This course covers the following topics: negotiation, feedback and coaching, conflict management, and leading change. The objectives are to learn how to use leadership skills to work more effectively with others, how to use leadership skills to organize others to work more effectively together, and to apply the foundations of effective leadership skills to everyday situations faced by leaders. Learners: • Will be able to negotiate effectively and influence others • Provide feedback and coaching that is appropriate and influential • Will be able to manage conflict and lead change This course is part of the iMBA offered by the University of Illinois, a flexible, fully-accredited online MBA at an incredibly competitive price. For more information, please see the Resource page in this course and onlinemba.illinois.edu.
Lecture 1-1.4: Exploding Offers
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來自 University of Illinois at Urbana-Champaign 的課程
Applications of Everyday Leadership
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Module 1 Negotiation
This module will examine the three core skills necessary for everyday leaders to negotiate effectively and how these three core skills can be used to influence others to want to do what we need them to do.
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Gregory NorthcraftProfessor of Business Administration and Harry J. Gray Professor of Executive Leadership
College of Business, University of Illinois at Urbana-Champaign
Jack GoncaloProfessor
Department of Business Administration
Jeffrey LoewensteinAssociate Professor of Organizational Behavior
Department of Business Administration
[SOUND] Today we're going to extend our
discussion about negotiation by looking
at the idea of exploding offers.
The learning points here today are first, what is an exploding offer?
Why do exploding offers work?
How do you manage an exploding offer when you receive one?
And how can you use the psychology of exploding offers as a way of effectively
closing any negotiation.
Let's start by talking about what an exploding offer is.
An exploding offer occurs in a negation when someone gives you an offer with
a very short fuse, a close deadline.
Exploding offers are meant to play on your uncertainty because they
force you to decide before you might know all of your options.
In effect, exploding offers create a decision dilemma.
Exploding offers work because all negotiations represent a decision dilemma.
A decision dilemma occurs when you must choose between a sure thing and
a risky alternative.
In negotiation that choice is between what the other side has offered you,
that's a sure thing, or continue to negotiate, which is a risk.
It's a risk because you might do better but you might do worse, and
you might not even make a deal at all.
Let's take an example of an exploding offer.
Let's say you list your house for $400,000, hoping maybe to sell it for
$375,000.
The first day your house is listed, someone offers you $350,000.
That's below your asking price.
It's even below your target price.
But they also tell you that they need to know tomorrow or it's no deal.
The very short deadline on their offer makes this an exploding offer.
So now, you can take the sure thing.
That's the $350,000 they've offered you.
Or you can risk continuing to negotiate.
If you continue to negotiate, maybe you'll do better.
Maybe you can find someone who's willing to pay $400,000 for your house, or
at least the $375 that was your target, but you might end up with no deal at all.
You might not be able to sell your house, and in this case you have a sure thing.
Someone has offered to buy your house, just for
a price lower than you had hoped for.
The dilemma occurs because the offer is intermediate.
Better than your worst case, not selling, but worse than your best case,
the $400,000 you might be hoping to get.
Why do exploding offers work?
Well, when faced with a decision dilemma, decision makers typically are risk
adverse to protect gains, but risk seeking to avoid losses.
An intermediate outcome can be framed as a gain if significantly better than
the worse case, making many negotiators reluctant to risk losing that gain.
We can think about this in terms of a decision tree.
Our choice point is between taking the exploding offer,
that's the sure thing that they have offered.
Or declining their offer, which might mean we could sell the house for
more, but might also mean we would sell the house for less or
possibly not even sell the house.
That's a lot of uncertainty.
What can you do when you receive an exploding offer?
The best strategy may be to turn the tables on this decision dilemma.
You don't want to say no to their offer.
You don't want to give up the potential gain of their offer.
But what you can do is tell them what it would take to get you to say,
yes, guaranteed.
So now the other side is faced with a decision dilemma.
Now the other side must choose between the sure thing you have offered them, and
the risk of continuing to negotiate.
So here's what that looks like in terms of a decision tree.
They now can take your offer, your counter offer which is a sure thing for
them, or they can decline your counter offer.
It might mean if they continue to negotiate, they'll buy the house for
less than you want.
But it might also mean that you'll sell the house to somebody else and
they won't end up with the house.
So that's uncertainty for them.
And remember, when people are uncertain they tend to try and protect gains.
And a sure thing often looks like a gain that people want to protect and
that can make them very risk averse.
So why does this work?
It works because turning the tables sometimes means that the most valuable
resource is being done, having a deal.
And that's the sure thing you are offering them.
Particularly, if you can frame your offer to them as a gain.
For example, less than you initially asked.
For example, in this case, if your counter offer was 375,
if you had said, look, I don't think I can go with 350 but I can guarantee
you now that I will sell you the house today if you're willing to pay 375.
Well, that looks like a gain to them because it's less than you were
originally asking.
And that may be a gain that they would like to protect,
especially if they have poor options compared to what you are offering them.
So if they don't have any other houses they're considering and
they're really desperate to get this house, they may want to protect that gain
and protect the very valuable resource of being done by taking your offer.
So, the reason turning the tables works is because it turns the decision dilemma
on them and faces them with the choice
of protecting the sure gain of taking what you have offered them,
versus the uncertainty of not knowing if they're going to get a deal.
Where else can you use this strategy?
You can also use this strategy to close the deal.
Imagine that you are real close to closing a deal, but maybe there's still
just a little bit of difference between what they want and what you are offering.
What you can do is offer to make the deal guaranteed today,
got my pen ready to sign, if they'll move just a little bit more in your direction.
This again presents them a decision dilemma.
They can take the sure thing that you've offered them, that is, the deal.
Maybe it's not quite as good a deal as they were hoping for, but
it's a sure thing.
And if they take the deal, they know the deal is done.
No one likes to make concessions, but
the deal in this case may be the best thing that they are getting in return.
That is, the certainty that this negotiation is finished and
they're going to get something out of it.
So this strategy works because it faces them with the decision dilemma of taking
a sure thing versus the uncertainty of not knowing if they're going to get a deal.
Maybe getting a better deal, but maybe not getting any deal at all.
And we know when people are faced with decision dilemmas,
they are often risk averse to protect gains.
And your gain is the sure thing.
You are offering them a sure thing by offering them a deal and
that deal may be the sure thing that they want to protect.
So, conclusions.
Exploding offers work because they create a decision dilemma, and
negotiators often take the sure thing.
Particularly if it looks significantly better than their worst options,
because they want to protect their gains.
People tend to be risk-averse in decision dilemmas in order to protect gains.
By telling the other side what it would take for
you to say yes, you turn the tables.
You give them back the decision dilemma by offering them the certainty of making
the deal, being done in exchange for a small additional concession.
And this strategy can also be used to deal with exploding offers or or
to close the gap when you are close to a deal.
If you'd like to learn more about this, I would suggest you take a look at my book,
Get Paid What You're Worth, where you can find out a lot more about strategies and
tactics for being more effective as a negotiator.
