How to Anchor in a Negotiation to significantly sway the numbers your way – Part 3/3

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:

  1. 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!
  2. 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.
  3. 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,

Dr. Claudia

Your Negotiation Whisperer

If you enjoyed this content, feel free to sign up for our free 10-week Email course on the fundamentals of Collaborative and Competitive Negotiation skills by clicking HERE.
Each week, you will get a bite-size email unpacking some of the most fundamental negotiation concepts that you can apply in your everyday negotiations, along with an insight video and book recommendation to go further in areas you want to learn more about.

Give yourself negotiation power with Limit Price & BATNA – Part 1/3

Today you will learn: Setting your Limit Price – Calculating your BATNA – Knowing the exact point when to leave a negotiation (with video example for calculating your BATNA in a court case).

There are 2 key forms of negotiation:

1) Collaborative Negotiation (aka Harvard win-win)

2) Competitive / Distributive Negotiation (aka Bargaining)

The best negotiators master both forms and know how to integrate them by first growing the pie with win-win strategies and then securing the bigger piece of the pie with distributive negotiation strategies.

This month I want to focus on how you secure the biggest piece of the pie and share the three key numbersyou need to prepare for any monetary (=distributive) negotiation.

  1. Limit price
  2. Goal Price
  3. Opener

These numbers are so key, that the GC of a Fortune 500 company I work with tells his managers to not even knock on his door before they have them hashed out. And it takes them a day, sometimes two, to do just that. So take good note!

Let’s dive in and talk about the first one, the Limit Price.

Your Limit Price is best determined by your BATNA (Best Alternative to Negotiated Agreement). BATNA is the answer to the question “What will I do if this deal/negotiation tanks?” This needs to be specific! Not just “I’ll just get another job” or “We will acquire another business” or “We will just take it to court if we cannot settle” but which job, for how much, when, under what terms, what is a likely outcome in court?

This always needs to be a specific number! Yes, even and especially going to court! The below video excerpt from our Master Negotiator Course shows how to calculate your BATNA in a business dispute lawsuit.

The bottom line is: The more specific your alternative and the more you work on improving it, the greater your negotiation power.

Knowing your BATNA is critical because it is your walkaway point. Too many times, people overpay or undercharge because in the heat of the negotiation, due to poor preparation, or due to the length of the negotiations (sunk cost principle) they do not realize they would have gotten a better deal somewhere else.

Sometimes the best deal is no deal. You have to know where that walkaway point is for your situation to apply it, regardless of whether this is a settlement negotiation, your salary, a new home or any other purchase or business contract.

Improve your BATNA – give yourself negotiation power!

Keep Negotiating!

Dr. Claudia

Your Negotiation Whisperer

Next Topic: Goal Price. How “let’s do the best we can” NEVER gets you the best you can – setting ambitious goals in negotiations.

PS: Book recommendation for German lawyers who want to dive deeper: Jörg Risse: Prozessrisikoanalyse: Erfolgsaussichten vor Gericht bestimmen. Highly recommend!

If you enjoyed this content, feel free to sign up for our free 10-week Email course on the fundamentals of Collaborative and Competitive Negotiation skills by clicking HERE.
Each week, you will get a bite-size email unpacking some of the most fundamental negotiation concepts that you can apply in your everyday negotiations, along with an insight video and book recommendation to go further in areas you want to learn more about.