Essential strategies for achieving win-win negotiation outcomes.
Why buyers and sellers see product value differently
Buyers and sellers inherently disagree on the value of products and services. Market researchers refer to this perceptual gap as ‘the endowment effect.‘ If we are selling a home, for example, we see it as worth more than potential buyers. In fact, once we own something, we attribute greater value to it than if we had made a different choice. By contrast, potential buyers are cautious, focusing on reasons not to buy, often including unrealistic ‘great deal’ possibilities.
Research demonstrates that these competing frames of reference are universal among adults, children, and even other primates. The same dynamic extends to the realm of competing beliefs, including the political domain. For example, a person’s receptivity to taxation for government-sponsored scientific research correlates with their level of belief that this will result in tangible benefits for them.
Explaining the endowment effect
Case studies demonstrate that when subjects are given a good (e.g., a pen), they are reluctant to trade it for another good of comparable value (e.g., a knife). Researchers explain this as ‘loss aversion,’ i.e., that we identify with what we own and view exchanging it for something else as a loss. We also perceive the potential gain from another option as intangible and uncertain.
Looking at it another way, we attach our personal identity and even level of self-esteem to the good we already possess. This helps explain why people build brand loyalty over time to specific vehicles and appliances. Though we have become familiar with the downside of owning a vehicle, e.g., its maintenance costs, our fears of unfamiliar competing product(s) reinforce our cautionary assumption that “the devil you know is better than the devil you don’t know.”
Reducing the endowment effect for mutually satisfactory outcomes
There are a number of proven strategies for getting past the endowment effect to arrive at mutually satisfactory outcomes. –All of them boil down to expanding the seller’s and buyer’s frames of reference–
- One approach is to ask the seller to focus on how they can meet their unmet needs with the money they’ll get after selling what they have to offer at a lower, more competitive price.
- Another tactic, at play in real estate transactions, is to remind a seller of the comparative value of lower priced options–and buyers of all the costlier alternatives to what is being offered by the seller.
- Finally, seeing and touching the possible purchase in person makes it much easier for the buyer to imagine what owning it would be like. This is why there’s such a push for virtual reality advertising. Until such time we develop this technology, however, make sure your 2D online product information is elegant, intuitive and answers potential buyer questions. Doing so can radically improve your conversion rate and ROI. —We at OWDT specialize in creating this kind of winning online presence for our clients’ products and services.