In sales negotiations, making the first offer is often a smart move. The first offer can anchor the discussion that follows and can have a powerful effect on the final outcome.
But if the other party makes the first offer, you’ll need to be prepared to frame your counteroffer carefully. What is framing in negotiation? It involves crafting your offer to improve its appeal. When you frame your counteroffer with a strong rationale, you may increase your odds of re-anchoring the discussion. In this article, we present four effective sales negotiation techniques, beginning with framing your counteroffers for maximum advantage.
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Choose the Best Rationale
Two common types of rationales in business negotiation are (1) constraint rationales and (2) disparagement rationales. A constraint rationale focuses on what’s holding you back from accepting the other side’s offer, such as not being able to afford what they’re asking. By contrast, a disparagement rationale critiques what the other party is offering—for example, by suggesting the quality is low.
In a recent study, researchers Alice J. Lee of Columbia Business School and Daniel R. Ames of Columbia University compared the effectiveness of these two types of rationales. They found that sellers were significantly more swayed by buyers’ constraint rationales than by their disparagement rationales. Why? First, the researchers note, sellers may view the criticism in a disparagement rationale as inaccurate and rude, and react by standing firm on price. Second, when buyers describe their financial constraints, sellers may take them at their word when they say they can’t afford the deal on the table.
Thus, when responding to a seller’s offer, a buyer is likely to get a better deal if he accompanies his counteroffer with information about his financial constraints than if he tries to diminish the value of what’s being sold. Similarly, though this hasn’t been tested, a seller facing a buyer’s first offer may get a better deal if she says she can’t afford to go lower than if she disparages the buyer’s BATNA, or best alternative to a negotiated agreement.
3 Other Top Sales Negotiation Techniques
Here are several other effective negotiation skills for sales professionals:
- Highlight losses rather than gains. People are more motivated to avoid losses than they are to achieve gains, research by psychologists Amos Tversky and Daniel Kahneman shows. For example, researchers at the University of Santa Cruz asked homeowners to participate in a free energy audit and then listen to a sales pitch for insulation products and services that would lower their energy costs. When the insulation was pitched as a way to avoid losing money, homeowners were significantly more likely to purchase it than when it was pitched as a way to save money. Because losses weigh heavily on our minds, framing the exact same price as a loss likely will have a greater effect than framing it as a gain, write Deepak Malhotra and Max H. Bazerman in their book Negotiation Genius (Bantam, 2007).
- Split up losses; combine gains. Tversky and Kahneman also discovered in their research that people prefer to gain money in installments but to lose money in one lump sum. For example, most people would prefer to find a $10 bill two days in a row ($20 total) than to find a $20 bill once. Conversely, most people would prefer to lose a $20 bill than to lose a $10 bill two days in a row. Thus, in the process of business negotiation, when making a price concession, it can be smart to divide it into two or more smaller concessions. But when asking for a concession on price, make one demand rather than two or more partial demands, recommend Malhotra and Bazerman.
- Avoid overjustifying. A well-known 1978 psychology experiment by Ellen Langer, Arthur Blank, and Benzion Chanowitz suggested that even a lame justification for a first offer can be more effective than none at all. In the study, an experimenter who tried to cut in line to use a copier to make five copies was far more successful using the rather weak justification “May I use the Xerox machine, because I have to make some copies?” than when giving no justification at all for cutting in (“May I use the Xerox machine?”). But in a 2011 paper, Tel Aviv University researchers Yossi Maaravi, Yoav Ganzach, and Asya Pazy noted that people tend to rebel against more significant requests with weak justifications. And in their research, they found that when a justification for an offer is easy to counter, it can inspire a backlash. So, for example, if you are a salesperson who has already shown off the many attractive features of your product, you can let your first price offer stand on its own.
What other sales negotiation techniques have you found to be effective?