How the Process Helps the Parties Feel the Deal Wasn’t So Bad
In negotiation theory, it is a basic beginner’s rule not to start with your best offer, or your “bottom line.” When I first heard this, I wondered, “Why not?” I had always negotiated by simply deciding what I would pay for an item, and then walking in and offering that price. If the seller accepted my price, great; if not, I would walk out. Simple. Half the time I found that when I walked out, the seller would come after me and accept my price rather than not make a sale. On the other hand, on occasion, they immediately accepted my offer and I kicked myself for offering too much. Nevertheless, I considered this the best approach.
While my approach was simple, it is clear to me now that it is fundamentally flawed. This is because it prevents both the seller and buyer from feeling they got the best deal possible from the other side. Even when I got my price, I wondered if I could have paid less and gotten a “better deal.” Similarly, a seller may wonder if he could have convinced me to pay more. Dancing the dance of negotiation satisfies this desire to work to the best deal possible for both sides.
A common example of the value of bargaining is found in buying trinkets from street vendors. I have bought plenty of trinkets and made more than my fair share of insultingly low offers to do so. But, I have received just as many insultingly high offers (like a fake Rolex for $200, or fake Oakley’s for $100). From there, the bargaining begins. So, if I offer $1 for the $100 Oakley’s, and slowly raise my price step by step and end up buying them for $15, the seller feels that at least he got me to come up. He probably fears that if he started with a reasonable offer, say $20, that I would not end up as high as $15. In fact, this is probably true.
From the buyer’s perspective, there is increased value in reducing the price from $100 to $15 than there would be from $20 to $15. After hearing $100, $15 sounds like a “good deal”. After all, it is a mere 15% of the seller’s opening offer. In other words, I feel I have gotten a “deal” because the seller has lowered his price. I would not feel I had gotten as good of a “deal” if the opening offer was $20, because I would have paid 75% (instead of 15%) of the seller’s first price.
The result of the dance then is that both parties feel they have “won” to some degree. The seller has gotten a price higher than the lowest he could accept, and the buyer has paid less than what he considers the good to be worth. Without the bargaining, the parties would not have this feeling. Perhaps it is this feeling that drives people to continue making extreme opening offers in negotiation. And, for the first time, I see the importance of “dancing the dance” and understand it more as a dance than a fight.
By thinking of negotiation in these terms, I began to understand that bargaining allows both sides to feel that, even if they did not get exactly what they wanted, they were able to make the other side make a concession. Often, the most important consideration of each side is simply to feel they got the other side to go as far as they could, or that they got “the best deal possible.” This is impossible with a “one and done” system of negotiation.