Part 3: Get More of What You Want: How to Tell a Good Deal
Before you start a negotiation, it’s important to know what makes a good deal. To evaluate whether a deal is good or not, consider these three factors:
- The least ideal outcome you are willing to accept (reservation price)
- The best outcome you hope for (aspiration)
- Your other options should you or the other party walk away (your alternatives).
Know Your Plan B
What must you know to assess the quality of a deal you are offered? Your reservation price is the highest price a reasonable buyer will pay or the lowest price a reasonable seller will accept. It’s the standard you will absolutely not compromise. It’s important to know it so that you can walk away from offers that fall below it.
To establish your reservation price, you need to assess your alternatives. What would happen if the negotiation ended at an impasse? The better your alternatives, the more you tend to be willing to walk away. Having good alternatives creates a situation where your counterpart must pay you to stay in the negotiation.
Because your greatest source of power in any negotiation is the ability to walk away, your alternatives are what makes that possible.
Your negotiating skills certainly affect the outcome of a negotiation, but research shows that the better your alternatives—compared to those of your counterpart—the better the deal you’ll be able to get for yourself.
Think about your alternatives as a safety net. If you make the mistake of viewing your alternatives as a standard of acceptability, you will reduce the quality of your outcome, finds one study. Negotiators with poor alternatives often lower their expectations during a negotiation, which causes them to accept less.
Both having good alternatives and your perception of those alternatives influence your performance, and they are independent of your actual negotiation skill, according to the Journal of Applied Psychology.
What’s the Least You’re Willing to Accept?
The next step is to establish your reservation price. It’s important not only because it helps negotiators recognize good and bad deals, but also because it’s a critical piece of strategic information. Begin with your alternatives; your reservation price could be equal to or exceed the value of your best alternative.
Negotiators sometimes lower their reservation price as the negotiation drags on because of negotiation fatigue. That’s a major mistake! Your alternatives do not change according to the length of the negotiation; your reservation price should not either.
Suppose you’re considering purchasing a theater ticket from a scalper. With your alternatives in mind, you decided you are willing to pay no more than $30 for the ticket, but the seller wants $60 for it. After some haggling, they agree to bring the price down to $31 (a dollar more than your reservation price).
Assuming this is the lowest the seller will concede, how should you respond?
Most folks will accept his offer and violate their reservation price. They will still reason that the $31 ticket is a good deal despite not sticking true to their maximum standard. “I got him to reduce the original price by $29,” they will tell themselves, or “It’s just a dollar more than what I was willing to pay.” While one could understand the logic, as the negotiator, you would have still lowered your standard for the sake of reaching an agreement.
If you’d thoughtfully set your reservation price at $30, then one could argue that you should reject the $31 offer. Even if the seller was willing to meet you at $30.05, then you should still walk away. You should only adjust your reservation price if, during the negotiation, you learn something you could not have known when you calculated your reservation price.
Adjust your reservation price only when there’s new information, not because you want the negotiation to end.
Make no mistake; it takes a great deal of discipline to uphold the standard of the reservation price. The closer you get to the reservation price, the harder it becomes to resist counteroffers.
In your negotiation, your alternatives set the tone for what happens if you cannot reach an agreement. The reservation price is the tipping point where you are indifferent to either taking the deal or sticking with your alternatives. If you focus on your reservation price or the alternatives that influenced your reservation price, you will underperform in your negotiations as your expectations will be directed to your least acceptable outcomes. Because expectations drive behavior, you need to change your expectations by setting an aspiration price.
Establish What Would Be the Best Outcome
The aspiration price (or value) is an optimistic assessment of what you could achieve in the negotiation. Do not confuse this aspiration with the first offer. Calculating and focusing on one’s aspirations is an underrated advantage during a negotiation. Aspirations give you hope of the best possible outcomes. They position you to focus on the upside rather than on your safety net (your alternative) or your bottom line (your reservation price). This increases the likelihood that you will achieve better results. The higher your aspirations (or expectations or goals) are, the better you will perform during a negotiation, according to research. Even if you do not meet your aspirations, they will motivate you to perform better than you might if you set more modest standards. The aspiration price is a necessary antidote to focusing on the reservation price (what is good enough) or your alternative (your safety net).
What Happens When You Focus on What’s Possible
Does having aspirations really work? In a classic study, researchers encouraged some negotiators to focus on their aspirations and others to focus on their alternatives during a negotiation. Once the participants completed the negotiation, the researchers assessed both their performance and their satisfaction with the outcomes.
Interestingly those who focused on their aspirations achieved significantly better outcomes than those who focused on their alternatives. Paradoxically, they were much less satisfied with their objectively superior outcomes. The alternative-focused negotiators got less, but they exceeded their alternatives, which satisfied them.
There are three key takeaways from these findings:
- Knowing that you will be less satisfied with your performance, you should still focus on your aspiration. Acknowledge that feeling good is not necessarily the most important outcome for you in a negotiation.
- Focus your counterpart on their alternative. When they exceed that alternative, they will be satisfied with the outcome and will see you as a viable future negotiating partner.
- Most importantly, this research suggests that the correlation between objective negotiator performance and subjective assessments of that same performance runs from zero to negative. This critical insight only highlights how important good planning and preparation are to get (more of) what you really want in the negotiation.
There is much more to negotiation than simply splitting the difference or trying to beat your counterpart. Here’s to future successful negotiations!
These books have even more research-backed negotiation advice:
- Getting (More of) What You Want: How the secrets of economics and psychology can help you negotiate anything, in business and in life
- Ask for it: How women can use the power of negotiation to get what they really want
For more quick negotiation tips, read:
Margaret Neale is the co-author of Getting (More Of) What You Want and the Adams Distinguished Professor of Management at Stanford Graduate School of Business.
About Elevate for Her: This is the second of a three-part series by Elevate For Her, a professional development organization offering programming specifically for women. Programs include negotiations, empowerment, unconscious bias, personal branding, and even improv for business. The organization’s founder, Rhonda Moret, is a professional speaker and seasoned marketing professional who has worked on accounts including Nike Golf, PGA of America, and Universal Studios and has also worked with high profile personalities such as Billie Jean King, Tiger Woods, bestselling author Robert Kiyosaki, and more.