Consider a typical two person negotiation: buying a house or buying a computer. Our experience shows most of these negotiations involve four major issues. For example, with a house: buy price, when to exchange money, size of deposit, what existing items in the house will be included. Or, when buying a new car: buy price, trade in value for existing car, length of warranty and what extras might be included (e.g. better audio system, rust proofing or special wheels). Whenever preparing for a negotiation we always advise you to use a planning sheet.

Use a planning sheet

We recommend preparing for the negotiation by selecting three positions for each issue. In simple terms these would be the best you could hope for (level 3), the worst you would accept (level 1) and then another position: level 2.

Setting Level 2

For each issue, having set levels 1 and 3, then you need to set level 2.

Do not split the difference

This would not be a split the difference of maximum or minimum. Why? Well because that's too easy for the opposing party to predict. And more importantly, because level 2 should reflect how important that issue is to you.

Setting Level 2 sends signals

For example, let's say the minimum house price you want to sell for is $500k and the maximum you hope for is $1000k. Splitting the difference would give a level 2 position of $750k. So, what would be some alternatives? Consider two different sellers, how would they select level 2 to reflect their priorities?

If we assume both A and B start at their level 3 positions for price and money exchange. Then, as they start to discuss possible deals they move to their level 2 positions.

A: $1000k >>> $600k, 90d >>> 36d
B: $1000k >>> $950k, 90d >>> 89d

From the other side of the table, you would conclude A is willing to be very flexible on price and a quick settlement is very important. In contrast, you would conclude B is unwilling to move much on price and is willing to wait for their money. So, how you choose level 2 is important because it sends strong signals about your interests.

Setting level 2 closer to your maximum (level 3) sends a strong signal you are relatively inflexible on this issue. In contrast, setting level 2 closer to the worst you would accept (level 1) sends a strong signal you are flexible on this issue. Why would you want to send signals like this? First, because you want to give the other negotiator clues on what kind of package of issues would be attractive to you. Second, sending signals like this is more efficient than wordy explanations. In short, sending signals like this is an efficient and effective way to communicate to the other negotiator what kind of package creates the most value for you.

You can then use these packages and signals to fight price pressure, check out our earlier blog: How to resist price pressure.