The Contrast Principle in Negotiations

by Omid Ghamami

There is so much psychology involved in negotiations, and the Contrast Principle is one of the more important ones.  Let me start by telling a story to help illustrate.  I’m currently in the market to buy a house in coastal San Diego.  In doing so, I’m also selling a house I have in Northern California. 

In order to sell the house in Northern California, I have to incur many expenses.  Losing rent from having my tenant move out early, landscape renewal expenses, multiple inspections by different licensed specialists, and staging of the home (having an interior designer temporarily fill the home with fashionable furniture while the home is being shown). 

The above comes to well over USD $20K.  Add in realtor commissions and closing costs and it’s over USD $130K. 

I was talking, and perhaps complaining, to my cousin about this yesterday, and he said “yes, but those expenses are nothing compared to what you will get in net proceeds from the sale of the home.”  

He was judging those expenses based on comparative criteria (net proceeds from the sale of the home).

It was right then that I realized he was making a grave negotiation mistake.   It’s called the Contrast Principle. 

The Contrast Principle says that we compare the relative value or cost of a negotiation asset with respect to the corresponding circumstances, and then formulate our interpretation based on the contrast between the two.

There are many, many studies that have proven this principle.  Some of them highlight the most consistently irrational of behavior patterns once dissected. 

In the scenario above, $130K is not perceived as a large amount, but if I separate the issues and solely look at what I’m paying for what goods and services I’m receiving, it suddenly is a very large amount.  In fact, it may be a dramatic overpayment. 

If my net proceeds were to be triple what I actually anticipate getting, suddenly $130K is a very small amount.  How could this be?  I’m still getting the same goods and services and I’m still paying $130K.  The fact that my house is worth more in this hypothetical scenario is irrelevant. 

What drives our interpretation of the worth of the $130K in the above scenarios is the value of the negotiation asset (the net proceeds of the home) it is being contrasted with.  But that should not cloud the issue of whether or not the $130K is a good deal or not. 

Let’s try this again.  Imagine you are buying a car.  The base model is $30K.  The “middle” model is $35K and the top of the line model of the same car is $40K. 

You initially intended on buying the base model, but you say “Since I’m already spending $35K, all I have to pay is another $5K and I can get the middle model.”   

And if the base model was $50K, and the next levels of that model $55K and $60K respectively, then it would be even easier for you to justify paying another $5K or $10K for the same additional features.  Maybe you would even pay more!

Now if the base model was $15K, would you view the relative worth of the same $5K and $10K upgrade options differently? You would indeed, even though the isolated worth of those options hasn’t changed in this scenario at all! 

What happened here? The value of a negotiation asset ($5K or $10K) is judged based on what it is being contrasted with – how much money is already being spent and not based on what is being received for those funds.

You can rationalize this all day long and wage a debate with me over this, but the bottom line is this is a negotiation error.  The focus should be on what you are getting for that extra money and not on how much you are already paying comparatively.

So, how do you leverage this in negotiations?  It’s really simple.

Read this twice:  You should always couple your smaller negotiation demands with your big ones.  That way, the other party views the smaller request as being trivial and not worthy of pushing back on.

When you make your smaller negotiation requests as standalone positions, then they get judged by the other party based on what you are asking for and nothing else.  No comparative assessments are involved.

But when you couple the large and small positions together, the smaller position will be viewed as having little relative worth, and the supplier is more likely to readily agree, while focusing on the larger negotiation assets. 

They more readily agree because, in contrast, you are not asking for much extra and it’s not worthy of their attention. How you lay out your negotiation requests then becomes incredibly important.

This is not unethical, there is no deception involved, and it’s not a psychological power play.  It’s just how our brains are wired, and you need to know that to be effective in negotiations.  You also need to recognize it when suppliers are doing the same.

Put this in your arsenal and make good use of it. 

Now go off and do something wonderful. 

Be your best!

Omid G

“THE Godfather of Negotiation Planning”

~ Intel Corp

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