I’d like to review the basic simple ideas of negotiation, which most of you already are totally aware about, but perhaps younger lawyers might benefit from.
Pawn Stars is a popular TV show which features people bringing various items into the pawn shop and selling them to the pawn shop owners. Rick Harrison, one of the owners, is frequently shown on the program negotiating with the seller over the price he will pay for the item. If you want to see an example after example of how not to negotiate watch the sellers attempt to get the best price they can for their item. Virtually every one of them violate the fundamental rules of negotiation.
For a review of what we all know are the basics of negotiation let me start with a recent show I watched. A woman had a set of large antique wooden doors she wanted to sell to the pawn shop. Before she negotiated, she disclosed on camera, she intended to ask for $5000, but would take a minimum of $1000. She did the first step correctly. She had checked background information and comparing her purchase price to her evaluation of the fair market value of the doors established a minimum.
In simple injury cases, following a traditional approach, the first thing we need to do with our cases for settlement negotiation is to review the likely jury verdict in the venue where we will have to try the case. That involves (1) the total insurance coverage available to us (2) the likely chance of winning given liability factors and (3) the probable value range of the injuries and damages. The balance between liability evaluation and damages represents a range of percentage of winning and value of injuries. The total is a range of likely verdict which is then reduced in amount for settlement benefit.
Next, we need to determine our demand amount. With the exception of “must settle” cases we always make that amount substantially more than our verdict evaluation for a lot of reasons, the chief one being you might just get it and it allows room for negotiation.
In this example, she had established her minimum and had set her maximum at a range that was substantially more than her minimum. So far, so good, assuming she was right about the maximum value of the doors being $5000 and wasn’t leaving money on the table.
When she told him she wanted to sell the doors, the first thing Mr. Harrison did was to ask what she was asking for the doors. She told him she wanted $5000. Note that there is an advantage in having the other person go first in saying how much they are after. It makes them set the maximum range which might be lower than you are willing to pay and forces the other person to fix the negotiation range.
When he heard her amount, Mr. Harrison exhibited shock and disbelief, shaking his head . The first rule of negotiation is that no matter what the other person offers, even if more than you are willing to settle for, you always are in disbelief at the unfairness of the offer. There is ample psychology to justify doing this and he did it well.
He followed that with his pointing out to her various defects or problems that he found in the doors. You know the drill – you are at the car lot and after hearing the salesperson’s purchase price for the car, you began pointing out problems with it everywhere and reasons why the price just isn’t going to work. Offering reasons why the number is unfair gives the other person an excuse to adopt a new figure.
Mr. Harrison then counter offered $500. Look at the spread he created between the high of $5000 and his $500. There is a $4500 difference which allows plenty of negotiation room. More importantly, sets the boundaries so far apart that it signals a low evaluation by the seller and creates a low mid point as well.
The seller then complained the figure was too low and gave reasons why the doors were more valuable. She then offers to sell them for $1000, her minimum number! She dropped from her opening demand directly to her minimum figure of $1000. We all know that this was an entirely wrong tactic unless she has decided this is a take or leave it offer and plans to walk if he declines. It’s wrong for many reasons.
- She gave the buyer and immediate $4500 discount without getting anything in return.
- She failed to see that the only response to that would be a counter offer for less which would be below her minimum
- She has reset the negotiation range between his $500 and her $1000 leaving no possibility of getting a mid point number
What should she have done? She should have applied the first rule of negotiation: shock and disbelief at such a low figure for such valuable doors. Her counter proposal after his first response should have been close to her opening demand to test how firm Mr. Harrison was about his number. With her staying high, the back and forth exchanges would have revealed whether there was a reasonable chance of settlement and given her a much better chance of a larger payment for the doors. She torpedoed her chances by her response.
Of course, her counter offer resulted in a counter proposal from Mr. Harrison for less than her minimum figure: $800. Note that his figure is perfect from his standpoint. First, even if he thought the doors were worth a whole lot more than $1000, he wants to get the best possible figure so instead of agreeing to a bargain he offers less than she proposes. Plus, he stays close to his original figure to test her resolve. For him, it is a win – win situation.
You can guess the outcome which resulted in a sale. Afterwards, the seller says outside the pawn shop that even though she didn’t get what she wanted she is happy because she paid less for the doors. Note our human psychology. We always rationalize our outcomes to our favor. We pay more than we should have for the car, but find reasons why it was still a good deal. Which brings up my last point. It is important you always leave the other side with the idea that they got a good deal in the negotiation. You may see them again and you sure don’t want to gloat about taking advantage over them because they will not forget it.
I’ve mentioned Roger Dawson’s great publications on negotiation which I recommend to trial lawyers. You might also want to see Harvard University publications on the subject: http://www.pon.harvard.edu/freemium/improve-your-negotiation-skills-negotiation-training-from-the-pros/