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Four sales negotiation traps — and how to overcome them

by HBR

February 20, 2018 | 4:47 pm
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Whether you’re selling your home, unloading excess merchandise or searching for new clients, there’s a good chance you’ll fall into common cognitive-bias traps during your next sales negotiation. Here’s how to avoid them and, in the process, improve your negotiation skills.

1. OVERVALUING YOUR POSSESSIONS.

Why are some homes plucked off the real-estate listings within days or weeks, while others sit for months, even years? Location and curb appeal have something to do with it, but there’s another factor, one that sellers can avoid: the tendency to overvalue one’s property. Consider the carefully determined sales techniques that your real-estate agent suggests in order to avoid asking for more than you should.

The endowment effect leads us to overvalue practically anything we own, no matter how trivial. One famous study, led by Nobel laureate Daniel Kahneman, found that students given nondescript coffee mugs set higher selling prices for the mugs than buyers were willing to pay. The endowment effect can lead sellers to have difficulty selling an item.

To avoid overvaluing your possessions, seek unbiased appraisals from third-party experts such as real-estate agents, jewelry appraisers or financial experts. Imagine how you will feel, in several months or a year, if your item fails to sell. By focusing on the future, you may be able to evaluate your possessions more rationally.

2. FOCUSING TOO MUCH ON PRICE.

What’s your most important goal when making a sale? If you’re like most of us, your priority is getting the best price possible.

It’s normal for sellers and buyers to place a high premium on meeting their target price in a negotiation. However, a self-interested focus on price haggling prevents us from viewing sales negotiations as collaborative. When stuck in a competitive mindset, you’re unlikely to see potential opportunities for collaboration that could enhance both the agreement and your bottom line, such as adding the issues of delivery timing and payment schedules to the discussion.

When  you find yourself obsessing about price, brainstorm ideas for adding more value to the deal. Do this both on your own and with your negotiating counterpart.

3. COMPROMISING YOUR ETHICS

Whether you’re selling a used car, a professional service or a company product, you probably know more about the item than potential buyers do. Because of this information imbalance, you need to be careful not to take advantage of buyers during your negotiations. Research has shown that even negotiators who consider themselves highly ethical are at risk of compromising their moral principles under such circumstances.

In a sales negotiation, examine whether your negotiating behavior is in line with your ethical standards. If a buyer is skeptical of your claims, you might propose adding a contingency agreement to your contract. For example, a building contractor might promise to pay a penalty or accept a lower payment if he can’t meet construction deadlines.

4. MAKING UNAPPEALING OFFERS.

Even if you’ve spent time researching a potential buyer’s needs and putting together proposals that meet her interests, you could slip up by not presenting your offers in the best possible light.

Sellers often fail to frame information to their advantage. In a typical purchasing negotiation, the buyer has a target price she is aiming to meet, and she’ll view any compromise away from her target as a loss. Sellers often unwittingly reinforce such negative frames when they present proposals relative to buyer’s ideal price.

Instead, try to frame your offer as a gain over the status quo. Take the case of an office-supply salesperson who is wooing a potential customer. Rather than saying, “I can tell you were hoping to get the price down to $100,000, but that’s impossible,” the salesperson might say, “I have a good idea of what you’re paying now for your supplies. We can shave $20,000 off that amount — a significant savings, I think you’d agree.”

Awareness of these common sales-negotiation pitfalls is the first step in overcoming them. It takes diligence, but we can all lessen the negative impact of common cognitive biases.

(Katie Shonk is the editor of Program on Negotiation at Harvard Law School, based in Cambridge, Mass.)

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by HBR

February 20, 2018 | 4:47 pm
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