The following question was posed to our Negotiation Coach for June 2009, Gregory Barron, a professor at Harvard Business School.
Question: I am planning to relocate my retail store to an ideal location in a small shopping mall. Aware that I’ve just had a very good year, the mall’s owner is demanding a high rent. But my sales are dipping in this economy, and I’m looking for a lower rent that will help me survive the inevitable times when my sales are average or worse. I showed the owner my sales figures for the past 10 years so he could see that my recent success is atypical. Still, he remains focused on my sales for the past year. How can I convince him that I may not be able to pay the price he’s asking over time?
Answer: When parties make disparate forecasts about future events, it’s often because they’re looking at different information. As you recognize, negotiators can sometimes overcome such differences by sharing information. In your case, opening your books to the mall owner didn’t do the trick.
Facts in Business Negotiations
My research has shown that people often make very different decisions depending on how they acquire the information that influences their choices. Consider that we sometimes rely on descriptive information when making decisions. For example, you might choose to invest in a retirement fund based on its past performance, with which you had no involvement. At other times, we make decisions using direct personal experience. Your renegotiations with a supplier will depend in great part on your past interactions, for instance. Whether we acquire information through description or experience has an especially strong influence on our decisions when rare events, such as your store’s recent outstanding performance, are involved. When people hear about a rare event as a description, it tends to stick out like a sore thumb. This is less likely to be the case when they experience the events personally and have a better understanding of typical ebbs and flows.
Now imagine that you’re looking at a company’s sales data for the first time. Can you see why the mall owner might focus on recent stellar success rather than looking at the bigger picture?
3 Negotiation Tips for Preparing for “Rare Events” During the Course of a Business Relationship
Here’s how to proceed when a rare event is an issue in a negotiation:
Negotiation Tip #1. Anticipate the issue.
Expect that the side who experienced the rare event firsthand will find it less compelling than the side who merely received a description of the event.
For example, if you are selling a house with a basement that flooded once during the past 20 years, anticipate that the buyer will show greater concern than you feel is warranted about the odds of this event reoccurring.
Negotiation Tip #2. Correct misperceptions.
Given that the mall owner is focused on your recent great year, it’s your job to find ways to engage him with your other nine years. To make them more salient, spend time going over them in detail.
Then give the owner your realistic assessment of how your store will fare in the near future. If you are successful, his and your forecasts will begin to converge.
Negotiation Tip #3. Bet on your beliefs.
Suppose the mall owner still refuses to come around to your perspective.
Assuming you’ve looked at other locations and still think this is the best place for your store, propose a contingent contract—a device that allows you to bet on your differing opinions about the future.
Here’s what you might say: “If you’re so sure my store will perform well, I will pay the rent you desire if that happens. In return, I will pay less rent if my sales are average or below average.” Assuming the owner truly believes he is right, he should be happy to take the bet. Gregory M. Barron Assistant Professor Harvard Business School
Adapted from, “Negotiating Under a Blue Moon,” first published in the June 2009 issue of Negotiation.