The Law Of Four

There are four main issues to be decided upon in any negotiation. Everything else is dependent on these. There may be dozens of details to be ironed out in a complex agreement, but the negotiation will succeed or fail on no more than four issues. I have spent two and three days in negotiating sessions with teams of skilled businesspeople on both sides of the table, discussing 50 pages of small and large details, only to have everything boiled down to four key issues at the end.

  • Rule. Eighty percent or more of the value of the negotiation will revolve around these four issues.

This Law of Four and this factor of 80 percent turn out to be valid in almost every case, no matter how long or complex the negotiation, no matter how many clauses, sub-clauses, details, terms, and conditions. In the end, most of the discussion and the most important points of the negotiation revolved around four basic items.

  • Rule of the four main issues in any negotiation. One will be the main issue, and three will be secondary issues.

For example, you may decide to buy a new car. The four main issues to be decided might be price, trade-in value of your current car, color, and accessories. Warranty and service policies will be important but secondary.

The law of four works only when the other party\’s order of importance of the four issues differs from yours. One party may be more concerned about price, and the other party may be more concerned about terms. This can lead to an excellent win-win solution that satisfies the most important needs of each party. Think of something expensive and complex that you have purchased in the past. What were your four key considerations? What were the considerations of the other party? How did you finally reach an agreement?

Think of an upcoming negotiation situation in your work. Make a list of all your considerations and then order them by importance to you. Make a list of the other party\’s considerations in order of importance. How can you use this information to get a better deal?

The Principle of Time Preference. This says that people prefer to satisfy a white need or desire sooner rather than later. Time is your most precious resource. It is like money. Your supply is limited because you value your time and your life. You always want to achieve your goals with the smallest expenditure of time. You always negotiate to get what you want as fast as you can.

  • Rule. When choosing between a reward today and that reward at some future time. Unless there is an excellent reason, you will prefer it earlier rather than later.

If someone says to you, I can give you $1,000 today, or I can give you $1,000 tomorrow, which would you choose? The answer is obvious. If you have a choice, you will prefer it now rather than later. Why? Well, there are two main reasons.

  • First, you don\’t know what might happen between today and tomorrow.
  • Second, it is worth more to you today because you can do something with the money immediately.

Both the predictability and the possible pleasure are greater if you get the money today.

  • Rule. Everyone is impatient to have more faster and easier because time has a value, and sooner is more valuable than later.

This natural impatience based on time preference is a key consideration in every negotiation. The more impatient the other person is for the negotiation to conclude, the better the deal you can get for yourself. Time is the currency of the day. People want things faster and faster, and they will patronize anyone who offers to satisfy their needs sooner.

  • How could you speed up the delivery of your products or services to your customers?
  • How could you serve your customers faster?
  • How could you streamline your processes to give your customers more of what they want faster than your competitors? Speed is a value that customers will pay for in a negotiation.
  • How could you use speed as a bargaining tool?

The Principle of Timing. This says that timing is everything in a negotiation. A negotiation can be made or unmade by the time at which it takes place. There is a too soon and are too late in every situation. Whenever possible, you should plan strategically and use the timing of the negotiation to your advantage. There is a better time to buy and a better time to sell in almost every case. And when your timing is right, you will always get a better deal than when it is not.

  • Rule. The more urgent the need, the less effective the negotiator.

If you\’re in a hurry to close a deal, your ability to negotiate well for yourself diminishes dramatically. If the other person is eager to make the deal, he or she is functioning under a disadvantage that you can exploit to your advantage.

For example, every company has sales targets for each month, each quarter, and each year. Sales managers are tasked with getting these numbers. Their jobs, their incomes, and their bonuses depend on it. Every salesperson has a sales quota for each month as well. Therefore, when you are buying any large ticket item, you will almost always get the best deal if you wait until the end of the month when the pressure is on to hit the targets.

  • Rule. A person who yields to time pressure will get the worst of the bargain.

Rushing or using time pressure is a common tactic in negotiating, and you must be alert to other people trying to use it on you.

People often tell you that you have to make up your mind quickly, or it will be too late. If so, you should take a deep breath and patiently ask questions to find out just how urgent the situation really is. If someone insists on an immediate decision, you can reply by saying if you must have an answer now, then the answer is no. But, if I can take some time to think about it, the answer may be different.

On the other hand, you can use this tactic to your advantage by running out the clock so that the other person has no time left and has to make a decision on your terms. Just don\’t let someone else do it to you.

  • Rule. You resolve 80 percent of the vital issues of any negotiation in the last 20 percent of the time allocated for the negotiation.

Probably because of Parkinson\’s law, which says work expands to fill the time allotted for it.

Most of the key issues in a negotiation get jammed into the final phase of the discussions. Up to this part of the negotiation, there seems to be a natural human tendency to procrastinate on resolving the most important issues. This means that you must be patient in a negotiation. You must be prepared for the key issues to be resolved at the last minute. Setting the schedule and a deadline for a decision will help. If it happens that the key issues are resolved earlier, you can be pleasantly surprised. But this is the exception, not the rule. When you negotiate, set deadlines for the other party whenever possible.

  • Remember the Rule in sales? No urgency, no deal.

You can always extend the deadline if the other party box or disagrees. Try to keep the other party from setting deadlines for you whenever possible. State that you are not going to make a decision today, no matter what is agreed to give yourself at least 24 hours to think it over before deciding. Sleep on it. As a matter of course, you will be amazed at how much better you think when you\’ve put some time between you and a major decision.

The Principle of Terms. This says that the terms of payment can be more important than the price in a negotiation. Many products, such as homes and cars, are sold more on the terms of payment and the interest rates than on the price or even the product itself. People usually buy the most expensive home they can qualify for. People buy the most expensive car they can afford the monthly payments; your ability varies. The terms can be the key to success in a negotiation.

  • Rule. You can agree to almost any price if you can decide the terms.

If you really want to purchase an item or sell an item and the negotiation is stuck on the price, shift the focus of your discussion to the terms and try to either lengthen or shorten the payment term.

Rule. Never accept the first offer, no matter how good it sounds, even if the first offers everything you could possibly ask for. Don\’t accept it. Act a little disappointed. Ask for time to think it over. Ponder the offer carefully.

No matter how good the first offer is, it usually means that you can get an even better deal if you\’re a patient.

  • Rule. Never reject an offer out of hand, no matter how unacceptable it sounds.

At first, you can often turn a bad offer into a good deal. If you can dictate the terms of payment, you can say that\’s an interesting suggestion. It\’s not quite what I had in mind, but let\’s see if there\’s a way that we can make it work. Remember that you can get a better deal by controlling either the price or the terms. If the other party is determined to get the very best price possible, you can agree by suggesting terms that make the price acceptable. Always look for ways to extend the actual payment of money as far into the future as possible when you\’re buying. Always look for a delay or deferment of payment, especially if you can arrange for no penalty for prepayment, which makes the deal more attractive to you by lowering the cash outlay in the present.

The Principle of Preparation. 80 percent or more of your success in any negotiation will be determined by how well you prepare in advance. Action without planning is the cause of every failure. Negotiating without anticipating what the other party might want is the cause of just about every poor deal. The very best negotiators are those who take the time to prepare the most thoroughly and to think through the situation completely before the negotiation begins.

  • Rule. Facts are everything. The devil is in the details.

It is the details that trip you up every single time. Be sure to get the facts before you begin negotiating, especially if the subject is large or complicated, or both. Don\’t be satisfied with the apparent facts or the supposed facts or the obvious facts or the hope for facts or the assumed facts. Insist on the real facts and all of them because the facts don\’t lie. Avoid the temptation to accept superficial answers or incomplete numbers. Don\’t leap to conclusions. Avoid wishful thinking. Do your research. Ask questions. Listen carefully and take notes. This can make an extraordinary difference in the outcomes you achieve.

  • Rule. Do your homework.

One small detail can be all you need to succeed in a negotiation.

  • Rule. Check your assumptions. Incorrect assumptions lie at the root of most mistakes.

For example, one of the assumptions that almost everyone makes when going into a negotiation is that the other person wants to make a deal. This may not be the case at all. You need to test this assumption.

Sometimes the other party has already decided to deal with someone else or not to buy or sell at all. Perhaps the other party is just going through the motions of negotiating to see how good a deal he or she can get. Maybe someone else has offered to match the very best offer you can make. The other party may be negotiating without the authority or the ability to follow through on any deal you agree to. Be sure to check your assumptions before you invest too much time or emotion.

Always think on paper.

Write down every single detail of the upcoming negotiation. Note every term and condition you can think of, then identify your assumptions and begin gathering information to verify or reject them. Whenever possible, talk with someone else who has negotiated the same sort of deal with the same person. Find out what the other person is likely to want and what he or she has agreed to in the past. Be prepared!

The Principle of Authority. This says that you can negotiate successfully only with a person who has the authority to approve the terms and conditions that you agree on.
One of the most common of all negotiating ploys is called Agent without Authority. This person can negotiate with you but is not authorized to make the final deal. No matter what you two agree upon. The agent without authority must check back with someone else to confirm the agreement’s terms.

  • Rule. You must determine in advance if the other party has the authority to make the deal.

The simplest way to do this is to ask the person if he or she is authorized to act for the company or client. If not, you must be cautious about the positions you take and the concessions you offer.

  • Rule. When dealing with someone who cannot make the final decision, you must represent yourself as unable to make the final decision.

Fight fire with fire. If the other person says that he or she cannot make the final decision, you claim to be in the same position. Anything you agree to will have to be ratified by someone else. This tactic levels the playing field and increases your flexibility in the case of an unacceptable counteroffer. Make every effort to find out who makes the final decision before you begin negotiating. Ask the person you are talking with if he or she is empowered to enter into an agreement based on what you discuss. If not, find out who has the power and attempt to speak with him or her directly. When you cannot deal with the final decision maker, do everything possible to find out exactly what he or she will find acceptable in making this decision. Be sure to mention that you will also have to get final approval before making an irrevocable decision to proceed. Keep your options open whenever possible.

The Principle of Reversal. This is putting yourself in the other person\’s situation that enables you to prepare and negotiate more effectively. Before any negotiation that involves a good deal of money or a large number of details, use the lawyer\’s method of reverse preparation. This is a great technique that dramatically sharpens your negotiating skills. In law school, future lawyers are often given a case to either prosecute or defend as an exercise. They are then taught to prepare the opposing attorney’s case before they begin preparing their own. They sit down and examine all the information and evidence, and they imagine that they are representing the other side. They prepare that side thoroughly with the full intention of winning. Only when they feel that they have identified all the issues that the opposing attorney will bring up then they begin to prepare their side of the case?
You should do the same before you negotiate. Right now, everything that you think might be of concern to the other party writing things down clarifies them and enables you to see possibilities that you might otherwise have overlooked. When you have identified the major concessions that you think the other party will want, you can then think about what you will offer in exchange. You can see where you are strong and where you are weak. You can identify areas where agreement or compromise may be possible. This type of preparation by reversal is the hallmark of the superior negotiator. Think through, discuss, and write out every concern or demand that you feel the other party might have before you meet and begin negotiating. Test these assumptions by asking the other party about his or her concerns and requirements.

The Principle of Power. This says that the person with the greater power, real or imagined, will get the better deal in any negotiation. Your ability to recognize both your power and the power of the other party is critical to your success in negotiating. Often you have more power than you know. Often the other party has less power than he or she appears to have. You must be clear about both.

  • Rule. No one will negotiate with you unless they feel you have the power to help them or hurt them in some way.

You must have something the other person wants, or you must be able to withhold something he or she wants in order for the other person to take you seriously. You must be continually thinking about the situation from the other’s point of view so that you can position yourself for the maximum benefit to yourself.

  • Rule power is a matter of perception. It is in the eye of the beholder.

You can often create the perception of power of being able to help or hinder a person in some way by being bold and creative. Often when I\’m getting poor service on a flight or at a hotel, I will take out my pen and a piece of paper and politely but coldly ask the other person, May I have your name, please? This reaction invariably draws people up short. They\’re hesitating; they offer their name while they mentally scramble to figure out who I might be and why I might be asking. I then ask them for the correct spelling. I carefully write the information down and put it away. From that moment on, the service improves dramatically. Whomever it is cannot take a chance that I might be a senior person in the company or someone who personally knows a senior person.