In a negotiation, a concession is any offer made that is more favourable to the other party than the previous offer. Particularly if you see negotiation as a haggling process, you will expect to see a series of concessions made during the negotiation until agreement is reached. Research shows us that the final agreement is likely to be around the midpoint of the opening offer and the opening counter-offer.
To improve your negotiations, it is important to understand how to manage concessions. There are three key considerations – when to match a concession, how big to make the concession and when to make a concession. We look at each of these below.
Reciprocity of concessions
There is a fairly standard piece of negotiation advice that says “one should never grant a concession without getting a concession in return”. While I’m not a believer of black and white statements like this one, it can make sense to make mutual concessions rather than unilateral concessions. The word “if” is a powerful tool for making this happen.
Take for example a situation where you are negotiating rental of an important piece of equipment. The client has asked you to reduce your fee by $250 a day. Rather than simply making this unilateral concession, you may choose to make it a mutual concession by suggesting “I could agree to a reduction of the daily rate if you were to agree to pay the hire charges weekly rather than monthly.”
Size of concessions
Obviously, it is possible to make small or large concessions. It is important to be careful when making concessions however as they may have the opposite effect to what you intend.
Take for example the salesperson who repeatedly drops their price by more than the customer increases their price. Research shows us that this will actually lead to reduced client satisfaction.
Other research shows that a strategy of starting a negotiation with a tough stance of few early concessions and making larger concessions later in the negotiation was more effective than starting with large concessions or sticking only with small concessions. This strategy appears to work as it creates a contrast for the other side who feels a sense of relief once more generous concessions start being made. It gives the other party a sense of “winning” in the negotiation.
Timing of concessions
Concessions should generally not be made too early in the negotiation. Kwon and Weingart showed that a buyer is more satisfied in a negotiation when the seller makes gradual concessions. Sellers who made immediate concessions had the most negative reaction from the buyers.
A final note on concessions.
When making a concession during your negotiation, make it explicit. Don’ assume the other party will recognise the concession. For example, in a recent mediation, a party put forward an offer that they would accept a full refund. It didn’t seem there was any concession at all! But, they went on to explain – “We are giving up our entitlement to claim costs for the legal fees incurred to date.” The other side was not quite clear that there was a benefit on offer.
By making the concession explicit, you are more likely to trigger a sense of reciprocity in the other party. They are then more likely to make a concession in return. When sharing your concession, make sure you make it clear to the other party what the cost is to you as well is the benefit to them.
For more information about how to negotiate effectively, or for assistance with your next negotiation, contact us for a confidential, no-obligation discussion.