When dealing with difficult clients, we sometimes can trace our struggles to the early stages of our interactions—including our price negotiations. If initial price negotiations are contentious and frustrating for the client, their unhappiness is likely to leave you handling difficult situations and managing difficult people in your ongoing business relationship. In this post, we consider different ways to improve clients’ satisfaction with price negotiations so they won’t turn into difficult clients.
Changing the Frame
Price negotiations and other distributive (single-issue) negotiations often seem to have a built-in dilemma: If you get a great deal on price, your relationship with your counterpart may suffer because they feel as if you’ve won and they’ve lost. In a 2019 study in the Journal of Experimental Social Psychology, Singapore Management University professor Michael Schaerer and his colleagues identify a promising way to improve the other party’s satisfaction even when you claim the most value: asking them to compare your offer to their reservation price, or the lowest amount they’d be willing to accept.
In one experiment, participants were asked to imagine they were selling a three-bedroom condo and negotiating the price with another participant. They were told their target price (their ideal outcome) was $580,000 and their reservation price was $320,000, corresponding to the best offer they’d received from another buyer. Depending on which condition they were assigned to, the participants were then given one of three offers for their condo, ostensibly from another participant:
Reservation-price-frame condition: “My offer is $450,000. How does this offer compare to the minimum price you are willing to accept?”
Target-frame condition: “My offer is $450,000. How does this offer compare to your target price?”
Control condition: “My offer is $450,000.”
The results showed that participants who were asked to compare the $450,000 offer to their reservation price made less ambitious counteroffers ($470,200, on average) as compared to those who were asked to compare the same price offer to their target price (a $522,717 counteroffer, on average) and those in the control condition (a $506,778 counteroffer, on average). Despite making lower counteroffers, participants who focused on their reservation price were more satisfied with their outcome than those in the target-frame and control conditions.
The results suggest that in single-issue price negotiations, asking a counterpart to compare your offer to the minimum they’ll accept can help you not only get a great deal but ensure they’re satisfied with the end result. Offers look more appealing when we compare them to the least we would accept than when we compare them to the most we hoped to achieve.
There’s an exception, though: When a seller is in a powerful negotiating position—for example, when they already have an offer close to their target price from another party—then reminding them of their reservation price is likely to backfire, Schaerer and colleagues found in another experiment. Participants reminded of their strong alternative made more ambitious counteroffers and were less satisfied with their outcome than those reminded of their target and those in the control condition. So, when negotiating with someone who you believe has a strong BATNA, or best alternative to a negotiated agreement, don’t remind them of this fact.
More Price Negotiation Advice for Dealing with Difficult Clients
Here are two other influence strategies you might use to improve the appeal of your price offers in a client or customer negotiation—and potentially avoid finding yourself dealing with difficult clients:
- Highlight losses rather than gains. People are more motivated to avoid losses than they are to achieve gains, research by psychologists Amos Tversky and Daniel Kahneman shows. Researchers at the University of Santa Cruz asked homeowners to participate in a free energy audit and then listen to a sales pitch for insulation products and services that would lower their energy costs. When the insulation was pitched as a way to avoid losing money, homeowners were significantly more likely to purchase it than when it was pitched as a way to save money. Framing the exact same price as a loss likely will have a greater effect than framing it as a gain, write Deepak Malhotra and Max H. Bazerman in their book Negotiation Genius (Bantam, 2007).
- Split up losses; combine gains. Tversky and Kahneman also discovered in their research that people prefer to gain money in installments but to lose money in one lump sum. Thus, when making a price concession, it can be smart to divide it into two or more smaller concessions. But when asking for a concession on price, make one demand rather than two or more partial demands, recommend Malhotra and Bazerman.
What advice can you offer to those concerned about dealing with difficult clients?
The post Dealing with Difficult Clients: Price Negotiations appeared first on PON - Program on Negotiation at Harvard Law School.