CHAPTER 6

Expectations and Perceptions

Setting Expectations

Negotiation has sometimes been described as the process of gently separating the other party from their unrealistic expectations and bringing them back down to earth. That is what setting expectations is all about. The critical time to begin the process of setting expectations is right at the initial contact. Sometimes you may decide to be very blunt about it (“I am not going to pay a lot for that …”), but usually you will be more subtle. You will say things that drop hints and allow the other party to pick these hints up and draw their own conclusions. The less it appears to the other party that you are trying to set their expectations, the more effectively you will be able to do it.

A buyer trying to set the seller’s expectations on price might say to the salesperson:

A salesperson might say to the buyer:

Now, as you read the statements in isolation it should be pretty clear to you that these are expectations-setting statements. Therefore, the more you can embed them in your conversation and make it appear that they were just things that you let slip, the more that they will seem credible to the other party. The moment the other party sees them as an attempt to set their expectations, they will lose credibility.

And the expectation-setting process has to continue, and be consistent, throughout the whole negotiation. Remember too, that everybody in your organization who talks to the other party is on your negotiating team, whether you like it or not. As we discussed in the previous information gathering section, one of the key sources for information for any negotiator is multiple people within the other party’s organization. Therefore, you better make sure that everybody in your organization is aware of what is going on and what you are trying to achieve.

If the sales person goes down to the plant and somebody there says, “We agreed to try Price Cutters widgets, but it really isn’t working and we all really want to go back to Acme,” the buyer’s attempt at expectation setting will crumble like a house of cards.

Similarly, if the buyer gets into a conversation with somebody in the seller’s organization and that person inadvertently says, “Boy, is it ever a good thing that we took a big hedge on copper last year when it was at rock-bottom prices,” the seller’s expectation-setting process is going nowhere.

Managing Their Perceptions of Your LAS

Here is a point to consider. When the other party finally reaches an agreement, ask yourself why they agree to do it at that moment, with those terms? Why didn’t they agree sooner, or why didn’t they keep on negotiating?

If you think about it, there really is only one reason why anyone ever makes a deal at a particular point. It’s quite simply because they’ve become convinced that even if they continued to negotiate, they wouldn’t be able to do any better. Translation? They become convinced that they have reached your Least Acceptable Settlement (LAS), and that they have gotten you to go as far as you can. Then, there really is no point in continuing to negotiate, and they will reach an agreement. Therefore, one of the most important strategic jobs you have in any negotiation is to manage the other party’s perception as to where your LAS is.

How you do that? It has to do with the information that you do tell them. A storyline if you like. Remember, just as you are trying to find their LAS, they’re looking at your facts, needs, pressures, and so forth to try to uncover your LAS. That’s why you should create an “Information to Not Blab” list, such as, you’re desperate to make the sale this quarter, you’re overstocked or whatever—information that would give away your LAS.

But at the same time, there is information that you do want to blab, information that they will pick up and use to determine your LAS. The key is to manage the information in such a way that their perception of your LAS is that it is in the same place as their LAS.

Let me tell you a story from a personal example. Some time ago I was in the process of buying a new car. I had visited a dealership and driven the car so I knew what I wanted. One day I called up the salesperson at the dealership and said:

So he gave me his price and then I gave him my price. And after he stopped choking and gagging, he said:

Now, if I get into my car and drive 25 minutes up to Morristown, NJ where the dealership is located and sit around while they go through all of their nonsense, what is my story? What’s my message? What perception do they have of me as a customer?

I look like a pretty anxious customer, don’t I? I really want that car. Is that the message that I want to send? Of course not. So I said:

and held the phone away from my mouth a little and called downstairs to my wife, Jeannie:

She called back:

I said to Dave:

He said:

What’s my message now? What’s my story? Am I an anxious customer? No, I’ll be in the neighborhood anyway; we’re coming up to have dinner. Totally different story.

So we drive up and I sign the offer sheet and he goes off to have his conference with his manager. And meanwhile, Jeannie and I are sitting there, talking and having what we call our vacation fantasy discussion. Now we aren’t actually planning to go on vacation, but we’re sitting there fantasizing about where we might go. Maybe we’d go down and spend some time on the Jersey Shore. Maybe we would go up to that little bed and breakfast in the Poconos. We’re having a grand old time. Now, if they just happened to have left the intercom on, or if somebody walks by and hears what we are saying, what messages are we sending? Are we anxious customers? No, we’re totally relaxed. We’re thinking about other things.

So after a while Dave comes back and says:

So he goes back, spends more time, comes back and says:

He goes back again and finally he comes back and says:

Now, our story was true. We did have dinner and we did eventually go on vacation. I definitely do not believe in lying. If somebody says to me, how many units do you have in stock, they’re going to get one of three responses. Let’s say I have 28 in stock. If I tell them a number, it will be 28. That will be the truth, or I will say in some polite way it’s none of your business, or I will change the subject and go to something else. But I will never lie to them and say I only have seven. If you answer a question, answer it truthfully. However, you don’t have to answer every question you are asked, nor do you have to volunteer information if it is not in your interest to do so.

So our story was true, but it wasn’t complete. There were a couple of other bits of information that I didn’t want Dave to know. One was that I had backed myself into something of a corner. I was ordering the car because it had some special equipment that I wanted that wasn’t available in the models that they had on the lot. It was early November, and it suddenly occurred to me that if I didn’t get the car ordered pretty soon, I would get it after January 1 in the next tax year when the depreciation rules were going to change for the worse.

Since this was my business car, I did a little calculation and realized that the penalty on taxes for getting it into service the second of January were sufficiently high versus getting it into service at the end of this tax year I could have accepted Dave’s initial offer and still come out way ahead. And as it was, we got the car on December 26, so it was close.

The second problem was that the next day, I was going to leave for the west coast for about a week of speaking and training and other activities. The bottom line was that I was going to buy that car, that night, from Dave, at whatever price I could get it for. Of course, that was the part I wanted to make sure Dave never guessed. Everything I did was designed to make him believe that my LAS was much, much lower.

That’s what I mean by the process of managing the other parties perception of where your LAS is. It’s what you do blab, the hints and other things that you drop that they pick up to create their own picture of the building blocks of your LAS.

And where exactly do you want them to believe your LAS is? You want them to believe that your LAS is right exactly, precisely where their LAS is.

For example let’s go back to our software example from Section 1. Look again at the Figure 1.1 on page 4. The salesperson has offered the software at $500 per license, but she could go as low as $400 per license. And let’s say that she made a guess that the buyer could probably come up to $450. She’s not 100 percent sure, but based on the information she’s gathered from other people in their organization, that seems like a pretty good guess.

Given all that, where would she like them to think that her LAS is? Well she doesn’t want them to think that it’s at $475, because that might result in their getting discouraged and coming to the conclusion that it’s not worth negotiating. On the other hand she doesn’t want them to think that it is at $425, because then they will never agree to go was high as $450. Ideally, she would like them to believe her LAS is precisely where their LAS is—at $450.

What kinds of things could you be saying to do that? It depends a great deal on where you are in the negotiation process. If it is early in the game, then you will use the general expectation-setting types of statements covered in the prior section. But as the negotiation moves forward, you’ll get more and more precise in trying to manage their perceptions of the location of your LAS.

In this example, let’s assume that the seller is now offering $480 and the buyer is countering with $375. If you are the seller and you believe the buyer’s LAS is $450, you might say:

If you are the buyer, and your guess is that the seller could go all the way down to $400, and the seller has come down to $475 and you have come up to $375, you might say:

Or

I was recently involved in assisting a client in negotiating a contract renewal with one of his largest customers. We had asked for a 7 percent price increase but in the negotiation had agreed on a 3 percent price increase. In fact, we could have gone all the way down to a 5 percent decrease, but it was critical that they not discover that. We had also made clear that we needed a three-year contract where we would be the exclusive vendor for that particular line of products.

As the negotiations move toward conclusion, they came back to the issue of a three-year contract and exclusivity, and requested that the exclusivity only be for one year. We responded:

The message clearly was, we’ve reached our bottom line and if you want something else here, we have to take something back there. They bought the message completely and backed off, agreeing to the three-year exclusivity in return for our agreeing to some reasonable contract language giving them an escape clause if we didn’t meet certain easily measured delivery and quality benchmarks.

To summarize, it is best to think of setting expectations and managing perceptions as a continuing process. At the beginning of the negotiation, when you tend to know less about the location of the other party’s LAS, you will use more general expectation-setting statements. As the negotiation progresses and you get a better feel for where the other party’s LAS might be, you begin to move toward more specific statements that lead the other party to perceive that your LAS is in the same general area that theirs is. Of course, if you have very good information right at the start as to where their LAS is, you can move more quickly and earlier to specific statements to manage their perceptions.

Building Relationships

We all know that building relationships is critical to the success of any business undertaking. But do we really have to worry about building relationships during the negotiation? After all, we’re going to be fighting about prices and terms and conditions and all sorts of other things. We’re adversaries, not friends, right?

But if you are going to have an ongoing business relationship, you need to successfully negotiate your agreement. Even if you do reach an agreement, if things go wrong with the relationship aspect during the negotiation, it could definitely impact your long-term business with the other party.

Therefore, you need to work especially hard during the negotiation to maintain and build positive relationships. Try to separate the conflict inherent in the negotiation, which is simply a matter of both of you doing the jobs that you are supposed to do, from the business relationship, which is that, win, lose, or draw, you could still go out and have lunch afterward and maintain a good personal interaction.

Your first opportunity to start the relationship-building process is at the initial contact. If you are on the phone, try to get the other person talking. Although some people will be genuinely interested in you, most people really want to talk about themselves. You can get ideas from information that you have found about them on the Internet, from things other people have told you about them, or from things that they say as you begin your discussion. For example, if you have learned or if they say something about their background in direct mail, their garden, or the school board that they serve on you could say:

Doing favors for people also builds relationships. For example, if, as the conversation continues, you learn that they are looking for information on some new software that they are considering or that they are looking for a piano teacher for one of their children, you might make some recommendations.

If you have an initial contact meeting in person, you can do even more. For example, a client of mine once had a major negotiation with another company. We invited them to lunch before the negotiating session and we suggested that we not talk any business at lunch, but that we use the time to get to know each other. Then we would adjourn to the conference room and start working on the business issues.

They agreed, and I am convinced that the hour and a half we spent building relationships and getting to know one another over lunch really helped us deal with some of the complex business issues we faced.

But don’t stop building relationships once the negotiation starts. Just because you’re now in the trenches battling over money and other issues in that negotiation, it doesn’t mean that you suddenly abandon relationship building. In fact, you need to work even harder to maintain those good feelings, because negotiation can be so tense.

People can be quite sensitive to the words and tone you use. Surprisingly this is often true of experienced, hard-nosed business people. This does not mean that you always need to be soft and gentle in what you say, but you do need to consider what you’re going to say and how you say it to avoid undermining your relationship.

If you are negotiating the license of some technology that you own, and the party you are talking to wants worldwide exclusivity, and if this is absolutely out of the question, there is more than one way to respond and still say no. Following are some examples from very hard to very soft.

So start building relationships from the moment you say hello and never stop, no matter how difficult the negotiation becomes. Always separate the conflict elements, which are business driven, from the relationships which are personal.