Business Negotiation April 1, 2013

Will the Real Target Please Stand Up? Part Two

On a personal level, let’s assume that you and a friend are interested in purchasing a mahogany table and chairs for your dining room. While not yet an antique, the set is over 80 years old and in fine condition. The dealer is asking $1600, a little high considering the competition.

The two of you decide that your friend will do the negotiation. Both of you agree to try for $1300 but not to pay more than $1550. Will the real target please stand up? Is the real target $1300 or $1550? What will you probably pay?

What I dislike about the target setting approach I have just described is that in the hands of a skilled antique dealer, you are likely to pay close to $1550, the price both of you have already decided is acceptable.

My suggestion to buyers is that they stop talking about the most they are willing to pay. Concentrate instead on your opening offer and your target: the price you intend to achieve or do better than. My advice to the sales manager we met earlier is similar. Stop talking about 95 cents, the least you are willing to take, or you’ll end up settling for just that.

If I were the sales manager, I would tell my salesperson: “Sell the quality of chemical and services our company provides. Be patient and go for the $1.00 asking price. If you are put under pressure by the buyer, do not settle at a price below 98 cents until you speak to me.”

The salesperson is likely to try hard to close at the 98 cent price rather than get into another discussion with the manager. However, if a 98 cent closure fails, the manager could say to the salesperson: “I authorize you to close at 97 cents if you ask for and get a larger order, 96 cents if you ask for and get a two-year contract rather than a one-year contract, or 95 cents if they give you a larger order, a longer contract and agree to pay in 30 days instead of the 45 days they want.”

By requesting the salespeople to ask for something in return for concessions, they may resist dropping to 95 cents quickly. The buyer may also accede to some of the seller’s demands. Even if none of the demands are won, the buyer is more likely to be satisfied with the 95 cent outcome, having worked harder to win it.

How we set targets in negotiation determines how we will settle. A well though out target forces the negotiator to test the other party’s power, to challenge their assumptions, and to resist giving in too easily.