A critical aspect of successful negotiation is the art of principled concessions – the ability to induce changes in position from the other side using a persuasive, value-based rationale. Not only does this preserve credibility, but the other side feels good about exchanges made in this manner. We cover this principle in some depth during our negotiation seminars, walking attendees through the step-by-step practice of principled concessions.
But what exactly is a principled concession, as opposed to an unprincipled one?
The definition of a principled concession is: “A change in an offer made with a credible business rationale for that change.”
Principled concessions preserve the credibility of the person conceding. When they include both a business rationale and a strong statement of the impact to value of the change, they also encourage the other side to make a decision based on your terms.
The opposite is an unprincipled, or arbitrary, concession, which simply leaves the other side wanting more – and ready to demand it!
Here are some examples of unprincipled concessions that may sound familiar to you:
- “I can meet you in the middle – we’ll split the difference.”
- “We can add that scope (or additional item) at no additional charge.”
- “Today, I can offer an additional discount of 10%.
Examples of principled concessions:
- “I am prepared to lower the price by 15% if you supply one of the laborers.”
- “We’ll add that scope (or additional item) at no charge if you’ll be a reference for us.”
- “I will give an additional discount of 10%. But to do that I must alter the solution, which in turn delays the productivity benefit to you by three months (with a value impact of X).”
Before making a concession, ask yourself: “Why am I doing this?” The answer ought to be something other than “The other side asked for it!”
If there’s a good value-related reason to make the concession, then make sure that both you and the other side understand that reason. In understanding, they see that the concession is principled. This approach helps to maintain your credibility and discourages the other side from asking for arbitrary concessions.
Achieving Principled Concessions
We have discussed what a principled concession is: a change in an offer made with a business rationale for that change. But how do you get there?
One of the big benefits to principled concessions is that they preserve your credibility as a negotiator. But most of the time that isn’t enough – you also want a decision.
If you want to create a time-based incentive based purely on value, you have to show that the value changes when the offer changes. If the value goes down under alternative conditions, then will your offer be accepted?
In some cases, the answer will be yes. If the loss in value is not sufficient to offset the change in price or another contract term, then a reasonable person will accept the lower value and the lower price. Eventually, they will settle on the lowest price that gives them “good enough” value. This works for buyers, but is not what most sellers want. They generally want higher prices that generate higher revenues.
Principled concessions that not only change the terms and solution, but also link to value (outcome) changes will create an incentive to ask for fewer concessions. In fact, the buyer will often act closer to the original offer since they know the value will be lower when the seller concedes. This incentive to act is not as strong as a specific time-based value or risk/reward argument, but is stronger than the simple exchange of terms that make up a basic principled concession.
In other words, to encourage a faster decision, you must:
- Be principled in your concessions.
- Specify when the value will accrue (if the client acts now).
- Have enough incremental value to justify the price or the terms difference from alternative solutions (including competitive ones).
- Have client buy-in.
- Have a credible value statement.
Make principled concessions. Then associate a reason to decide – a value – with a time to close.
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