Friday, January 21, 2011

Do Better Negotiations with Bracketing

Whether you're negotiating for an increase in pay or trying to get the rock-bottom price for a new car, you'll do better if you use a technique that negotiators call Bracketing.

This means that your initial proposal should be an equal distance on the other side of your objective as their proposal.

Let me give you some simple examples:
  1. You hope that your boss will give you a 10 percent increase in pay. You should ask him for 20 percent.

  2. The car dealer is asking $25,000 for the car. You want to buy it for $22,000. You should make an opening offer of $19,000.
Of course it's not always true that you'll end up in the middle, but that is a good assumption to make if you don't have anything else on which to base your opening position. Assume that you'll end up in the middle, midway between the two opening negotiating positions. If you track that, I think that how often it happens will amaze you - in little things and in big things.

In Little Things
Your son comes to you and says he needs $20 for a fishing trip he's going to take this weekend. You say, "No way. I'm not going to give you $20. Do you realize that when I was your age I got 50 cents a week allowance and had to work for that? I'll give you $10 and not a penny more."

Your son says, "I can't do it for $10, Dad."

Now you have established the negotiating range. He's asking for $20. You're willing to pay $10. See how often you end up at $15.

In Big Things
In 1982, the Americans were negotiating the payoff of a huge international loan with the government of Mexico. They were about to default on an $82 billion loan. Their chief negotiator was Jesus Herzog, their finance minister. Treasury Secretary Donald Regan and Federal Reserve Board Chairman Paul Volker represented the American side.

In a creative solution, the Americans asked Mexico to contribute huge amounts of petroleum to their strategic petroleum reserve, which Herzog agreed to do. That didn't settle it all, however.

The Americans proposed to the Mexicans that they pay them a $100 million negotiating fee, which was a politically acceptable way to pay accrued interest. When President Lopez Portillo heard what the Americans were asking for, he went ballistic.

He said the equivalent of: “You tell Ronald Reagan to drop dead. We're not paying the United States a negotiating fee. Not one peso.” So now the Americans had the negotiating range established. They asked for $100 million. The Mexicans were offering zero.

Guess what they ended up paying? That's right - $50 million.

So often, in little things and in big things, we end up splitting the difference. With Bracketing, Power Negotiators are assured that if that happens, they still get what they want.

To Bracket, you must get the other side to state its position first.
If the other side can get you to state your position first, then it can Bracket you so that, if you end up splitting the difference as so often happens, it ends up getting what it wanted.
That's an underlying principle of negotiating: Get the other person to state his or her position first. It may not be as bad as you fear, and it's the only way you can Bracket his or her proposal.

Key Phrase
To get the other person to state his or her position first: If the status quo is fine with you and there is no pressure on you to make a move, be bold enough to say to the other side, "You approached me. The way things are satisfies me. If you want to do this, you'll have to make a proposal to me."

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