Who wins from a reciprocal exchange?

Let me tell you about the largest negotiation I was ever responsible for, and the lesson I learnt from it. 

I was responsible for bidding and negotiating major new contracts for a medium sized Australian manufacturing company. We had bid on some new work, and were asked to come and negotiate with a major client.

It was all rather hurried and last-minute. I had a briefing with our board and confirmed our minimum acceptable position which we used to call “MinAcc”. Naturally the client was determined to get our price down as much is possible, Minacc was the point at which, if reached, I had to walk away from the negotiations and fly home. On the other hand, it was up to me to negotiate the best possible price, and margin, for the job.

I should also add that our price had two components, the non-recurring or setup costs, and the recurring cost of production units. Each had their own Minacc point.

But of course it wasn’t just the price that was important, and terms and conditions of the contract were also very important and subject to negotiation.

The “strawman” was a technique I had been schooled in by our more experienced directors.  This is a technique where you negotiate very strongly about something that is not so important to you, so that when, if you concede, they will also concede another sticking point.

By picking on a weak part of the position and making a big deal of it, attention is distracted from the more important factors that would weaken your position.  The idea is to make concessions in areas that are really important to them, in return for which you give up your straw men.  This tactic will only work if their demands are for something that is either difficult or impossible for you to agree to.

In my situation we were able to reach agreement on both the terms and conditions and price eventually. The contract was renewed a number of times after I left the company, and became a very long-running contract for the business.

As an aside I also used technique I have not used since, a very simplified version of the Monte Carlo simulation to look at a range of possible outcomes.  Sitting alone in my motel that night I could see only one that would allow me to reach a successful conclusion, which guided my approach the next day.

Back to the lesson; the “strawman” underlies one of the key principles of influence in Robert Cialdini's book, "Influence – The Psychology of Persuasion."  They include Reciprocity, Commitment, Social Proof, Liking, Authority, and Scarcity.

It is reciprocity.  People tend to return a favour, thus the pervasiveness of free samples in marketing.   In effect, I conceded on some key points that were important to them, and they conceded on some key points important to us.  I’d never heard of Cialdini or his book then.  That is not surprising, as he didn’t publish it until 1984. 

In day-to-day transactions some call it “reciprocal concessions”. You have probably done this from the other side, starting with a small price that you’re prepared to pay, but willing to concede a higher price, but not as high as a seller is asking.

When you’re selling the logic goes, you mention a big number... any big number... and then mention your price, which is lower.  By comparison, the price will look small.

“Reciprocal Concession” just adds more deliberate meaning to that context. “If that’s too much,” it says, “how about this?” Knowing, of course, that “this” was what you were negotiating for all along.

How might that work in your next sales pitch?

You have properly seen online sales pitches like this:  "To get the same kind of service from a top-level pro, you might pay $1,1275 for a three-hour consultation. That’s what I’ve charged my private clients for years...”

“And frankly, it’s well worth it.”

“But I know this is new. And I know, from where you stand, it takes guts to be a pioneer. So I’ve set the launch price at just $725. That’s a great deal.

“However, let me do you one deal better. For the next 24 hours, you can grab an early-bird discount of just $450. You HAVE to let me hear from you by midnight.

Make that deadline, and the steep discount is yours.”

You get the idea.  If you start with the low price, it might feel low. It might not. By starting with a nearly preposterous offer and then backing off, you highlight the bargain. You also get a customer who feels more satisfied, getting such a great deal too.

If you have negotiated on the beach in Bali, the same principle applies. It’s like a ritual dance going back and forwards until a midpoint of mutual satisfaction is reached.

Where else can you use this principle? 

Reciprocation recognises that people feel indebted to those who do something for them or give them a gift.  For marketers, Cialdini says:  “The implication is you have to go first.  Give something: give information, give free samples, give a positive experience to people and they will want to give you something in return.”

How about one of the most powerful promotional tools, word-of-mouth through referrals.  If people feel they owe you something, they are more likely to give you something in return. One of the things they will give is referrals. 

So how might you generate that?  What about a thank you note, either by email or more preferably, a handwritten note. It only takes a few moments, but is really appreciated. It helps build a relationship, shows that you care. The recipient now feels that they owe you something and a request for a testimonial is the logical next step.

And personal testimonials are social proof of the value that you supply.

People like to refer business. It makes them feel good. People are making a contribution when they refer business. They are doing a "good deed" and that makes them feel good about themselves. Given the opportunity, people would refer business to others all day long.

Or demonstrations; the seller offers to demonstrate the product or service.  At some stage a tea, coffee or even a beer is offered, no charge of course, “accept a little hospitality”.  This is where a sense of obligation is created so that you will start to feel at some point to you need to reciprocate by buying something, just something small of course.  There’s always a touch of reciprocity from the demonstration’

Give to get back.

Where do you use the Principle of Reciprocity in your Business?

When clients approach me for coaching, clients with businesses just don’t make the sales they should, I often find their offers are all take, with very little give.  

The problems lie in their approach, concentrating on the sale, and not on the sale process.  It is all very well to start with the end in mind, but sometimes you have to give to get.

If you would like to learn more, I’m offering a free consultation, yes, there is no cost – this is my gift to you, book a Strategy Consult here

© Copyright 2016 Adam Gordon, The Profits Leak Detective 

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