A to Z of Negotiation - C is for Concessions
In a negotiation, a concession is any offer made that is more favourable to the other party than the previous offer. Where the parties expect distributive bargaining, or haggling, there are likely to be a series of concessions made during the negotiation until agreement is reached. That the number reached is likely to be close to the midpoint of the two opening offers.
To improve your negotiations, it is important to understand how to manage the reciprocity, size and timing of concessions.
Reciprocity of concessions
I remember early in my career, attending a negotiation course where I was told that “one should never grant a concession without getting a concession in return”. While I’m not a believer of black and white statements like this one, there is some sense in seeking mutual concessions rather than making unilateral concessions. The word “if” is a powerful tool for making this happen.
Take for example a situation where you are negotiating for a consulting contract. The client has asked you to reduce your fee by $300 a day. Rather than simply making this unilateral concession, you may choose to make it a mutual concession by suggesting “I could agree to a reduction of the daily rate if you were to agree to weekly rather than monthly billing.”
Size of concessions
Obviously, it is possible to make small or large concessions. It is important to be careful when making concessions however as they may have the opposite effect to what you intend.
Take for example the salesperson who each time they drop the price dropped by more than the customer increases their price. Research shows us that this will actually lead to reduced client satisfaction.
In other research, it was shown that a strategy of starting a negotiation with a tough stance of few early concessions and then switching to larger concessions later in the negotiation was more effective than starting with large concessions or sticking only with small concessions. It seems that this strategy works as it creates a contrast for the other side who feels a sense of relief once more generous concessions start being made. It gives the other party a sense of “winning” in the negotiation.
Timing of concessions
It is important not to make concessions too early in the negotiation. Kwon and Weingart showed that a buyer is more satisfied in a negotiation when the seller makes gradual concessions. Sellers who made immediate concessions had the most negative reaction from the buyers.
A final note on concessions. If you are making a concession during your negotiation, make sure the other party knows that you have made it. By making the concession explicit, you are likely to trigger a sense of reciprocity in the other party. They are then more likely to make a concession in return. When sharing your concession, make sure you make it clear to the other party what the cost is to you if you want as well is the benefit to them.
For more information about how to negotiate effectively, or for assistance with your next negotiation, contact us for a confidential, no-obligation discussion.