Deal making is an essential piece of daily life for all of us. Many of our interactions with others are deal making processes, where we’re trying to get others to do what we want them to.
A parent persuading their child to go to bed is making a deal. A worker trying to get help with an overdue project needs to make a deal with their colleagues. And a group of friends deciding together where to go for a night out is just another form of deal making.
Considering how common it is, you’d think we’d all be great deal makers. However, while we handle such low level deals with little effort and thought, once the stakes grow, we see deal making as a very different process.
Either way, most of us fail to understand that there are two parts to every deal.
The negotiation and the transaction.
To explain that, the negotiation is the back and forth between the two sides trying to make a deal, while the transaction is the terms of the exchange agreed by the negotiation between the two sides. Too many people care about just the negotiation. Being seen to win the negotiation and forcing the other side to accept the terms given to them is what poor deal-makers focus on. It makes them feel dominant.
However, the most important part of any deal is the transaction, as that covers what you give and receive. It’s very possible, and perhaps even common, to win the negotiation and lose the transaction. By that I mean, someone can dictate the negotiation and agree a transaction that gives them less than the other side was prepared to offer.
This commonly happens when one side immediately opens a negotiation by trying to impose their terms on the other side without listening to them first. And then the other side accepts without any counter-negotiation. If you ever win a negotiation so comprehensively that the other side didn’t even try to improve their terms, you didn’t win.
In any negotiation, unless you know with 100% certainty how the other side values the asset on offer, always try and get the other side to share their terms first. They might be more generous than you expect.
Ah, maybe you’re thinking, “No, that’s wrong, always go first, it’s called price-anchoring.” If that’s a new term, it is a proven psychological technique that can cause some people to move towards a higher or lower price having been influenced by the first offer made.
However, it’s only ever got a chance of working if the other side doesn’t know about price-anchoring or they do and they’re mentally deficient. It’s the easiest possible technique to counter.
If you think the other side’s offer is near enough for you work with, just laugh and throw in your own slightly more extreme counter anchor. If they’re stupid enough to think price anchoring is smart, they’re stupid enough to fall for it. But if it’s insulting, act annoyed for them wasting your time and walk out, hang up or send their email to spam.
That may be it, but if they want to make a deal, now they have to fix the damage they did by insulting you. They’ve put themselves on the back foot by focusing on the negotiation, rather than the transaction. And if you’re smart or lucky, you may be be able to get everything you want while making them think they turned things around and won the negotiation.
That way they’ll forget the mess they made at first and be happy to deal with you again. It’s always handy to have an idiot or two on speed dial in case of emergency.
So, do you focus on the negotiation or the transaction?
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