Using Concession Strategy in Negotiation

Plan your concession behavior to enhance sales success and customer satisfaction. Good concessions are donations of perceived value, not demonstrations of gamesmanship. Perceived value means the importance the other side attaches to our concession.

Gift certificates as an example

Merchants love to sell these because they are priced at retail, they bring customers back, and they have a low redemption rate. As part of a settlement negotiation with an unhappy customer, gift certificates are a common concession. The customer may never use it, but it satisfies the demand that the "You owe me" debt be paid off. Thus we concede a high perceived value item at a low actual cost.

Build concessions into your negotiation plan

The buyer has an emotional imperative to win by beating us down on the price, squeezing an earlier delivery, extending the service warranty, etc. Knowing the importance that the customer places on each negotiable topic determines which concession to offer. For example, if we know that price is the hot button, then leave some bargaining room, and plan to give ground on this point.

Give ground reluctantly

It must appear to have value to us to be worth anything to someone else. A concession must be surrendered reluctantly like a trophy to a victor. Suppose that we can meet a customer's time demands without great exertion or expense. If we proudly answer, "No problem" to his request, that concession has very little perceived value. The task here is to turn low actual value to us into high perceived value to them.

"What would you be willing to do for me?"

Include this comeback as part of your built-in concession strategy. It increases the perceived value and invites get as part of the give. A clever negotiation tactic is to dangle the concession on the condition that we get something for it in return. Instead of casually agreeing to a buyer's offer that we could afford, better to respond, "I do not know if I can get them to go for all of that. What would you be willing to give me as ammunition so I can sell them on it?"

Even if you have the authority yourself, work to get a reciprocal concession as 'payment' for your reasonableness.

Your concessions, like the overall negotiation, plan should be in writing. Prioritize the list of concessions from most to least important to you, and estimate the perceived value to the buyer. The discipline of listing and prioritizing will help to keep on the path through the smoke and flames of the negotiation process.

Not every concession needs reciprocation

A trap used by good negotiators on the unsuspecting amateur is to plant a low (actual) value concession and then demand that you reciprocate. Beware that the other side also engages in perceived value concessions. Be prepared to challenge some of those concessions, especially when facing sophisticated buyers

Timing

When is as important as how to make the concession. Never concede first on a point of major importance to you. If you do, that point will be seen as trivial since you gave it up so willingly. Moreover, your offer will be read as weakness and trigger a barrage of other concession demands. Do not offer concessions too early in the process. Typically, the greatest movement toward settlement (sometimes called progress) occurs in the waning moments. Time is always a crucial factor in negotiations and can dictate concession behavior. If you plan your concessions, you'll counteract this tendency to be controlled by time.

Converge on Zero

Make concessions in decreasing amounts. If you give the buyer a $500 initial price cut, and then double it to a $1000 'final' concession to close the deal, the buyer has just learned that it pays to wait and ask for another concession. Instead, divide your total price concession into decreasing offers. Begin with the largest, and proceed to incrementally smaller bids. For instance, give up 40%, 30%, 20%, and a final 10% of your total concession and do so in that order. The convergence on diminishing returns is apparent to the buyer.

Your concessions, like the overall negotiation, plan should be in writing. Prioritize the list of concessions from most to least important to you, and estimate the perceived value to the buyer. The discipline of listing and prioritizing will help to keep on the path through the smoke and flames of the negotiation process.