Whenever purchasing an expensive (big-ticket) item, they will make a paltry first offer. Usually this is done in secret, behind closed doors, to prevent additional buyers from bidding. The tactic is used to make the seller believe that there is no available option other than dealing with them. For example, when did we learn about the Soviet purchase of Canadian or American wheat? Usually after the tonnage had been loaded on special tankers for overseas shipment. In some places these transactions were referred to as The Great Grain Robbery.
Here’s another instance of how the Soviets operate as buyers: Almost thirty years ago they were interested in securing a large parcel of land on the North Shore of Long Island. They intended to build a recreational center for their embassy personnel. At that time, acreage the size they wanted in this area was selling between $360,000 and $500,000. The property they decided on was appraised at $420,000.
Did the cagey Russians offer to pay $420,000, or even $360,000? Not on your life. Since they’re past masters at “lowballing,” they made an initial offer of $125,000—a laughable figure. But no one laughed. How did the Soviets get away with this? They did what they always do when purchasing: Negotiating in secret, they eliminated possible competition.
In this case they paid a small amount for an exclusive one year option to buy with the proviso that the matter be kept secret. The owners of the property knew that the $125,000 figure was ludicrous. However, they were unable to get other offers because of the secrecy restriction. After three months of token haggling and frustration, they muttered in effect, “We know this is ridiculous, but maybe we were a little high.” So they dropped the asking price from $420,000 to $360,000. Psychologically, the Soviets had set them up like pawns on a chess board.
When the Soviets are sellers of anything substantial, they do just the opposite. They make excessive demands, then fling the doors wide open to encourage competitive bidding. By playing various bidders against each other and egging them on to outdo each other, they escalate the final agreed-upon selling upon price to stratospheric levels.
A graphic illustration of this method can be seen in the sale of the rights to televise the 1980 Olympics from Moscow (before the United States boycotted the Olympics and made the matter academic.).
The cost of these rights has risen considerably from what CBS paid for the 1960 Olympics in Rome to ABC’s winning bid for the Montreal games in 1976. The approximate selling prices follow:
1960 one-half million dollars
1964 three million dollars
1968 five million dollars
1972 thirteen million dollars
1976 twenty-two million dollars
The Soviets, with typical guile, smashed this predictable succession pattern. During the summer games in Montreal, the top brass of all three networks were invited to a lavish party on board the Alexander Pushkin, which was moored in the St. Lawrence River. Each network was contacted separately and given the Soviet demand: They wanted $210 million—in cash! Their asking price did not exactly follow a geometric progression.
Generating cut-throat in-fighting, they did what I mentioned earlier: They encouraged competitive bidding. Inviting representatives of ABC, NBC, and CBS to the Soviet capital, they essentially reduced them to three gladiators hacking at each other in a Roman arena. Roone Arledge, then head of ABC Sports, bitterly commented, “They want us to be like three scorpions fighting in a bottle. When it’s over, two will be dead and the winner will be exhausted.”
I witnessed part of this struggle between the minions of Moscow and the moguls of Manhattan. I was in the Soviet Union at the time, embroiled in negotiations of a different nature. I attended one of the cocktail parties thrown to keep the gladiators’ spirits up. Never have I sipped better vodka, nibbled tastier caviar, or seen more strained and determined faces.
As they entered the stretch, here was the bidding: NBC, $70 million; CBS $71 million; and ABC had come up to $73 million. It was generally assumed at the time, that the experience of ABC in broadcasting eight of ten prior Olympics would give them the edge. However, CBS hired the services of Lothar Bock, a professional go-between from Munich, Germany. With the help of Bock a meeting was arranged between the Soviet negotiators and William S. Paley, the Chairman of CBS, in November 1976. On this occasion a deal was struck, with CBS agreeing to raise its bid one more time and offering even more concessions.
Everyone assumed that CBS had won out over its competition. However, the Soviets could not resist the “nibble,” and early in December 1976 they announced another round of bidding. The CBS executives were upset but went back to Moscow for the showdown, which was to take place on December 15. At that time the Soviets announced to the three networks that what had occurred up to that point merely qualified each of them to enter the final stage of the auction. The Americans were appalled by the impudence of their hosts, and despite Soviet threats, they all dropped out and went home.
This left the Soviet negotiators empty handed. To be left empty handed in the U.S.S.R. is to be in big trouble. When American officials negotiate and goof up, their livelihoods may be affected. When Soviet officials negotiate and goof up, their lives may be affected.
Desperate to generate fresh competition, the Soviets came up with a fourth option. They proclaimed that the rights to televise the Olympics now belonged to an obscure American trading company named SATRA, which had an office in New York City. SATRA is not what anyone might call a media conglomerate. Granting the rights to them was equivalent to telling a kid who owns a Polaroid, “Do a good job, sonny—the Olympics are yours.”
Cleverly using SATRA leverage, the Soviets induced Lothar Bock to recontact the networks. He did and eventually offered his connections and services to NBC. Wheedling, wheeling and dealing, and flying back and forth between Moscow and Manhattan, Bock ultimately peddled the rights to televise the Olympics to NBC for $87 million. On top of that sum, the network agreed to pay Bock roughly $6 million for his services, plus additional sums for entertainment specials. Of course, subsequent events caused NBC to regret this victory over their arch-rivals. (Note: The Soviets were never serious about their excessive demand of $210 million. It was later learned that they expected the rights to be sold for between $60 million and $70 million.)
Although the cited examples actually involve the Soviet Union, similar tactics have long been used in our society. Many years ago I worked for a large casualty insurance company that had a publicized claim philosophy that stated, “Prompt, fair settlement of all just claims, with courtesy and consideration for all.”
In spite of these lofty sentiments the system rewarded adjusters who lowballed claimants with meager first offers in the best Kremlin tradition. This tactic worked because the recipients mistakenly believed that they had no other option but to deal with the adjuster, who represented a monopoly position. Of course, they had other options: Complain to the state Department of Insurance, write to the president of the insurance company, go over the adjuster’s head to personally visit the claims manager, pursue this matter in small-claims court, retain an attorney to represent them, or even just wait for the pressure of time to take its toll on their adversary.
Situations where the asking price is excessive and intense competition is generated among prospective buyers should also sound familiar. It can be seen at auctions everywhere, with bidders pitted against each other in the fiercest sort of price haggling. Whenever you have a scarce product, commodity, or service, sellers have been known to exploit the greed of prospective buyers who want instant gratification of their needs. A number of years ago the Mazda RX 7, an imported Japanese automobile, was in such hot demand that some dealers orchestrated a flurry of bids and counter-bids that resulted in this car’s selling for as much as $2,000 more than its listed price.
Why do these Win-Lose Soviet tactics work? Because we let them work. We are influenced by the extreme initial position, and we’re further baffled when the people we negotiate with seem to lack authority.