Imagine you’ve received a salary offer for a new job that’s less than you’d hoped for, or a client has delivered a “take it or leave it” ultimatum. While there is ample advice available to negotiators on how to make the first offer in negotiation, the question of how to counteroffer in business negotiations often goes overlooked. That’s unfortunate, because how you react to another party’s opening offer will have a significant effect on the negotiation’s final outcome. The following deal-making techniques can help you determine how to counteroffer for maximum effectiveness.
Resist Their Anchor.
In a negotiation first offer, the first number or other figure mentioned tends to serves as an anchor that pulls counteroffers in its direction. When receiving a first offer, it’s typically very difficult to ignore the anchor, even if it is completely unreasonable.
For example, suppose you receive a salary offer of $40,000 per year for a job that, based on your research, you believe should have a salary of about $50,000. If you had proposed a salary first, you might have asked for $55,000. But after the hiring manager drops the $40,000 anchor, you are likely to make a lower counteroffer, such as $45,000. Because of this anchoring effect, negotiators are often advised to try to make the first offer.
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Wondering how to counteroffer without being anchored? First, resist the urge to respond immediately to the other party’s offer. Ask for time to think it over, and give yourself plenty of time to strategize. Second, make sure you know your BATNA—your best alternative to a negotiated agreement, or the path you’ll follow if you can’t reach a deal with your current counterpart—as well as your target. Aiming for your target, and being sure not to accept anything less than your BATNA, will help lessen the impact of your counterpart’s anchor.
Try Making Multiple Counteroffers.
Simultaneously delivering multiple offers that you value equally, rather than just one offer, can be a useful strategy in negotiation. When you make multiple offers simultaneously, you convey flexibility and gain valuable information about your counterpart’s interests.
For example, after being offered a salary of $40,000 along with two weeks of vacation and three weeks of work travel, you might make three offers that vary on salary, vacation time, and travel. When crafting multiple offers, be sure that you value them equally as your counterpart could end up accepting any one of them on the spot. More likely, you’ll continue haggling further. But presenting multiple offers can be an invaluable way of determining what issues matter most to the other side—and sets you up for creating value in negotiation by making tradeoffs on issues you value more.
Provide a Strong Rationale.
When considering how to counteroffer, don’t overlook the value of a strong rationale. A persuasive rationale can help you re-anchor the discussion and avoid impasse.
In their research, Alice J. Lee of Columbia Business School and Daniel R. Ames of Columbia University compared the effectiveness of two common types of rationales that buyers use when responding to a seller’s opening bid: (1) constraint rationales and (2) disparagement rationales.
A constraint rationale focuses on the buyer’s own limitations, which are often financial. For example, you might respond to a service provider’s high bid by saying, “That’s way over my budget and won’t work for me.” By contrast, a disparagement rationale critiques what the seller is offering. For example, “My understanding is that your services are pretty no-frills. Given what you’re offering, your price seems much too high.”
In their experiments, Lee and Ames found that sellers were significantly more swayed by constraint rationales than by disparagement rationales. Relative to those who received disparagement rationales, sellers who were given constraint rationales also were more optimistic about the odds of reaching agreement and were more likely to recommend their counterpart to a friend. By contrast, sellers may find disparagement rationales to be inaccurate and rude—or they may take buyers at their word when they say they simply can’t afford the deal on the table.
The takeaway: When responding to a seller’s offer, you are likely to get a better deal if you accompany your counteroffer with information about your financial constraints than if you try to diminish the value of what’s being sold.
What other strategies have you employed when determining how to counteroffer?