Why concessions can make buyers suspicious of you

You’re negotiating a big contract to lease machinery to a customer, Amber. She’s insisting on a significant discount, but you’ve already gone as low as you can.

You know Amber is concerned about the equipment becoming obsolete and doesn’t want to lock in to a long-term lease. You see an opportunity to break the logjam with a meaningful concession. So you propose modifying the terms, making it easier for Amber to get out of the lease early.

But Amber is unimpressed. In fact, she’s suspicious. “This seller understands leases better than I do,” she thinks. “There must a catch in here somewhere.”

The discussions go nowhere and you fail to get the business.

‘Reactive devaluation’

So what happened with Amber? Why would she push back, win a major concession, and still perceive that she was being taken advantage of?

Most likely she was affected by a cognitive bias called “reactive devaluation.” Multiple studies have shown that concessions offered by one party tend to be seen as trivial or even underhanded by the other party – even when those concessions are in fact significant and offered in good faith. Reactive devaluation isn’t about the substance of the concession; it’s about the source. The concession is devalued simply because it’s coming from the other side.

In a classic study on reactive devaluation, researchers during the Cold War stopped Americans on the street and described a plan to drastically reduce U.S. and Soviet nuclear arsenals. When told that President Reagan had proposed the plan, 90% favored it. But when others were shown the exact same plan and told that the Soviets had proposed it, only 44% favored it.

Why it happens

Now, it might not surprise you that people would be suspicious of proposals offered by a long-term adversary. But researchers have found that reactive devaluation occurs even when people don’t see the other side as sworn enemies.

For example, a set of studies focused on how students at Stanford University reacted to two proposals the school was considering for its apartheid-related investments. The students and administration weren’t enemies; in fact they had the same goal. But when researchers asked students to evaluate the investment strategies, the pattern was identical to the U.S.-Soviet study. When the students were told that the administration favored one plan over the other, support for it dropped from 85% to 40%.

Why does reactive devaluation happen? There are at least three reasons:

1. The other party assumes that if you’re willing to offer a concession, it must not be that important to you.
2. The other party suspects you know something they don’t, or have a hidden agenda.
3. The “grass is greener” effect kicks in. Studies show that people put a higher value on what they can’t get than what they can. So as soon as you put a concession on the table, it becomes less valuable.

Reducing the effects

Reactive devaluation has derailed many negotiations – in politics, company mergers, divorce settlements and, of course, sales. It can leave both sides feeling angry, disrespected and unwilling to make a deal, even when both parties would benefit.

Fortunately, you can mitigate its effects by structuring your concessions so as to maximize the likelihood that they’ll be accepted and reciprocated. The key is to give buyers the perception that they’re in control, not you. In the example we just described, don’t offer a concession. Get the buyer to choose from what researchers call a “menu of concessions” that you provide based on knowledge you’ve gained about their needs.

You might be thinking, “Why would offering prospects several options rather than one make them less distrustful?”

It has to do with the way human beings are wired. Choices give people the perception that they’re more empowered and in control. And studies have shown that when people feel more powerful, they become more trusting and more cooperative.

A menu to choose from

Here’s how you might have framed a menu of concessions for Amber and reduced her level of distrust:

“Amber, let’s see if we can get you more of what you want in this lease. If you can agree to our price, here are three alternatives we can offer. I can’t give you all three, but which one would be most valuable to you?

• “You said you didn’t want to get stuck with obsolete equipment and needed a shorter lease term. What if I could add a clause saying you can get out after three years?”
• “You mentioned downtime. What if we could guarantee service calls within 24 hours, instead of the 72 hours in the standard contract?”
• “You expressed concern about surprise wear-and-tear charges at the end of the lease. What if we could increase the allowances for normal wear and tear and eliminate those surprises?”

Will this approach work every time? No. Nothing does. But offering a menu of concessions can often prevent reactive devaluation. It empowers prospects, lowers distrust, and increases the odds they’ll make a choice that lands you a sale.

This blog entry is adapted from the BTS Total Access micro video “Concessions: How they can destroy — or enhance — your credibility.” If you’re a Total Access customer, you can watch the video here.  If you’re not, but would like to see this video (or any of our other programs), request a demo and we’ll get you access.

The blog post and BTS Total Access micro video are based in part on the following academic study: Solomon, L. (1960). The influence of some types of power relationships and game strategies upon the development of interpersonal trust. Journal of Abnormal and Social Psychology, Vol 61(2), pp. 223-230.