The Installment Plan

By on / Business Negotiations

Adapted from “The Fine Art of Making Concessions,” by Deepak Malhotra (associate professor, Harvard Business School), first published in the Negotiation newsletter.

Which of these scenarios would make you happier?

Scenario A: While walking down the street, you find a $20 bill.
Scenario B: 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 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.
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. Whatever is left over is yours to keep—or to use to induce further reciprocity. In the real estate example, you might discover that the initial $30,000 increase in your offer was all that you needed to sign the deal!
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.


Discover step-by-step techniques for avoiding common business negotiation pitfalls when you download a copy of the FREE special report, Business Negotiation Strategies: How to Negotiate Better Business Deals, from the Program on Negotiation at Harvard Law School.


Related Article: When You’re Tempted to Deceive

Related Posts

Comments

One Response to “The Installment Plan”

  • Laurentiu G.

    The hypothesis is pertinent and might be working into a grown and free market such as the US market. I strongly agree that theoretically this is the way to act while negotiating into a developed market. However, into an emerging economy, with a market yet undeveloped as the US one we have discovered having problems while using this technique since the players are not used with the concessions.

    Regards,

    Laurentiu Gorun

    Reply

Leave a Reply