Tag Archives: bottom line

Setting your sights in a negotiation: The stars or the floor?

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In any given negotiation, a negotiator must at least implicitly answer two questions.

The first comes at the beginning: What’s my goal?

The second arises near the end: Am I satisfied?

Answering each question requires a metric—a standard of comparison. But I’m here to tell you that many negotiators adopt the wrong metrics—indeed, precisely the opposite of the metrics they should. Since adopting the right metrics and answering the questions appropriately can make life negotiable, let me explain what I mean, with thanks to the research that has examined these issues.

  1. Question 1: “What’s my goal?” In debriefing in-class negotiations, I often ask my students what their goal was. The resounding answer is clear: I set out to do better than my bottom line. For example, I sought pay less than the maximum I could afford, or earn more than the minimum I could stomach. Negotiators who offer such answers—and it’s far from just students—are essentially saying that they shot for the floor. While reasonable, the serious and semi-obvious problem is that doing so almost inevitably lands them just above the floor. Floor-shooting negotiators actually pay pretty much their maximum or earn pretty much their minimum. Research is unequivocal: Negotiators who shoot for the stars instead of the floor perform far better. That is, negotiators who set an ambitious and optimistic target far-removed from their bottom line, knowing that reality will probably make them back away from it, almost inevitably achieve better outcomes—primarily because they try harder but also because they sometimes motivate their counterparts to do so.
  2. Question 2: “Am I satisfied?” When considering whether they’re satisfied with an emerging or sealed deal, negotiators go back to their goal (i.e., the floor) and evaluate the outcome accordingly—right? Well, some do, but many surprisingly don’t: The grass being greener, many negotiators late in a negotiation or shortly thereafter suddenly set sight on a star and get remorseful that their rockets didn’t carry them there. What if I could’ve gotten the product for $X (low number) or negotiated a salary of $Y (high number). Unfortunately, having such thoughts retrospectively is counterproductive as everyone’s rocket fuel is spent—it’s just too late. Additionally, by fixating on a newfound star, negotiators stand to make themselves abjectly unhappy, or even to reject emerging deals they shouldn’t. Instead of retrospectively wishing upon a star, negotiators are advised to retrospectively evaluate against the floor. That is, when reflecting on an outcome as opposed to bringing it about, it’s time for negotiators to consider whether a deal clears their bottom line, and thus whether they should probably accept it. By doing so, they’ll probably walk away happier and resist the gnawing temptation to reject good deals in a flurry of frustration.

In sum, many negotiators shoot for the floor at the outset and evaluate against the stars at the end. But that’s exactly the opposite of what a productive and healthy negotiator should probably do, which is to shoot for the stars at the outset (particularly by setting their sights on an aggressive goal), then evaluate against the floor at the end (particularly by comparing a deal against their bottom line). Do that, and I think you’ll find yourself approaching the stars without ever losing sight of the earth.

The unreliability of our gut: Intuitions in negotiation

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The recent summit between President Trump and Kim Jong Un has brought the issue of intuition in negotiation to the fore. The North Korean dictator reportedly spent years planning for such a meeting, trusting little to his gut and everything to his analysis and preparation. President Trump, in contrast, is widely known to rely on his gut, for example by saying that he would simply intuit whether a deal with Kim was possible within the first minute.

Given these two divergent approaches, each with its own appeal, it’s probably worth considering the reliability of our intuitions in negotiations. Unfortunately, I’m here to suggest that they are not very reliable at all.

In the spirit of making life (if not world events) negotiable, consider the following five ways that our intuitions can fail us. Our intuitions often tell us…

  1. To avoid making the first offer. Seems intuitive to let the other party move first. That way, we can learn about their preferences and maybe get a great deal. Right? Well, often wrong. As I’ve suggested often before, if we do that, we miss the golden opportunity to focus the other party’s attention on our own goals and desires, making us counteroffers very much in line with our own thinking. Instead, we end up making offers very much in line with theirs.
  2. To deal with one issue at a time. Seems intuitive to agree on each issue in turn, and probably the easiest first. Right? Typically wrong again. If we do that, we treat each each issue as a competitive fight, losing the opportunity to link and trade issues. Accordingly, we leave ourselves with a tremendous problem when we come to the truly contentious issues, typically at the end.
  3. That if I want something, you don’t. Seems intuitive that two negotiators want two opposite things. Right? Wrong more often than you’d think. People do want the opposite of some things, typically money or other quantitative issues. But, as I’ve suggested often before, they often want the same thing on qualitative issues—or at least care less about some qualitative issues than others, paving the way for tradeoffs. Intuition fails us again, precluding the possibility of a win-win.
  4. To focus on our bottom line. Seems intuitive to focus on our bottom line, and especially whether the deal under discussion is better than said line. Right? Wrong or at least woefully incomplete. If we focus exclusively on our bottom line, chances are that we’ll settle for something just better than that line, which is often not very good at all. Instead, we need to focus on our target, only coming back to our bottom line when we need to, at the end.
  5. That everyone negotiates pretty in much the same way. Seems intuitive that everybody around the world pretty much thinks about and approaches negotiations the same that way we do. Right? No, totally wrong. Mountains of evidence now indicate that negotiators from different cultures very markedly in their strategies, interests, and the ethical or legal standards they bring to the table. Intuition fails us again, and this time with a bang.

So you see that, appealing as our gut may be, it’s not particularly reliable in negotiations. And now that we all understand as much, maybe we can collectively convince our political leaders.

To negotiate or let it go?

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My posts have consistently highlighted our many everyday opportunities to negotiate—the fact that negotiations surround us, and that negotiating makes life negotiable. But if you buy that advice, which I believe and hope you do, then you should immediately spot a challenge. Most of us have many ways to spend our time—too many, in fact, for the 24 hours in each day. So, if we ever hope to sleep, we need to identify the situations that would most benefit from a negotiation—and the situations to just let go.

When to negotiate? It’s a tough question with many possible answers—see, for example, my earlier post on gratitude. And it’s especially tough for a negotiation professor, whose natural inclination is to say “whenever possible.” But that’s not realistic when you’ve got a lot of potential negotiations on your hands—when you’re buying and selling a house, for example, as I am now. The costs and complexities of: electrical repairs, roofing upgrades, plumbing repairs, termite inspections, radon mitigation systems, flooring updates, chimney service, painting service, cleaning service, closing costs. These are a small smattering of the many potential negotiation opportunities I’ve spotted in the last week.

Realistically, when we’re all this busy, we all have to choose. And ultimately, we’ll all have to use our best judgment. But here three guidelines I’ve found myself using, in hopes that they aid your judgment too. You might want to negotiate if:

  • The likely benefit of negotiating outweighs the likely time cost. Practically-speaking, this means that big-ticket items are more likely candidates for negotiation than mundane items. Of course, that conclusion depends on the value of your time. Whatever that value, you probably shouldn’t negotiate if there’s no hope of at least recouping it.
  • Negotiating would send a neutral or even positive signal. Sometimes, negotiations are expected: title companies are well-acquainted with buyers and sellers shopping around, for example. Other times, negotiations are admired: many employers are impressed by desired candidate taking their needs seriously. So, you should probably negotiate if it’s part of the “game.” If not–if negotiating would send an adverse signal–you should probably refer to the criteria above and below, making the decision on that basis.
  • You’ve come close to your goal. If you set a stretch goal and achieved an outcome that satisfies it, you might as well savor your success and plan your next negotiation. If you didn’t set or achieve a stretch goal–and especially if you achieved an outcome equal to or worse than your bottom line–it’s probably well-worth your time to try and right the ship.

If these rules seem a little too simple for the complexities of real life, that’s because they are. Deciding when to negotiate requires judgment, wisdom, and maturity in addition to simple rules-of-thumb. But hopefully they at least help you to wade through the murkiness of real life, as they have with the murkiness in mine!

Three responses to a perilous question: What’s your bottom line?

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The world is full of people who want to know your “bottom line.” Real estate agents are immensely curious about “your budget.” Car salesmen are sure to ask how much you can afford, in total or each month. That company you hope to work for? They’d love to know your minimum salary requirements.

These are all attempts to ascertain your bottom line, i.e., your reservation price (RP). Though not necessarily malevolent, these are questions that you probably shouldn’t answer, at least not directly. If you do, you’re likely to get an outcome that’s just barely better. So if you admit your minimum salary requirements are $30,000, what’s your probable salary? Somewhere around $30,001.

But suggesting you shouldn’t reveal your RP, as I did in the linked article above, is not the same as saying what you should do. Indeed, I’ve found that having some readymade responses to this omnipresent question can make life substantially more negotiable. So here are three strategies for responding to RP questions, along with some advantages and drawbacks.

  1. Don’t answer: Perhaps the most straightforward way of answering the question is not answering it. Everyone gets a little distracted now and then, and the moments after the RP question might be a great time for you to take an immense interest in the sunroof on this car or the tinted windows on that one. If the questioner takes the bait, this strategy can effectively avoid the issue. And it’s a good “strategy” if no other strategy comes to mind. The downside, of course, is that they’ll likely ask again. And this strategy is unlikely to work twice.
  2. Respond with your target: My favorite strategy is to answer a different question. They asked about your RP, but there’s no law saying you can’t answer about your goal, i.e., your target. So when the real estate agent asks your budget, you can certainly tell them what you’re hoping to achieve. And when they scoff and grumble about how hard that will be, well, that’s great…it means you’ve motivated them. So the upside of this strategy is that it motivates the other side and actually provides them with useful information. But the downside is that the agent may then avoid showing you a few houses that you would actually consider. So if you use this strategy with a real estate agent, combine it with some judicious Trulia searches on your own.
  3. Ask theirs: Experienced negotiators know that it can be morally “squishy” to ask about a counterpart’s RP. But they often ask anyway since so many people answer. So it’s worth considering the most aggressive response to the RP question, which is to ask about theirs. When the car dealer asks what kind of a monthly payment you can afford, for example, you might ask the minimum price for which they’d sell you the car. They probably won’t answer, but they probably will start respecting you and stop asking RP questions. That’s the upside, but the downside is that this strategy can create some momentary hostility that you’ll have to overcome.

There are certainly other approaches, and the right one certainly depends on the context. So you wouldn’t want to aggressively ask a future employer about their own RP, for example. Combined with your own good judgment, though, these strategies can be immensely useful for responding to other people’s immense interest in your RP.

Have you used any of these strategies—or others—to deal with the RP question?

Bedtime bargaining: Getting your child to sleep without sacrificing your sanity

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Children are remarkable bargainers, especially as their bedtime approaches. And the outcome is critical indeed, as a bad bedtime bargain not only guarantees a crabby morning; it also leaves parents frustrated in the face of their own weakness.

Willing an unwilling child to bed is tough. But it’s negotiable!

Today I’ll discuss a seemingly trivial but actually essential strategy for any negotiation: managing the focus of your attention. So imagine that tomorrow’s a big day at preschool. To be fresh, you’d love Suzie to snooze by 7:30 (your target); to be honest, you’re willing to settle for 8:00 (your reservation price). Most nights, Suzie’s reasonably cooperative; tonight, she must have downed a Red Bull.

We’ve already talked about making the first offer, and making it a little more aggressively than your target. So you might tell Suzie that 7:15 is the right time to drift into dreamland. But the question is what time you THINK about—in your own head—as the bedtime bargaining unfolds. Do you focus on your target or your reservation price?

If that seems trivial, consider negotiation research suggesting that it’s anything but—that the number in your head is actually a great predictor of the number that you ultimately obtain. So what do you think (quite literally) in the bedtime negotiation—should you focus on your target (7:30) or your reservation price (8:00) while Suzie pleads her case?

Definitely your target. Research shows that negotiators who think about their target are much more likely to achieve it than negotiators who let their mind wander back to their bottom line. So despite Suzie’s protestations, and despite any concessions you might make to appease her, you should continue to imagine a giant, neon, flashing 7:30 sign in your head—focusing on that time and trying to attain it. File away that other, later time—whatever it was—in the back of your brain.

But don’t forget it! Because there comes a point when remembering your reservation price is crucial: at the end of the negotiation. To see why, imagine that Suzie’s hard bargaining has resulted in a final offer of 7:45. Is that an offer you can accept? Without comparing it against your reservation price, there’s no way to know. Being earlier than 8:00, 7:45 sounds acceptable (if not ideal).

But there’s another, equally critical reason to recall your reservation price: to evaluate how you’ve done. Sitting on the sofa, with Suzie thankfully asleep, how would you evaluate a 7:45 agreement? Quite negatively, if you were comparing it against your target, but very positively if you were comparing it against your reservation price. So it’s also important to remember your reservation price AFTER the negotiation, in order to relish in the additional 15 minutes that your own hard bargaining attained.

So the general point is this: Before a negotiation, define your reservation price and target. During a negotiation, focus on your target and temporarily forget your reservation price. Only when evaluating a potential final agreement or an actual final agreement should you recall your reservation price, forgetting your target and focusing on the future.

What do you “think” about this strategy?

How to win your next dispute with the airlines

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Summer is the season of vacations and thunderstorms. With both come the possibility, or perhaps the absolute certainty of unpleasant airline experiences. With unpleasant airline experiences come the opportunity to make the airlines aware of those experiences, seeking recognition or—better yet—redress.

Disputing with the airlines may be (and usually is) uncomfortable. But by describing what to reveal in the course of the dispute, this post will try to show you that even airline problems are negotiable. In particular, we’ll consider what to reveal about your alternatives (BATNA) and bottom line (reservation price).

To start the discussion, imagine the following situation (which definitely did not happen to me in May 2014, on a carrier we will disguise as Reunited Airlines).

You’re scheduled to depart lovely O’Hare Airport for Baltimore at 5 pm on Sunday afternoon. At 5, the departure time becomes 6. At 6, it becomes 7. At 7, it becomes…you get the picture. Each time it moves back an hour, it also becomes a different gate that is literally at the other end of O’Hare’s B-Concourse (which, by the way, is approximately as far as Baltimore). Feeling fatigued from your seven strolls across the airport, you can only imagine what the sweet but increasingly irritated elderly couple is thinking. Well after 1 am, you finally board the flight. Settling in to enjoy a well-deserved snooze en route to Baltimore, you discover that your crew is no longer permitted to fly, per FAA regulations. Well, isn’t that convenient. Waiting for the jetway to walk yourself back into the airport, you then learn that it’s broken. Yep, there it is, 3 feet from the plane. No worries, half an hour later, Reunited has found someone to fix it. Well after 2 am now, the airline tells you a specific gate where an agent will meet you to book a hotel room. One problem: there is no agent at that gate, or any gate, anywhere in the airport, it seems. Having literally cornered an agent who was apparently on her way home, you finally obtain a crummy hotel room on the wrong side of the tracks. Arriving at said room, it’s now about 3:30 am, by which time you could have driven to Baltimore.

Not that I’ve actually had that exact experience on Reunited in May 2014. But imagine that you did. And imagine, as so often happens, that you later get on the phone with a helpful Reunited agent in order to communicate your plight and receive some redress in the form of Reunited miles. Imagine, finally, that you’re a frequent flier on Reunited but are seriously considering switching to Outwest Airlines, which just happens to have a lot more flights from Baltimore. Unless Reunited gives you 5,000 frequent flier miles, you’ve decided that you’ve simply had it. Sounds like a reservation price (5,000 miles) and BATNA (Outwest). If you’ve been reading the previous posts, maybe you’ve also developed a goal (target); let’s call it 25,000 miles.

The question of the day is: what do you tell the Reunited agent about your reservation price and BATNA? In terms of your reservation price, do you tell them that that you won’t accept a mile less than 5,000? What happens when you do? They may well say no, as you’ve already demonstrated your unwavering loyalty through your frequent flying. But if they do say yes, chances are it will sound like this: “We are very sorry about your experience, which does not meet our exacting customer service standards. In recognition of this experience, we are prepared to offer you…wait for it…5,000 miles.” Surprise! Their offer exactly matches your reservation price. They know your bottom line; why would they offer anything more? So no, revealing your reservation price is generally a poor practice, as it gives the other side the green light to extend an offer that barely meets your minimal standards.

But what about your BATNA? Should you tell Reunited that you’re seriously considering abandoning the friendly skies in favor of the generally non-annoying, non-delayed, non-gate-changed, non-clocked-out, non-broken, non-misinformed skies? Well, if you’re seriously considering doing that, then the answer is yes. If your alternative is favorable enough that you would actually exercise it, then it’s probably a good idea to let your counterpart know—politely, of course. Indeed, the real question is not whether to reveal your BATNA, but how. I generally offer three pieces of advice:

  • Wait until the end. If you can achieve a favorable outcome without threatening to leave, that’s usually better and more pleasant for everyone involved.
  • State your BATNA indirectly. If you tell your counterpart everything there is to know about your BATNA (like the fact that you have never flown on Outwest because of Reunited’s excellent mileage program), they will be able to take a good guess at your reservation price.
  • Couple your BATNA with your target. At the same time you indirectly indicate that Baltimore is located in the metropolitan Washington area, serviced by all of the major airlines and then some, offer to take your BATNA off the table if they are able to award you, say, 25,000 miles.

So the message is this: never reveal your reservation price. It lets the other party swipe at your Achilles heel by making an offer that just kind of / sort of / barely / minimally / maybe exceeds your bottom line. But if you have a credible and strong BATNA, let them know—eventually, indirectly, and in combination with your target.

Have you ever tried anything similar with the airlines? What happened?

Bring down that cable bill! Setting a target

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Should I really pay that much to watch five channels? Many of us wonder with each cable bill, or at least when our contract comes up for renewal. Although few of us probably act on that thought, many of us probably should.

If we’re truly paying too much, the cable bill is negotiable!

Let’s focus on what happens when the cable contract comes up for renewal, and let’s imagine that you’re currently with Comcast. When that happens, you have a basic choice. It’s not: should I negotiate or accept it? It is: should I stay with Comcast or go with another option (Verizon, Netflix, rabbit ears)? Even if you don’t really want to go with another option, Comcast doesn’t know that. All they know is that you can. In short, and in the terminology of the post on car dealers, you have a BATNA (alternative). And Comcast knows it.

Suppose you realize you don’t really want to switch (too much of a pain), but you’re willing to switch if Comcast plays hardball. With that decision in hand, now’s a good time to determine your reservation price (bottom line; see the post on job negotiations) for the upcoming negotiations with Comcast. But it’s also a good time to determine your target: the best possible outcome you could realistically hope to achieve with Comcast. Note that this number is very different than your reservation price—it’s what you really want, not the minimum you’re willing to accept.

How do you come up with a target? One way is to identify your BATNA and “mark it up.” So try exploring what an alternative company has to offer. Oftentimes what they’re offering is a great deal! Switch to Verizon, and pay $19.99 per month for the first year! Take that number and ignore the part about the first year; make your target with Comcast $19.99 per month for the whole two-year contract.

Note again that this is not your bottom line; you’re probably willing to pay more. Also note that this perfectly ethical. You’re not misrepresenting the Verizon deal to Comcast (they already know what it is); you’re simply focusing on the Verizon deal and trying to do even better with Comcast.

Targets are stretch goals, but they’re not pipe dreams. They’re also critically important because they focus our attention on what we really want, instead of what is kind of / maybe / possibly ok. Finally, they motivate us to keep trying when the inevitable stumbling blocks arise.

So take that $19.99 target into your negotiation with Comcast, and just ask for it! Of course, they will say no, but here’s the most critical point about a target: keep thinking about it, and keep asking for it until you’re absolutely sure you can’t get it, or at least until Comcast gives you a counteroffer that’s better than your bottom line. What if they don’t? You can switch to Verizon—and you should if they haven’t done better than your reservation price. What if they clear your reservation price but don’t meet your target? You’ve already done better for yourself, and if you don’t think you’ve done well enough, you can end the call by politely indicating that you’ll “think about it.”

So next time you’re fed up with the “deals” being offered by cable companies (cell phone companies, insurance companies, car dealers), try to define an aggressive but realistic target, even while you understand your bottom line. When negotiating, forget your bottom line and focus on your target. At the end of the negotiation, recall your bottom line to determine whether the new deal is acceptable, and to bask in the glory of how much better you’ve done.

Should you accept that job? Defining a reservation price

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There comes a time in all of our lives (approximately every three years) when we must decide whether to change jobs. This decision may seem difficult (and it is). But it’s negotiable!

Now, negotiating a new job offer requires a whole host of negotiation concepts and skills, including the ones I’ve described in recent posts. But today, I’ll focus on one that becomes particularly important when you’ve actually gotten a job offer and are deciding whether to stay or go: your reservation price.

To be clear, this is the situation: you’ve already looked far and wide for the best alternative opportunity; you think you’ve found it, and they extended an offer. This alternative job, in the parlance of the last post, is your BATNA. You’re now deciding whether it’s good enough to get up and go.

Now’s the time to consider your reservation price. It may sound technical, but the concept of reservation price is already second-nature: it’s just your bottom line. How you define a reservation price and what you do with it, though, is more like third or fourth nature for many of us. That’s where this post seeks to help.

Suppose, for the sake of argument, that your current job pays $50,000. You like the job; your coworkers are friendly; the commute is manageable; you see a clear career path forward. It’s just that pesky $50,000, which doesn’t seem to pay the bills and still leave enough for that long-awaited Hawaiian vacation. Thus, you decided to hit the job market and eventually found a similar job in the same field. Though waiting for the actual offer, you do have some concerns: your prospective coworkers don’t seem all that welcoming; you would have to drive 45 minutes instead of 20; and you’re not sure of the promotion opportunities. Now—before you receive the offer—is the time to define your reservation price.

In any upcoming negotiations over the new job, you will have a BATNA—your current job—and it will have a value: the $50,000 salary. Yet, $50,000 is not your reservation price; your reservation price is your numerical bottom line, adjusted for all of the intangibles. $50,000 doesn’t yet reflect the intangibles. Since you like your current coworkers, commute, and career prospects, you might say to yourself: “Self, I will not accept the new job with ambiguously-friendly coworkers, a longer commute, and unclear prospects unless it pays at least $60,000. That number, not the $50,000 salary, is your reservation price. The extra $10,000 makes up for the intangibles.

Now the situation becomes a lot clearer. If the new employer extends an offer of $65,000, you should probably eventually accept it; if they extend an offer of $55,000, you should probably negotiate. If you deploy your best negotiation tactics (and hopefully the previous posts will help) but still can’t clear the $60,000 hurdle, then you should probably decline.

Easy enough, right? Yet, few people define a clear reservation before entering into a negotiation. Still fewer both define a reservation price and then resist the temptation to “adjust” it once the offer comes in. Receiving the $55,000 offer, they convince themselves it’s “good enough.” But to perform reasonably well in negotiations, this is exactly what you cannot do. Only by clearly defining a reservation price and sticking to it unless your BATNA changes dramatically can you hope to avoid a poor outcome.

Reservation prices don’t have to be prices; they can be conditions: “My office has to be in Fort Worth rather than the Dallas to accept this job” (for example). Regardless, my advice to any negotiator would be to understand with clarity where the line falls between what will and will not work. Drawing and not deviating from that line, though far from easy, is nothing short of essential.

Have you defined a bottom line in a previous negotiation? How?