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Incremental Offer Negotiation in Mediation: More to It Than Meets the Eye

April 3, 2013

Incremental offers used in negotiation have been around since early man first offered to buy the first object placed up for sale by another.  And, history has legends regarding many of those who mastered this fine art of the negotiated purchase.

I would love to know the precise steps taken by the early Dutch settlers to arrive at the alleged final $24.00 (in “beads”) paid for Manhattan Island.  And, wouldn’t it be interesting to know the inside details about the same incremental negotiations that led to the relatively paltry final agreed price paid for America’s entire mid-west, referred to as the “Louisiana Purchase”?  Whatever those “forefathers” did in their negotiations, they clearly knew how to do it right.

On the surface, “incremental negotiation”, also referred to in some quarters as “haggling”, traditionally begins with an initial, intentionally-too-low offer being made on an object placed up for sale for a known too-high price.  (Ironically, the too-high “asking” price is always set too-high because of the anticipation of the “haggling”  process then presumed to be required to arrive at the finally-lower, “true” sales price!)

That initial offer that begins the incremental negotiation is then traditionally responded to by the seller with a reduction, usually small, from the original selling price to a lower selling price .   Upon this reduction, this seller’s now-new lower selling price is then traditionally answered by a slightly-higher new offer by the would-be buyer.  This “back and forth” offer-counter-offer process of the buyer and seller slowly moving toward each other in small increments is then repeated, multiple times, until the buyer or seller meet somewhere between where each started so as to agree upon a price that will allow the object to change hands.

However, if the buyer and seller cannot agree upon a mutual price that both can mutually accept,  the negotiation fails and the sale is not made (and the buyer has no purchase).

As fundamental as it is (used up until “modern” merchants began “fixed pricing”  and removed “haggling’s” common use), incremental offer negotiation has become, in modern times, an art, not a natural in-born talent due to its uncommon usage in everyday life.  (Admit it, no one really likes to shop for an automobile!  Car buying is likely the last vestige of that old “negotiated-purchase” style.)

The majority of negotiation in disputes about money involves the use of incremental negotiation.  And particularly for its use in MEDIATION.  Accordingly, it is critical to your successful legal practice that you develop your skills of this primary negotiation tool.

All lawyers, at some point in their career, must negotiate something.  Some do it a lot.  Some do it little.  It should surprise no one that those who do it the most, are simply better at it.  (And, those who really study at it become the best at it.)

Mediation, unfortunately some suggest, has actually reduced many of the usual historical modes of negotiation for lawyers.  And, some also suggest an inherent loss of the talent in many attorneys’ negotiation skills due to the loss of those traditional modes.

At the least, mediation has clearly compacted the entire negotiation process into a relative short and intense time bracket.  If any negotiation was difficult with days and weeks of time to plan and practice, it is doubly so with only hours!

This article on basic incremental negotiation is intended as an outline to alert those new to the process, or perhaps, those in need of a refresher, as to the subtle nuances they may be missing to what too many consider basic  “simple” incremental negotiation.

First, it is fundamental to know the ultimate value of your intended purchase or sale.  Sellers must not set their asking price too high.  Buyers may never even try to buy something priced too high.  See, Consider the Real Estate Market When Planning Your Next Mediation Negotiation, December 22, 2010.  But, buyers, too, must know the ultimate value of their intended purchase to allow them to make their best offer.  See, Rule One:  Know Your Alternative(s) Should Mediation Be Unsuccessful, December 19, 2010.

It is also critical to have a negotiation plan.  Knowing where you are going, how much time you have and what negotiation techniques will be most useful are critical.  See, Mediation Negotiation Technique:  Create a Negotiation Plan,  October 16, 2012.   Your overall technique must include your knowledge of your opposition and their “necessary processes” to their own negotiation plan.!

Next, in the compacted time of mediation, your first incremental move, after the initial pricing or the initial offer upon the pricing, must convince your opponent of your actual interest in negotiation success.  See, Is “Fear of Failure” Ruining Your Negotiations?, December 10, 2011.

Inclusive in your negotiation plan is how to properly use the time allocated to your negotiation process.  The pace and purposeful movement toward “apparent” resolution is a highly underappreciated art of the successful resolution process.

Early in the incremental process, to speed up stalled or slow negotiations, some suggest the use of careful “bracket offers”.  This has many good uses, but also has potential drawbacks.  See, “Bracket Offers:  The Good, The Bad and The Ugly, October 24, 2011.

However, whether using bracketing or continuing with incremental negotiations,  all negotiation moves should be used, collaterally, with pacing and specific, but unspoken, messages, conveyed with each incremental move. Such messages may include, satisfaction or disappointment with progress or techniques being used.  Or, openly showing trends in where future moves may go.  And, of course, the approach of a final offer, or a final price.

Pacing includes both speeding the process up or slowing it down to convey other positive or negative messages of how the negotiations are progressing.

How you pace your offers or counter-offers and your messages (i.e. rewards and punishments) thereby you send, are almost as important to your ultimate success as the dollars you add or subtract from your last incremental move..

Another fundamental skill is properly tracking or “mapping” the course of your negotiations.  Using this technique to be able to observe trends or patterns to any negotiation is important in predicting any future course of those negotiations.

And, of course, proper use of all mediation time is critical.  See, Don’t Run Out of Time,  January 25, 2011.  Time is necessary to negotiate, but too much time will lose the participants interest.  In sales, most successful sales people suggest that the “golden opportunity time” is seventy-two (72) hours.  After that time period, most buyers lose the interest and motivation that intiated their original interest.

Finally, (for this article) properly “closing” the incremental process is equally important.  Both sides deserve a “fair warning” of when negotiations are beginning to end.  There are ways to do this; one are simple verbal warnings.  “Stair-stepping” final moves is another critical skill to develop.  Regardless, both sides need time to review their final options prior to walking away from being within reach of resolution.

And, of course, such closings include saving face.  One side or the other may deem the last proposal to be theirs.  Never forget the best negotiations are those in which both sides feel fairly treated by their opposition.  As in anything important, caution must be used to close the negotiations with a successful “final move” without being premature or falling short, unknowingly.

Your mediator should be able to assist all of the parties best in these final stages.  It is where any mediator should really earn their money.  And, it is where your trust in selecting your mediator should pay you the dividends you deserve.

Negotiation is not easy in any form.  And, although incremental offers and counter-offers are fundamental to any negotiation, like anything else, it requires some thought and advance planning.  And, the more you actually use a skill, the better you can become at that skill.

Equally important to your success with the mechanics of this skill, however, is understanding the subtleties of incremental negotiation as a part of your end goal of resolution of your mediated monetary dispute.

You will be using incremental negotiation in every mediation.  It is thus a fundamental technique to apply.   But, it is certainly not easy, if done well.  Like anything worthwhile, it takes planning and patience, and most of all, understanding.

This article is simply to alert you to some of the basics.  It still takes a great deal of planning and practice to do it well.  Accordingly, just make sure you remember that there is much, much more to incremental negotiation than first “meets the eye“.

Dan, from Bartow, FL.

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