In this article I interview negotiation expert Jack Nasher on the art of negotiation.
- The scarcity effect
- Why relationships are important
- How to get information out of people
- Why you should focus on interests instead of positions
- The reciprocity effect
- The decoy effect
- Why you should never accept the first offer
Most people aren’t very good negotiators
Michael Frank: What’s your background on negotiation?
Jack Nasher: I studied law and psychology before working for the United Nations as a junior diplomat, and I was surprised at how incredibly ineffective their whole negotiation process was. They just weren’t using any of the latest negotiation techniques. Then I worked for the Wall Street law firm Skadden, and although they were good negotiators they pretty much ignored all of the latest information and science on negotiation.
So I thought, why not put theory and practice together and really synthesize all the greatest knowledge in the world from a hundred years of research on negotiation, and so I read articles and books on everything out there and I came up with a method that incorporates both practice and science.
Michael Frank: What’s your philosophy on negotiation?
Jack Nasher: My philosophy is that it’s just fun. It’s just a game. Sometimes it works, sometimes it doesn’t, but if you don’t take it so seriously, you’ll be much better off. If you see it as a little psychological everyday game to get a nice table in a restaurant or a great hotel room, that’s how you hone your skills. Just don’t take it too seriously.
Negotiation starts with your mindset
Michael Frank: What about when something really means a lot to you? Like when you really want a job, promotion or pay raise?
Jack Nasher: Well if you start negotiating then – it’s probably too late. That’s why you need to practice negotiating beforehand. You know it’s a mindset thing. Some people feel cheap when they negotiate for a better price, or they feel that they’re not entitled to a better table because they’ve arrived late to a restaurant. But you have to avoid the kind of thinking that says you don’t deserve a better job, pay raise or promotion, because if you think like that, you won’t get what you want.
Michael Frank: What are some of your favorite negotiation strategies and tips?
Jack Nasher: Well, the first thing is that you should never ever walk into a negotiation without an alternative. Because if you go for a job interview and you don’t have an alternative up your sleeve, you’re probably going to sign anything and you’ll look needy. And that’s a problem. So whether it’s an employer, a supplier, or whatever, never walk into a negotiation without an alternative or BATNA (Best alternative to a negotiated agreement)
Michael Frank: If you don’t have an alternative, let’s say you’re applying for a job and you have no alternative, should you pretend that you do as a bargaining chip? And if you do have an alternative, for example, other job offers, should you reveal that in the negotiation?
Jack Nasher: That’s a good question because most of the time you do have an alternative, but usually you’re just too lazy to get one because it will take time. Let’s be honest with a laptop and a phone you can pretty much always get an alternative. So don’t be lazy, but let’s say you don’t have one. What should you do then? I don’t recommend bluffing or lying in the negotiation because it can have legal implications and it can also ruin your reputation, and your reputation is worth gold in the negotiation. But what if you don’t have an alternative? Well, then you have to create the impression that you have power and there are certain ways to do that.
The scarcity effect
Jack Nasher: One way is with the scarcity effect, and that means creating the impression that whatever it is you have on offer, even if it is yourself, is very popular and in high demand. Now you can do this very subtly without lying. Let me give you an example. I was once called to a client to help with a big negotiation, however it was an emergency meeting and we had only two hours to prepare because they needed this particular supplier. They said we need this supplier. We don’t have a BATNA. We have nothing. We need to sign any offer because we really need the product.
So we decided to print out websites of the competition and we scattered them around the office, and we put post-it notes in them without saying anything about it. So the supplier came in and saw what looked to be brochures, even though they were just printed out websites and post-it’s and that created the impression that we were in very high demand even though that wasn’t the case. So we didn’t really lie. Was it on the verge of deception and lying? Probably yes. But it wasn’t a blatant lie.
That’s as far as I would personally go with a bluff, and we got a pretty good deal by creating the impression that we were in high demand. So that is one way to create power without actually having any power.
Now with the scarcity effect, if you were selling your car for instance, you don’t want to say: “Oh wow, you’re the first one who’s turned up. It’s been online for three weeks, and nobody else has showed up”. If you said that, of course you would be giving away all of your power.
But what if you said: “Look I’m sorry, I forgot to tell you that the cars actually been sold. I didn’t have your phone number, but the guy who wanted to buy the car was supposed to be here 20 minutes ago with the money and yet he isn’t, so if you want it, first come, first serve”.
Now that’s a pretty strong bluff. Or if you’re wanting to sell or rent out your apartment, have everyone come at the same time so that you create the impression of scarcity. I’m mean this has probably happened to you. You were negotiating for a house or an apartment and the real estate agent told you “Oh we have another offer on the table”. All of a sudden you get nervous and you just want to have it because all of a sudden the perceived power of the seller just went up.
The scarcity effect is a very simple, but it’s amazing how effective it is.
Don’t show too much interest – even though you’re interested
Jack Nasher: Another thing is not to show too much interest, even though you’re interested.
People make a terrible mistake by saying “I love your product, it’s exactly what I want!” If you say that your power goes down. So a way to increase your perceived power is by saying “I actually wanted the car in blue, and it’s red, it’s not really the color I wanted, it’s also not really the brand I wanted”.
Don’t insult the product and say it’s a piece of shit, who would buy this etc. don’t do that, just don’t show any particular interest in whatever it is that you want to have. Just be cool and calm about it.
I was once in a negotiation with a supplier and one of the engineers in our team said:
“Your product is not only good, it’s the only one that passes our quality tests!”
So of course the negotiation was dead as soon as he said that. And we asked him why the hell did you say that?
And he said he just wanted to make small talk. So people can confuse being nice with showing too much interest. So if you don’t have power because you don’t have an alternative, then there are ways to increase your perceived power and one of them is the scarcity effect, and the other one is not showing too much interest in the product.
If you’re applying for a job
Michael Frank: What about when you’re applying for a job?
Jack Nasher: If you’re applying for a job, if the interviewer asks you if you’ve applied anywhere else, don’t say no. That’s not good.
I used to conduct interviews at Oxford University for applicants into economics and management, and a lot of people would tell me that they’d only applied to Oxford, and when people said that I would think what a liar because nobody would be that stupid. That was my first thought. And then I thought even if it was true, what an idiot because they’ve given me all the power and it’s all up to me now. Thumbs up or thumbs down and they’ve put me in a godlike position over their destiny as opposed to somebody else who might say “I’d love to study at Oxford, but of course I’ve applied to Harvard and Yale, and I have my 3rd Skype meeting with Princeton tomorrow”.
All of a sudden I’m thinking: “Damn, we better sign them up before we lose them to one of the other universities!”
A lot of people want to show you that it’s the only place they want to study or work at, but that’s a mistake because you don’t look like you’re in demand and you show too much interest. Your power just goes down.
Michael Frank: They’re trying to show you loyalty and respect, but at the same time they’ve handed all of the power over to you.
Jack Nasher: Exactly.
Why relationships are important
Michael Frank: What are some other negotiation tips that we should know?
Jack Nasher: Another thing is that a lot of people, especially here in Germany, don’t like small talk before a negotiation so they just cut to the chase. But relationship building is a really important part of a negotiation.
If you’re in a country where the legal system doesn’t work, the relationship is even more important. If you’re in Mexico for example you will have serious troubles if you don’t bribe the judge. You won’t get anything. So there and in many countries the relationship is everything because you can’t rely on contracts. And so they’ll go to restaurants with you. In Russia they’ll go and drink with you. And they have to because they can’t rely on a contract.
In our culture in the western world where the legal systems more or less work, we often forget that relationships are still pretty valuable. I mean think about it, who are you more generous to: Someone you like or someone you don’t like? So sit down, talk a little bit, it doesn’t mean you have to suck up, but just show some interest in the other person and show some respect.
If you don’t show the other person respect, or if they don’t feel that you respect them, you won’t get a good deal. Remember that there are always some extra things that you can get in any negotiation, but they’ll only do that if they like you. It’s as simple as that.
Michael Frank: So establish rapport by relationship building because people do business with people they know, like, and trust.
Jack Nasher: Yeah, exactly. And when people like and trust you, the transactional costs go down. You know there are always transaction costs involved when there’s distrust. I see that in airports these days, there are transaction costs just because there is no trust in passengers. So they check you again and again and again and there is more friction involved when there is no trust.
Gather as much info as possible
Jack Nasher: You also need to gather as much information as possible before the negotiation, especially when you’re dealing with big companies where you have to upload an excel sheet or something like that to make your offer. The negotiation starts way before that. It starts when you get their phone number. It starts when you first make your pitch. It starts when you have a coffee together and the key is to gather as much information as possible because you never know what’s really relevant.
I was once invited to make a big pitch for a huge automotive company, and they told me to upload an excel sheet, and people said well how are we going to negotiate?
But I had three different phone numbers from people in HR and procurement, and so I called each and every one of them up and I spoke to them for as long as possible. One of them didn’t really want to talk, but the other two did, and they both told me that I was the only one who called, and I got so much information out of them that it was unbelievable.
So the moment you know you’re going to have a negotiation, ask questions to everyone involved in the negotiation, because once you sit down for the negotiation, they’ll say well we can’t answer that because we’re in the midst of a negotiation. But they’ll often answer these questions beforehand if you have a coffee with them.
How to get information out of people
Michael Frank: What kind of questions might you ask? What kind of information might you look for?
Jack Nasher: Well it’s funny because I looked at questioning techniques for a book I wrote on how to get the truth out of people, and I looked at WikiLeaks on the interrogations in Iraq and Afghanistan, and I talked to cops and military interrogators and they said torture and waterboarding is not how you get the truth, it doesn’t work, firstly for moral reasons because of course it’s a terrible thing, but it also doesn’t work if you really want to get information.
The US army says the best way is by using a technique called direct questioning. 95% of their intelligence is gathered that way. It’s ridiculously simple, you just ask whatever it is you want to know directly.
And people don’t do that in negotiating because they think it’s rude. “I can’t just ask that!” Well yes you can. And you should. And just by asking exactly whatever it is you want to know, you’re likely to find out. That’s the number one way. So just get the guts and ask.
Michael Frank: What about super direct questions? Like for example, if you want to know who you’re potentially in competition with to win a contract? Or what if you want to know the likely buying or selling price? Would you be so direct in your questioning to say:
“Who am I likely going to be up against in the negotiation?”
“What will the buying/selling price likely be?”
Would you be that direct on those particular two points?
Jack Nasher: I would be very direct. I mean don’t expect to get all of your questions answered, especially who’s your competition, that’s something they’re not even allowed to disclose sometimes, but the best way to find out anything is by asking and very often they will answer and you’ll be surprised.
So just ask plainly and don’t think you’re being rude. And if they ask why you want to know, you can say “Well it’s relevant to us because we have to know who we’re bidding against, and we have to know what’s important to you”. Things like that.
Michael Frank: So you would definitely ask questions in regards to their decision making criteria and how the process will work.
Jack Nasher: Yeah, exactly. I always ask questions about everything:
If they say: “We can’t negotiate on that”
I’ll say: “What can you negotiate on?”
If they say: “I don’t make that decision”
I’ll say: “Who makes that decision?”
If they say: “You’re an idiot!”
I’ll say: “Why am I an idiot?”
And you know, I don’t always get answers, and sometimes I don’t always like the answers, but at least I learned something.
How many doors to knock on
Michael Frank: How many doors do you knock on to get information? If you knocked on three doors or made three calls or sent three emails and all three had brushed you off, how many more doors would you knock on?
Jack Nasher: I knock on every door. If I see a door I knock on it. You can bet on that. It’s like the Chinese say: “If you want to know the road ahead, ask those coming back”. And I’m always surprised that people don’t do that. They don’t look for advice from people who actually know the person they’re negotiating with, and have probably dealt with them before. Just ask them. If you don’t you’re wasting a great source of information.
Focus on interests – not positions
Michael Frank: What else do we need to know in regards to negotiation?
Jack Nasher: Well one of the keys to win-win negotiations is to focus on interests instead of positions. So let’s say I’m sitting on the train and I want the window open, and the person next to me wants it closed, and so I open it and they close it, and the window gets opened and closed back and forth. So the position is either window open or window closed. But if he asks me why do you want the window open? I’ll say, well because I want some fresh air. And he might say, well I want the window to be closed because it’s too cold. So what do we do? We probably open another window across from our seats so that we have both.
So one of the keys to being a good negotiator is to look behind the positions of what people want.
And every good negotiator is creative and flexible about their positions. It’s like if you want to solve a problem, there are usually many solutions, not just one. So don’t focus on only one solution.
The reciprocity effect
Michael Frank: So focus on the why behind the what. Why do you want this solution? What need is it fulfilling? Can I fulfill that need in another way?
Jack Nasher: Exactly. You also want to give whatever it is you’re trading in little pieces, because it makes it look more valuable, and the moment you give something and you make a concession, you want to ask for something in return.
If, then, are the two most important words in a negotiation, and this is the reciprocity effect, once you give something away, you can ask for something in return. So don’t just give stuff away for free. Be very, very stingy with concessions. Don’t just give stuff away. If you give me this, I’ll give you that. Tit for tat. Never give away anything for free.
The decoy effect
Jack Nasher: And if you have different options you want to present to people there’s a very interesting effect called the decoy effect. And the effect was found with a really fascinating experiment.
They asked people if you could win a prize what would you prefer:
- A weekend in Rome with breakfast
- A weekend in Paris with breakfast
And it was about 50/50
But then they introduced a third option:
- A weekend in Rome with breakfast
- A weekend in Rome without breakfast
- A weekend in Paris with breakfast
All of a sudden people start choosing Rome with breakfast. And it’s a very fascinating effect and we’re not exactly sure how it works. But the point is that if you want people to choose option A, then you should introduce a third option that is like option A but a little worse. Option A-. And if you want people to choose B, then you should introduce an option that is like B, but a little worse, Option B-. Suddenly B will look better.
Michael Frank: What other negotiation tips do we need to know?
Jack Nasher: Anchoring. The first number that is mentioned influences the outcome like nothing else. So you should be the first one to put a number on the table. And I know that some people are very hesitant to do that and they say let the other person speak first, but the first number introduced will influence your thinking and it will influence your answer. So when you go to a store and you see an item on sale that says reduced from $100 to $75, you think you will save $25 because the anchor is $100. And obviously this works otherwise they wouldn’t be doing it all the time. So the anchor is the first number you see, and it has a very powerful effect on your mind. So if I’m negotiating I’ll name a figure first and set an anchor, and of course you’re going to try to negotiate me down, but the reference point has been set by me.
Michael Frank: Let’s look at a salary negotiation. If you wanted a $100, 000 salary, but you believed that the employer was going to offer $90,000, would you ask for $100,000, or would you ask for an even higher number e.g. $110, 000 to anchor that figure in their mind?
Jack Nasher: I’d print out some objective criteria. It’s much stronger when it’s in print and you take it out and say guys, I don’t want to negotiate, why don’t we just use a fair price, right? Nobody will say no to fairness.
So let’s say you think the employer wants to give you $90,000 and you find something online that says $110,000, then that’s what you bring to the negotiation. But be open, be nice, be kind, especially when the anchor is really high. If you find something online that says $120, 000 be super humble and say, I don’t know, it’s probably too much, but this is what I’ve found and I’m sure we can talk about it. So you set the anchor high and now if the employer was thinking, Hey, I’m gonna offer between $80,000-$90,000 the chances are that they will start with the most that they can offer because they’re influenced by your high anchor.
What if they won’t negotiate?
Michael Frank: What happens if they won’t negotiate? What if they say there’s no negotiation. Take it or leave it.
Jack Nasher: Well that happens sometimes. Not every negotiation is successful. Sometimes they will say everyone makes exactly the same amount of money. So if that happens don’t just focus on the money, focus on your interests as well because there is so much more you can get from a company: a gym membership, a company car, car packing, a nicer office, executive education, stuff like that.
You don’t get what you deserve, you get what you negotiate
Jack Nasher: A couple of other points:
One of the biggest negotiation mistakes is the belief in a just world.
We remember the Disney movies and the fairy-tales where the good guy marries the princess and the bad guy gets punished, or has to leave the city or go to prison (or in German fairy-tales, the bad guy gets tortured to death and fed to the dogs) The lesson is clear: You do something evil, you get punished, you do something good, you marry a princess or whatever, but of course we know that’s wrong.
However very often before we negotiate or during the process of the negotiation we think I’ll get what I deserve, my boss or my client knows what I’ve achieved for them etc.
But that’s bullshit. You don’t get what you deserve. You get what you negotiate. It’s as simple as that. So keep that in mind and be aware of it.
Why you should never accept the first offer
Never accept the first offer, even if there are tears of joy running down your cheek and fireworks exploding in your tummy.
The reason you shouldn’t accept the first offer is because you’ll go home and wonder what else you could have achieved, but you’ll never find out. It will also be painful to the guy or girl who made the offer because they’ll think damn, I should have offered less.
Always recap in writing
Whenever you negotiate you should also always write an email afterwards confirming what you have discussed. In my early years I negotiated over the phone and I didn’t send an email to confirm everything in writing and that was the biggest mistake I could have made because the other side just said no, I never said that. And then what are you going to do?
Beware of sunk costs
And the last very important mistake, is the sunk costs or over commitment bias. It’s when we’ve spent a lot of time and effort into something, we think well it can’t all be in vain. We really have to get a deal now, we have to finish this. And the answer is no. If it doesn’t make sense, get up and walk out the door. I mean we hate giving up investments, but always ask yourself, does it make sense right now? Does it make sense now to continue? Yes or no? If not, get up and leave.
This interview has been edited and condensed for clarity.
Dr. Jack Nasher, M.Sc. (Oxford)
Jack Nasher, studied and taught at Oxford University and is currently the Professor for Leadership & Organization at Munich Business School and on the faculty of Stanford University. Jack is an expert on reading and influencing human behaviour, particularly applied to negotiations. He trains and advises companies all over the world on negotiation matters and runs the Nasher Negotiation Institute. His books have been published from Austria to China. Jack has been featured on over 100 TV and radio stations.
A founder and investor in companies, movies, real estate, private equity / VC himself, Jack began advising companies in communication and negotiation matters in 2004, as negotiations are the overlap of business, psychology, and law. Since then, Jack has been closely cooperating with companies from all industries and provided them with the latest research findings and best practices from the world of negotiation.
Jack is a member of the Society of Personality & Social Psychology and a Principal Practitioner of Association of Business Psychologists. He is deeply involved in setting up professional standards for business psychologists.