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| Negotiating the price of para-sailing in Mexico made for a very reasonably priced adventure |
Throughout your life, you’ll likely be involved in thousands
of negotiations. In fact, you probably
negotiate at least a few times each day of your life. Whether you’re negotiating with your
significant other about what movie to watch, deciding what restaurant to eat at
with your friends, or haggling over a good price to pay for a used car, you’re
negotiating whether you know it or not.
There are certain techniques that you can use that can make
you a more effective negotiator. The
goal of using these techniques is not to somehow gain the upper hand in a
negotiation, but rather to find out what you value and what the other party
values, and to find a solution or deal that satisfies both parties.
Understand the values
of both parties in the negotiation
Before entering a negotiation, it’s a good practice to run
through what you value and what you think the other party values. During the negotiation, it’s OK to even ask
the party what they value so you can more effectively negotiate. The more information you have, the better the
negotiation will proceed.
For example, let’s say you’re a recruiter at a company and
you’re seeking to hire a very strong candidate for the job. There are many things the candidate might
value, including salary, vacation length, medical benefits, the project they’ll
be working on, the manager, teammates, etc.
If the candidate values working on high profile projects the most, the
discussion should focus on how you''ll align their position with a high
profile and exciting project. The other
values are not as important and shouldn’t be the focus of the negotiation.
Information is
valuable
The more information you have in a negotiation,
the better prepared you’ll be to negotiate effectively. For example, if you’re heading to a used car
dealership to buy a car, knowing the value of a similar car in Kelly Blue Book
gives you a ballpark of what a similar make and model car costs. Regardless of how much the salesperson
attempts to talk up the value of the car, you’ll have a firm grasp of the fair
market value.
Another example is if you’re buying a wedding ring. With wedding rings, jewelers typically markup
rings by over 100%. If you research
similar carat, color, cut, and clarity at other jewelers and online jewelers,
you’ll be in a better position to demand a lower price.
Determine your
opening offer, your maximum offer, and your target
Before entering into a negotiation, it’s valuable to write
down an opening offer, a maximum offer, and your target price. This allows you to determine the value rationally
without letting emotions interfere with your negotiating. For instance, if you’re in the market for a
new house that is selling for $300,000, you might place an opening offer at $270,000,
a maximum offer at $310,000, and a target of $290,000. This provides a rule set that allows you to negotiate
rationally without letting emotions drive up the price on a house you love.
Be willing to walk
away
The ability to walk away in a negotiation is extremely
powerful. Recently when I was in Cancun,
Mexico, I negotiated the price for para-sailing. The para-sailing salesperson originally called out
a price of $180 for two people for a short ride. Other para-sailing outfits had offered
significantly less, so I knew this price was completely unreasonable. At that point, I said I wanted to para-sail
but I considered the price completely unreasonable, and I started to walk away. The salesperson ran back and offered a significantly
lower price. With that, he brought the
price down to a more reasonable level, kicking off our negotiations.
Framing the offer
Being able to frame an offer is extremely powerful. In 1994, Stella Liebeck sued McDonald’s for
spilling hot coffee on her lap and burning herself. Ultimately, she won $2.7 million in punitive
damages and the case became one of the most famous examples of frivolous
lawsuits. The award seems completely
unreasonable considering that Stella spilled her own coffee on her lap. However, the lawyers framed the award like
this:
- McDonald’s served coffee at 170-180 degrees Fahrenheit, which is excessively hot. This temperature burns skin after 2 to 7 seconds of exposure.
- Stella spent 8 days hospitalized to undergo skin grafting and experienced two years of medical treatment, costing her over $20,000.
- $2.7 million is the revenue for only one day of coffee sales at McDonald’s.
With this framing, the award suddenly seems a lot more
reasonable.
Seal the deal
Once you successfully understand the values of the other
negotiating party and you’re satisfied that you have both exchanged fair value,
it’s time to seal the deal. Do you have any great negotiating experiences? Share them in the comments below.
