Six Steps for Making Your Threat Credible

1. Increase your costs of not following through on your threat
Imagine that you're thinking about bidding to acquire another company that would be of great value to your firm. Your only reservation is that your bid might invite your biggest competitor to follow suit, instigating a costly bidding war. If you lost the war, your company would almost certainly take a hit in the stock market. Even if you won, the bidding war may have driven the price so high that the deal is no longer worthwhile. To summarize, you would love to bid but only if your competitor stays out of the game.

2. Visibly restrict your options
A public commitment makes it difficult for a negotiator to back down from a threat. Other tactics�such as throwing away the steering wheel in a game of Chicken�make it impossible for you not to follow through. There is no better way to make your threat credible than to ensure that you can't go back on your word.

3. Visibly incur sunk costs
Suppose you are negotiating with a consulting firm to renew its contract to provide information technology (IT) services to your company. In pursuit of a lower price, you threaten to cancel the $700,000 yearly contract and create your own in-house IT department. Unfortunately, both you and the contractor know that it would be much cheaper for you to retain her firm's services than to start up a new department.

4. Delegate authority to someone who will follow through on the threat
The time, energy, and resources that you devote to reaching agreement can suggest that you're desperate for a deal�any deal. The greater your investment in the negotiation, the less credible your threat of walking away becomes.

5. Create and leverage a reputation for making credible threats
Your threats will be more credible if you have a reputation for carrying through on them. If you are known for sometimes being rash or obstinate, even your more extreme threats are likely to be taken seriously. Your threats also may be effective if you have a reputation for staying true to your word or for being willing to sacrifice dollars for principle.

6. Leverage the shadow of the future
Even if you can't leverage your past reputation, you might be able to leverage your future. Imagine that an author is selling the rights to market her book in a particular region. If there is only one potential publisher with significant access in that region, the publisher is likely to make a low offer, knowing the author has no choice but to sign the deal. The author's threat to walk away if the publisher doesn't tender a better offer may not be credible.

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