This Month's Topic:
Concession Rates Send Different Messsages
A truism in all negotiations is that each concession sends a message about the person making the concession and invites a response based on how the other party reads these concessions. After years of reading research on concession patterns and as an Adjunct Professor of Law at Loyola Law School teaching negotiations, I have had the opportunity to read about and observe many different patterns of concessions, the thought patterns and negotiation outcomes. What I have learned is that the best negotiators had higher aspiration levels, better control of the concession process and had a higher tolerance for uncertainty.
So let's check out a couple of concession patterns, the messages they send and the possible responses/reactions to them. The importance here is to make sure that the message you send is the one you want to send.
For simplicity, let's assume that you are the seller and you are willing to concede $100 overall in the negotiations. There are 5 rounds of concessions in these sample negotiations.
1) $0, $0, $0, $0, $100: Staying firm throughout could easily cause the other side to walk before the deal is done because it signals you are unnecessarily obstinate and there is little or no chance for compromise. In response they will make small or no concessions. Once you put it all out in one offer, they will wrongly assume you have panicked, that they can get even more from you and possibly risk a deadlock.
2) $20, $20, $20, $20, $20: This pattern suggests that you will keep going and encourages the buyer to expect more concessions.
3) $10, $15, $20, $25, $30: Clearly this will be disastrous because your counterpart will increase his/her aspiration level thinking you will still keep going.
4) $35, $30, $22, $10, $3: The large concession at the beginning is a sign that you are willing to compromise but might signal your counterpart that he/she can increase their aspiration level. However, once you start the gradual but ever decreasing concessions signals that you are reaching the end of your rope and that no more concessions should be expected.
The take away from this: The best way to handle concessions is always to do it slowly over time. More importantly, whether you are the buyer or seller, you should be willing to give the largest concessions at the beginning, thereby locking the other side into the negotiation process by increasing their aspiration level. In each of the following iterations of the concession process, gradually reduce those concessions over time thereby reducing their aspiration levels.