Campeau Corporation and Federated Department Stores
Sometimes in negotiation we are forced to deal not only with the issues on the table but also with concerns about status.
One famous instance took place in the late 1980s, when Robert Campeau, head of the Campeau Corporation and then one of Fortune magazine’s “50 Most Fascinating Business People,” tried to acquire Federated Department stores, the parent company of the prestigious department store Bloomingdale’s.
A bidding war over Bloomingdale’s escalated between Campeau and R.H. Macy. Campeau won with an irrationally high offer – but had to declare bankruptcy shortly thereafter.
In his book, Going for Broke: How Robert Campeau Bankrupted the Retail Industry, Jolted the Junk Bond Market, and Brought the Booming 80s to a Crashing Halt (Beard Books, 2000), John Rothschild suggests that status concerns drove Campeau’s desire to break into the retail industry and beat R.H. Macy at any cost.
Like it or not, concerns about status pervade our negotiations.
Most of us are less likely to accept a job offer, even one that would be a substantial improvement over our current job, if it is worse than an offer made to a peer.
Even when hammering out seemingly dry, factual purchasing terms, we take time to look around and see how others in our shoes are doing. The desire to achieve better outcomes than others – from friends and coworkers to competitors – can cause you to leave money on the table.
This article covers the basics of status concerns, shows you when status issues are likely to crop up during negotiation, and teaches you how to use status concerns to improve your negotiated outcomes.
Social Comparisons in Negotiation
Social comparisons – the assessments we make about how we measure up to others – are key to understanding how status operates in negotiation. These comparisons, which signal concern about our relative status, have a profound impact at the bargaining table.
To make social comparisons, we first choose a reference group against which we can measure ourselves.
In his book, Choosing the Right Pond: Human Behavior and the Quest for Status (Oxford University Press, 1985), Robert Frank, a professor of economics at Cornell University, argued that when it comes to social comparisons, people care most about local status.
For this reason, colleagues, classmates, friends, relatives, and neighbors, are the most typical members of our reference group. We tend to make downward comparisons with those in our immediate sphere, preferring to measure ourselves against those who seem to have achieved less than we have because such comparisons enhance self-esteem. When we can rank ourselves above those who resemble us, we assume local status and prestige.
Whether members of our reference group are participating in a given negotiation or not, we care about how well our results compare to theirs.
Social comparisons affect our satisfaction with the progress toward negotiation goals, especially when we’re psychologically close to those in our reference group and when we operate in the same realm.
- For example, you’re likely to be less satisfied with your own achievements after watching a much younger colleague advance quickly up the corporate ladder.
In negotiation, our social comparisons can inspire contentment and pride, prompting easy agreement – or trigger the envy and frustration that can lead to impasse.
Managing Status in Negotiation
Concerns about status will arise in any negotiation. How can you deal with them, both in yourself and in others?
The following six guidelines can help in virtually any context:
1. Choose the right reference group
Too often, negotiators make implicit comparisons with others and then fail to understand why the other side finds certain demands offensive. Before and during your negotiation, think about who you’ve chosen as a reference group.
- How useful is your chosen group?
- Did you select the group purely to enhance your own status, or did you try to make a more appropriate comparison? Be honest with yourself.
- Are you reaching for the stars, making agreement virtually impossible, or are you accurately assessing your odds of having an offer or demand accepted?
In times of economic decline, we’re especially vulnerable to making unrealistic social comparisons.
The past U.S. real estate market is likely to become the next case study for this phenomenon. When recent boom years inevitably draw to a close, homeowners will have a hard time adjusting their demands downward. Once the market slows, the typical seller will remember exactly how much a neighbor’s house sold for a year ago, fail to adjust his expectations of a similarly stellar profit, and as a result turn down multiple attractive offers.
2. Determine which group your counterpart chose
It’s also important to consider who or what your negotiating opponent has chosen as a reference group. In all likelihood, she chose favorable comparisons, which may cause her to be overly optimistic about what she can achieve. If so, try to help her adjust her aspirations and work with her to agree on reasonable comparisons.
It often helps to have a “middle man” who can provide negotiators with accurate comparisons. This is one of the important roles that agents play. While home sellers’ agents tend to choose somewhat pricier comparable properties than do buyers’ agents, they usually have enough experience to know that an overly optimistic assessment will not help a client reach a satisfactory deal.
In the same manner, to secure any publishing deal at all, literary agents often must encourage their clients to modify their expectations of high advances and royalties.
3. Use Concerns about Local Status Strategically
When preparing for a negotiation, take status into account as a critical interest underlying your counterpart’s motives. For instance, you may find that you’re able to offer your counterpart more status in exchange for less money.
As you prepare to make an offer to a job candidate, try to figure out what will satisfy the candidate’s needs for greater status.
- Is the candidate tempted by the promise of a larger office, the prospect of being named “employee of the month,” or the opportunity to lead corporate strategies?
4. Seek out objective standards.
When reference groups are less clearly defined, you’ll be tempted to compare yourself with groups that favor your positions.
Unfortunately, such overly high standards often lead to impasse. But if an obvious solution or a clear standard applies in a negotiation, both sides will rely less on social comparisons. When you and your counterpart agree on appropriate comparisons, you improve your chances of a mutually beneficial agreement.
Here’s an example:
- In teacher contract negotiations in Pennsylvania, Linda Babcock and George Loewenstein of Carnegie Mellon University found that, when it came to choosing school districts for contract comparisons, union representatives selected districts with higher average salaries relative to districts chosen by the school board. This discrepancy significantly increased the likelihood of a strike.
However, Craig Olson of the University of Illinois of Urbana-Champaign and Barbara Rau of the University of Wisconsin Oshkosh studied data from teacher negoitations that took place in Wisconsin from 1977 to 1986.
In these instances, if the parties were unable to reach a negotiated agreement, arbitrators would make the final decisions about the teacher contract disputes. The school boards and unions were aware of the standards that the arbitrators were likely to use – namely, comparisons with other districts in the same area.
Because they understood that these relatively objective standards would be applied in the event of impasse, the negotiators could factor these variables into their strategy rather than choosing comparison groups on their own. As a result, social comparisons had little effect on the outcome of their disputes.
5. Identify relevant social norms.
If a clear social norm or prevalent standard exists regarding appropriate behavior, social comparisons hardly matter in negotiation. In many negotiations, the social norm often isn’t clear, yet standards are established quickly through comparisons, whether appropriate or inappropriate.
In 1999, when the United Airlines pilots’ union learned that the Delta Air Lines pilots had received a salary increase 20% above industry-leading rates, it immediately increased its demand of a 14.5% increase to 28%.
Where can you find appropriate social norms?
These days, consumer web sites offer vast quantities of information on comparable deals for the purchase of just about any product or service.
By dramatically decreasing the information asymmetry that typically exists between buyers and sellers, such sources can be a big help in establishing reasonable reference levels. Sellers can no longer simply toss out a number and expect it to anchor buyers’ expectations. Rather, offers must be “reasonable” – or buyers will take their business elsewhere.
6. Find New Role Models
Finally, before and during negotiation, seek out others who have achieved favorable outcomes in similar situations. The author hoping for a publishing deal would be wise to consult with other writers who’ve sold books in her field. In turn, the author or her agent can use success stories to stir up genuine enthusiasm when pitching the book to publishers.
No deal is perfect, but your odds of reaching a satisfying agreement improve when you feel confident that your goals match outcomes earned by others in similar circumstances.
Discover step-by-step techniques for avoiding common business negotiation pitfalls when you download a FREE copy of our Business Negotiation Strategies: How to Negotiate Better Business Deals special report from Harvard Law School.