingly, spend time legitimating your original offer and then use it as a reference point when labeling your concession.
2. Demand and Define Reciprocity
Labeling your concessions helps trigger an obligation to reciprocate, but sometimes your counterpart will be slow to act on that obligation. To increase the likelihood that you get something in return for your concession, try to explicitly-but diplomatically-demand reciprocity.
For example, consider the following negotiation between a husband and wife. Husband suggests that wife’s monthly expense cost estimates are unreasonably high; wife believes that the cost estimates are accurate (and perhaps conservative). If wife is willing to make a concession, she might say: “This isn’t easy for me, but we’ve made some adjustments on my monthly expenses to accommodate your concerns. We expect that you are now in a better position to make some changes to what you are willing to do. Your willingness to understand my financial needs would help me immeasurably.”
Notice that this statement achieves three goals.
First, it labels the concession (“This isn’t easy for us, but we’ve made
some adjustments …”). Second, it tactfully demands reciprocity (“We
expect that you are now in a better position to make some changes …”).
Third, it also begins to define the precise form that reciprocity
should take (“Your willingness to understand my financial… “).
While each of these elements is critical, negotiators often overlook the need to define reciprocity. Remember that no one understands what you value better than you do. If you don’t speak up, you’re going to get what your counterpart thinks you value or, worse, what is most convenient for your counterpart to give.
The strategy of demanding and defining reciprocity plays out in a variety of contexts; those who understand how to use it can profit from it immensely.
3. Make Contingent Concessions
One hallmark of a good working relationship is that parties don’t nickel-and-dime each other for concessions. Rather, each side learns about the interests and concerns of the other and makes good-faith efforts toward achieving joint gains.
Unfortunately, while fostering such norms is desirable, it is not always possible. Recently, one of my students in an executive education class explained that while he would be more than happy to engage in mutual give-and-take during his negotiations, he often has trouble doing so with his contractors and customers. Some are clearly untrustworthy or entirely self-interested. Such negotiators are likely to exploit his goodwill by refusing to reciprocate at all, much less in the way he has defined.
My advice to the executive: When trust is low or when you’re engaged in a one-shot negotiation, consider making contingent concessions. A concession is contingent when you state that you can make it only if the other party agrees to make a specified concession in return. For example, if the executive was renegotiating a service contract with a customer, he might suggest that a requested concession is impossible given the current contract but possible under certain conditions. He might say, “We can provide additional support but only if you agree to purchase some of the following additional services,” or, “This is literally the best we can do on price right now. But if you can adjust some of your demands, we might be able to reopen the price issue.”
Contingent concessions are almost risk-free. They allow you to signal to the other party that while you have room to make more concessions, it may be impossible for you to budge if reciprocity is not guaranteed. Keep in mind, however, that an over-reliance on contingent concessions can interfere with building trust. If you demand immediate compensation every time you make a concession, your behavior will be seen as self-serving rather than oriented toward achieving mutual satisfaction.
4. Make Concessions in Installments
Which of these scenarios would make you happier?
While walking down the street, you find a $20 bill.
While walking down the street, you find a $10 bill. The next day, on a different street, you find another $10 bill.
The total amount of money found is the same in each scenario-yet the vast majority of people report that Scenario B would make them happier. More generally, extensive research (beginning with the work of the late Stanford University professor Amos Tversky and the Princeton University professor and Nobel laureate Daniel Kahneman in the 1970s) demonstrates that while most of us prefer to get bad news all at once, we prefer to get good news in installments.
This finding suggests that the same concession will be more positively received if it is broken into installments. For example, imagine that you are negotiating the purchase of a house and that a wide gap exists between your initial offer and the seller’s asking price. You are willing to increase your offer by a maximum of $40,000. You will be more effective if you make two smaller concessions, such as $30,000 followed by $10,000, than if you make one $40,000 concession. [Mike’s comment: This tactic works in family law cases, when there is a significant difference in the evaluation of any asset.]
There are other reasons to make concessions in installments. First, most negotiators expect that they will trade offers back and forth several times, with each side making multiple concessions before the deal is done. If you give away everything in your first offer, the other party may think that you’re holding back even though you’ve been as generous as you can be.
Installments may also lead you to discover that you don’t have to make as large a concession as you thought. When you give away a little at a time, you might get everything you want in return before using up your entire concession-making capacity.
Finally, making multiple, small concessions tells the other party that you are flexible and willing to listen to his needs. Each time you make a concession, you have the opportunity to label it and extract goodwill in return.