Adapted from “What Makes Negotiators Happy?” First published in the Negotiation newsletter.
We all know that people have a strong need to compare their outcomes with those of others. So a negotiator’s mostly likely target of social comparison is her opponent, right?
Maybe not. Nathan Novemsky of the Yale School of Management and Maurice E. Schweitzer of the University of Pennsylvania’s Wharton School conducted a series of studies examining the effect of internal social comparison (comparisons made with a negotiation counterpart) and external social comparison (comparisons with others outside one’s own negotiation) on negotiator satisfaction. Their surprising conclusion: external social comparisons affect satisfaction more than internal social comparisons.
Why? Consider that, in the real world, buyers’ and sellers’ vastly different roles make performance comparisons difficult. A purchasing agent for an HMO, for instance, cannot compare her results to those of her negotiating partner, a salesperson from a pharmaceutical firm. But she could easily compare how much she paid for a particular drug with the price obtained by another purchasing agent.
Negotiator satisfaction affects the likelihood that the other side will do business with you in the future, fully honor the contract, and act in good faith. How does social comparison on price affect negotiator satisfaction? Novemsky and Schweitzer warn that you’re unlikely to ensure customer satisfaction simply by explaining that you earned only a moderate profit from the deal. If your counterpart later finds out that his competitors paid less, he’s likely to be dissatisfied—and to avoid negotiating with you in the future.
Of course, price is the easiest basis for comparison in negotiation. Customers are far more likely to compare themselves with others on price than on a host of other important dimensions, such as timing of delivery, payment schedule, servicing of the contract, and so on. For this reason, you’d be well advised to ensure that customers won’t receive bad news when they compare prices with those outside the negotiation.