The danger of false expectations in negotiation
Could you be losing out by creating false expectations in your negotiations?
The brain is not capable of judging a deal as good or bad in absolute terms. The brain can only evaluate good or bad in relative terms.
The lesson here for negotiators is of supreme importance. By mentioning specific figures too early in negotiations, you are in danger of creating reference points that can work against you.
Imagine that you tell a customer they can have a 20% volume discount if they purchase 300 items.
You’ve now created a reference point (or expectation) by which they will judge the deal. Any discount they manage to negotiate above 20%, they’ll see as a gain and anything less they’ll see as a loss.
Imagine they come back and say “thanks for the 20%, we’ll have 150 items”. This leaves you with a problem – you’ll need to explain that for 150 items the discount is less – only 10%.
Avoid getting too specific about what you are prepared to offer until you have a firm commitment and understanding of the other side’s needs.
Had you not previously created the 20% reference point, this would not have been an issue and they may have accepted 10% as the discount without complaint. However, with that initial expectation of a 20% discount, the risk is that they’ll fight to improve your offer of 10%. Even though they have changed the goalposts and only want 150 items, in their mind they’re losing out against your original reference point of 20%.
An experienced negotiator would certainly push for the 20% that is clearly available. So your job is to avoid getting too specific about what you are prepared to offer until you have a firm commitment and understanding of the other side’s needs.