The Art of The Deal

Those who have read my bio know that my legal practice includes business contracts.  Some recent research caught my eye about making ‘deals’, as in the art of negotiating a ‘deal’ (aka contract/agreement).

Negotiating is about reaching the final ‘deal’ in an agreement– aiming for that win-win situation that will have everyone happy to sign on the dotted line.

Interesting research from “Columbia (University) Ideas at Work” magazine (see end of article for research credits) noted that “making a precise first offer in a negotiation makes you seem better informed, which leads your counterparty to concede greater value to you.”

The article went on to state that most people make an opening offer in ‘round’ numbers, for example $100 rather than $124.  On the surface that ‘round number’ approach seems both logical and expeditious.

However, research showed the $124 opening offer might signal that the person has more confidence; such people give the impression of being “better informed” as to the value of the product/service/offer. The recipient of the offer perceived the other person as more credible and therefore will be more conciliatory (i.e. more willing to negotiate.)

Advertisers seem to have caught on to this “odd number” approach with prices of $49.99 and $549.99 rather than $50.00 or $550.00.

As the researchers noted:  “It’s not just about the numbers, it’s about what your price proposal implies about your knowledge.”

But they went further to warn that such a precise “odd number” approach could lead you to appear inflexible.  The other party might just walk away from an opening bid of let’s say – $159,872. 72! You would want to avoid too much ‘precision.’

On the other hand, being precise does signal that you ‘have researched the subject and given thought to the offer.”  Stating your opening offer of “around $100K” probably does not signal that much thought or effort  has gone into the process of an offer/bid.

And finally, always be prepared to back up your opening bid with facts/data/research.

Credits:  “Exacting Deals” by Daniel Ames and Malia Mason – Columbia Ideas at Work, Winter 2014.

The research – Mason, Malia, Alice J. Lee, Elizabeth A. Wiley and Daniel Ames. “Precise Offers Are Potent Anchors: Conciliatory Counteroffers and Attributes of Knowledge in Negotiations.” Journal of Experimental Social Psychology 49. No. 3 (2013) 759-763

 Working to Preserve Your Wealth and Protect Your Future…in a Constantly Changing World

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About Attorney Barbara Ann Dalvano

Attorney in Denver, Colorado with extensive practice experience in the areas of Estate Planning, Wills and Trusts, Business Succession Planning, Probate, Contract Law.

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