Here's What Kills Our Negotiation Power - Part 1

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My favourites on the Awesome Ideas list were #2 and #3 for their creativity and #4 because of the way it makes us think about what we’re trading away when we buy something.

A recent post by J. Money over at Budgets Are Sexy called “11 Awesome Money Ideas!” provided some unique and creative ideas from fellow readers of his blog on how to help us think differently about money, all thanks to clever actions dreamed up by these eleven contributors. 

I appreciate the curation of ideas such as these because thinking differently about money is usually the easiest way of changing our behaviour, even though it can feel a bit chicken and egg sometimes.

That blog post also caused me to reflect on this idea of thinking differently and how doing so has changed our approach toward many monetary transactions, especially when it comes to negotiating. 

Negotiating Sucks…But Does It Have To?

“Most people, when directly confronted by evidence that they are wrong, do not change their point of view or course of action but justify it even more tenaciously.”
— Carol Tavris and Elliot Aronson, Mistakes Were Made (But Not By Me) (2007), p. 2.

Many of us would rather go to the dentist than have to negotiate for something, be it a pay raise, a contract for professional services, placing an offer on a car or a home, or anything else really.

It feels awkward, scary, adversarial and it’s usually accompanied by this feeling that we might lose something in the process. That feeling of potential loss—loss aversion—can lead us to think, do and say really goofy and stupid things, only to justify or rationalize our behaviour and the associated outcome it creates once the deal is done. 

That’s certainly the way I felt for a long time. But that feeling changed the moment I realized, about five years ago, that we had the ability to choose how we approached a negotiation and that the only enemy in the process was ourselves, not the other party(ies) involved.

What I realized is this:

“The best negotiation tool is when you don’t need what you’re negotiating for.” 
“[T]he more meaningful a potential loss is, the more loss averse we become…[T]he more there is on the line, the easier it is to get swept into an irrational decision.”
— Ori Brafman and Rom Brafman, Sway: The Irresistible Pull of Irrational Behavior (2008), p. 22.

Need Kills Our Negotiating Power

It’s the feeling of needing something that causes us to sabotage our position and leads us to give up more for something than we should. It’s also that same feeling that makes the other party “the enemy” as opposed to just another person who wants to make an exchange on terms they find acceptable. It gets us hyperfocused on getting whatever it is we’re after, making any other outcome seem undesirable as a result.

Here’s a list of contributors toward creating a sometimes-artificial sense of “need”:

“Because we tend to make decisions based on fear or perceived scarcity, we sometimes feel pushed into a less-than-ideal course of action.”
— Chris Guillebeau, Born for This (2016), p. 66.

A Scarcity Mindset: 

“Scarcity captures the mind...[W]hen we experience scarcity of any kind, we become absorbed by it. The mind orients automatically, powerfully, toward unfulfilled needs. For the hungry, that need is food. For the busy it might be a project that needs to be finished. For the cash-strapped it might be this month’s rent payment; for the lonely, a lack of companionship. Scarcity is more than just the displeasure of having very little. It changes how we think. It imposes itself on our minds.”
— Sendhil Mullainathan and Eldar Shafir, Scarcity (2013), p. 7.
“Slack—in money, time, or calories—allow you the luxury of not choosing. It allows you to say, “I’ll take both.” Contrary to Milton Friedman’s ideal of “free to choose,” slack leaves us free not to choose.

…slack provides a hidden efficiency. It gives us room to maneuver... Slack gives us room to fail. Slack also insulates us in another way…As economist Abhijit Banerjee describes it, the temptation tax is regressive; it is levied more heavily on those who have less.”
— Sendhil Mullainathan and Eldar Shafir, Scarcity (2013), p. 80 & 82.
  • It’s too much trouble to get the facts on the purchase beforehand.
  • I don’t know the first thing about this good or service.
  • How can I put a value on this used item? It’s not like there’s a Kelly Blue Book value for everything.

Once we have our bases covered in all three categories, we can quickly come to realize what it feels like to come from a position of calm confidence. 

Changing Our Mindset from “Need” to “It Would Be Nice”.

What’s the surest way of addressing all three categories of perceived needs above? Decreasing our feeling of scarcity by accumulating personal savings, or what I like to call liquid courage. 

No, really. When we know our basic needs are covered and that we have the means to address a shortfall in whatever we’re trying to address, “need” magically gets reclassified as “want” and “want” can magically get reclassified as a “it would be nice”.

When we move every potential acquisition to the “it would be nice”, it means we know we have the power to walk away from a negotiation at any point. When we’re negotiating for a “it would be nice” item, we’re tapping into logic and keeping most emotions—those things that make us act in goofy and unpredictable ways—at bay. It turns us from suckers to deal makers because we become more patient, self-assured and less likely to look for the quick fix.

Five Examples of “It Would Be Nice” Negotiation Categories

Here are five categories of “it would be nice” negotiations that we’ve participated in over the last number of years. These are the more substantial examples, though we experience many smaller versions of these on a regular basis.

1. Career Management

Being in a position to walk away from my corporate job years ago made it easy to negotiate for a position I wanted, for an increase in salary for a position I was asked to consider and for a four-month leave to go back to school in an unrelated field. I know for a fact that I would not have behaved the way I did if I was worried about money or about my employment status. 

Being able to say “No” has also lead me to turn down job offers that would have been a promotion in title and salary but that I know would have required personal sacrifices that I was unwilling to make, such as being available 24/7. To me, no job is worth that type of personal cost, no matter how prestigious and that it should never be expected of others. A person who accepts this may like to feel important, but they're just a high-priced slave.

It also made me a better employee because I wasn’t scared that doing the right thing or speaking up for the good of the company would cost me my job. If it did, it just meant I wasn’t with the right employer and I’d just move on and find something else.

2. Vehicle

When we decided we'd like a Toyota Rav4, we decided that the basic model was the only one that was priced in the range we were willing to spend, but we were more keen on the Sport model. So we waited. 

Months later, when we found a two-year-old 2009 Sport model in our preferred colour (a bonus, really), we negotiated a cash price we thought was appropriate. We were refused and we walked away. No big deal.

To our delight, we got a call back two days later. When we were ready to sign, an additional $400 cost was added to the transaction when we'd specifically said we would only come in if the price was as discussed. Again, much to the dealership’s disbelief, we walked. We ended up getting the car on our terms. We just had to be patient and willing to pass on the deal if it came down to it.

3. Used Goods

We’ve purchased much of our gym equipment used. We keep an eye out for what we want and tend to buy everything the seller is trying to sell as a set, which puts us in a good position to negotiate because they want it all gone and often people don't want to make large purchases. Then we simply keep what we wanted and sell the rest. We’ve been able to resell part of the equipment purchase for about the same price as we paid for the entire set.

The latest example of this was with a significant number of dumbbells. We purchased these weights from a fitness facility that had closed its doors and resold half of the total weight for about 75% of what we paid and kept the two racks that were included in the initial purchase. The buyer was very happy with his find because they were in great condition and he got them for half what they would have cost him new. Win/win.

4. Contract Work

Now that we have the flexibility to do work when and how we want to, we’re able to put forward and reply to proposals for various projects that come up. We evaluate these based on how interesting they would be, as well as how much money they'll generate—more based on opportunity cost than anything because any time we spend on professional projects is time away from other things we’d want to be doing. Personal interest and money are both important and should be considered, otherwise we’d be at risk of turning into members of the walking dead. 

We’re perfectly OK with only moving forward on 1/3 of all the opportunities that present themselves and that means we work on pretty neat stuff and forgo what doesn’t seem appealing or rewarding. We see it as a win/win not to take on work that we don’t really want to do because that means the other party has a chance to find a provider that may do a better job simply because they're a better fit. I’ve also found that it helps us get better clients because we’re able to define how we’re willing to work and be treated and avoid clients who only focus on the “take” part of “give and take”. Further, when we work in a situation that feels fair and balanced it’s easier to admit mistakes, do the right thing and really come through for others and that often means we can generate the best type of marketing ever: positive word of mouth. 

We’ve been able to develop rewarding and lasting professional and personal relationships over the years as a result and we value these tremendously. It's good to feel good about what we do.

Bonus: We also found out that making an offer that is not conditional on financing makes it very attractive to the seller. (Could it be they’re in a scarcity mindset?)

Note: I’ll update this example once we close on our first one, assuming we still want to make offers going forward. 

5. Real Estate

As I wrote not that long ago, Mr. F2P and I are looking for a house-flipping project. So far, we’ve made offers on two properties. Here’s what we’ve found out: our offers are coming in second, despite being substantially below the asking price. That means that, similar to #2, we have the opportunity to save tens of thousands of dollars just because we’re willing to walk away.

We'll likely be making an offer on another property next week and it will again be well below the asking price. We know it’s just a matter of time before we're successful, and time is something we have. 

We’ve saved tens of thousands of dollars and, more importantly, a great deal of angst over the last number of years thanks to our ability to set our walk-away price and/or conditions.

If a deal works out, great! If not, meh…there will always be another opportunity around the corner. 

We can afford to wait.

Liked this post? See here for Part 2.

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