You have probably experienced dread going to a car dealership and negotiating the price on the car. I know I have. After conducting your research, you go in, and after some back and forth end up paying more than you wanted. Some times you leave feeling like you got a deal, while in other circumstances you feel like you could have gotten more. How can you avoid feeling like you were ripped off? I’m going to tell you a technique that saves you thousands over your lifetime and all you need to remember is five rules.
Adopt the Ackerman Model
The Ackerman model, as described in Chris Voss’ book, Never Split the Difference, is countering with decreasing incremental offers until your ultimate goal is reached. The key is for each offer to be followed by empathy and stall tactics. Voss learned the technique from an ex-CIA operative named Mike Ackerman and used it for years in negotiations with international kidnappers so it’s tried and true in high stakes negotiating.
This is how you can implement it.
1) Identify your target price and your anchor price
Your target price could be based on a lot of different factors including how much you can afford, the current market price of what you are buying, and if you think you can get a deal, among other factors. It is important that your target price is lower than the list price. The anchor price should be 65 percent of your target price.
Your initial offer will likely get a strong reaction from the person you are negotiating with but that’s the purpose of an extreme anchor. The strategy is to reset the price from what they have it listed for to closer to what your target price is. It is important that the anchor price is in the realm of reasonability; too low and you might offend the other party. They likely will counter this, explaining why they can’t sell it at your anchor price.
2) Counter with a maximum of three raises of decreasing increments (ex. to 85, 95, and 100 percent of your target price)
The next step after this is to counter at 85 percent of your target price. They are likely to be less shocked and counter again, getting closer to your target. After some back and forth, raise your price to 95 percent of your target and then if they still don’t bite, 100 percent. At any point, if they seem warm to your offer, do not try to counter with a higher price. Let the offer sink in and see if they accept.
The method of 65 percent, 85 percent, 95 percent, and 100 percent shows that you are willing to be flexible but that you are getting close to being tapped out. In between each offer, it is important to say no to their counters if they are above your target. After all the goal is to get your target price.
3) Use a soft no and empathy between each offer
Remember the person you are negotiating with is as important or more important than the price you are trying to get. If you go in too hard, the other party may take a strong line approach and dig in their heels. This does not do you any good. Instead, with each offer use soft no’s and empathy.
To show empathy imagine yourself in the other party’s shoes. Let them know you are listening. Use sentences like “I understand where you are coming from” and “Help me understand why you set the price the way you did.” Another way to show empathy is to acknowledge the worst things the other party might be thinking before they can. You can start by saying I know this might sound like a low-ball offer but how does X price sound?
For a soft-no, avoid using the word “no.” Instead, skirt around it, saying “I know you can do better than that” or “you’re driving a really hard bargain.” By avoiding saying no you sound less harsh and demonstrate you are more open to negotiating in good faith.
4) Your final offer should be an imprecise number
Your final offer, or your target price, should be a non-round number. For example, if you are negotiating a used car, your final offer could be $9,976 instead of $10,000. It makes the number sound more believable and sends a message that you are unlikely to change it. After all, who gives an imprecise number that that? It makes it sound like that’s every dollar you have in your bank account. Hopefully not, but that is the mindset I want the other party to have.
5) Include a non-monetary item in your final offer
For your final offer also throw in a non-monetary item that they are unlikely to want. In the previous example the final offer was $9,976 and so as a suggestion offer to throw in used tires from your previous car. They are likely to decline but accept your final offer, knowing you are at your limit.
How to Prevent this Technique Being Used on You
The more this technique is known, the more likely it is being used against you. If so, it is not hard to recognize. It boils down to:
1) Don’t let their anchor prices change your price. If you have done your market research you know if their offer is fair or if you are getting low balled.
2) Use the flip side. When you’re selling, set your asking price at 135 percent of what you’d accept, and be willing to negotiate to 115, 105 and then 100 percent of your target price.
3) Determine your “Best Alternative to a Negotiated Agreement (BATNA).” This acronym was made popular in the 1981 best-seller, Getting to Yes. Often if you know there are other interested parties then the best alternative (BATNA) is to walk away. However, this is not always the case. If you have had your product listed for weeks and have only one interested person, assess the situation. Perhaps your price is too high or the market has changed.
4) Request to take a break. If the discussions are getting heated and you are having a hard time saying no, ask to take a 5 to 10 minute break. When you come back the conversation resets and you can gain back some negotiating power.
5) Practice. There is nothing like negotiating in real life. Practice with family and friends and gain the confidence to negotiate in the real world.
The key to adopting the Ackerman model when buying is to remember the percentages: 65, 85, 95, and 100 followed by an imprecise number and a non-monetary item. If you’re selling it would be in reverse, 135, 115, 105, and then 100. It’s simple but it works and I highly recommend implementing the technique. The Ackerman model incorporates many advanced negotiating theories such as reciprocity, extreme anchor, and loss aversion without thinking about them.
If you liked this article and want to read more on negotiating techniques including how to negotiate salaries and raises, check out my book.
Legal Disclaimer: The views expressed by Mr. Dumont on Money Sensei are solely his and not intended as investment advice nor a guarantee of any financial return. Mr. Dumont is not an investment or tax professional, so the information contained on the blog is not a substitute for professional advice. The contents of this blog are accurate to the best of his knowledge at the time of posting, but rules and laws are ever-changing. Please do your research to confirm that you have the current information.
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