Today you will learn: How to set an Anchor in a Negotiation; how to avoid getting anchored; when and how to make the first offer; how to make a clever counter.
In Part 1 you saw how you need to set your Limit Price with the help of your BATNA. Part 2 showed you how to set an effective Goal Price.
This week, let’s talk about the 3rd Number: the Opener.
This number has particular power. Dare I say it is almost magical. Why?
The first number that is being put on the table has a significant effect on the negotiation outcome. It is called the “Anchoring effect”.
The Anchoring Effectis a cognitive bias that describes our tendency to rely too heavily on the first piece of information we receive when making decisions or judgments.
For example, if you start a negotiation by suggesting a high price for a product or service, that high price becomes the anchor. Subsequently, the other party may use that anchor as a reference point when making counteroffers or determining what they are willing to pay.
Want to dive deeper? In this video, we will do a little experiment to find out how anchoring works and I am sharing some examples and studies. You will also see how the Beatles lost 100 Mio. Pounds because of bad anchoring.
Takeaway
Here are 3 points to remember to use the anchoring effect to your advantage:
- Prepare the first offer/anchor: Whether you plan to go first or decide to go second, you need to have that opener prepared. Because either, you need to use it, OR you need it to protect you from being anchored. It doesn’t matter how smart you are, unless you have a firm opener in mind, you will be anchored!
- Make the first offer: 90% of people hate making the first offer. Understanding the anchoring effect should make you reconsider that. Every time that you are not running a risk of e.g. claiming way too little and the other side would have actually given you more, do put out that first offer.
- Make a clever counter: If you don’t open, don’t go off your initially planned opening number and come closer to them. If anything, go the other way! They anchor extreme, so should you. Because statistically, you end in the middle. Even better: make them come closer to you first. Saying something like “We really wanna work with you but that number is just so far out of what we had envisaged.. Can you move a little closer to us” might just get you a lower offer. When you open then, you have already moved the bargaining range to your advantage.
Pro Tip: Where is the fine line between setting an optimist anchor and putting out an offensive first offer?
(Hint: Which of the 4 Harvard Pillars can you apply?)
Number 4!
Objective Criteria!
As long as you can quote any objective criteria.. i.e. as long as you can say “I want X.. BECAUSE” you are in the safe zone where it is highly unlikely that the other side will walk out. This does not have to be your best criterion. Any variation of one of your criteria, as long as it has some legitimacy, will do. There is also magic in the word “because”, but that is for another time.
Keep Negotiating! And make sure you are setting a clever anchor!
Yours,
Your Negotiation Whisperer
