For many years, salespeople have asked the same question in negotiation seminars: Who should make the first offer? The typical response for years was, “let the other side go first.” The reasoning behind this was simple: You don’t want to make an offer only to find out later that you could have done better. However, studies have shown that this strategy is actually ineffective. If you want to become a more effective negotiator, you need to learn the powerful psychology of anchoring. The Anchor Rule states that the number a person sees or hears before making a guess influences that guess. In other words, the outcome of a negotiation is highly driven by that first offer, and this is called anchoring.
What is Anchoring and Why Does it Work?
Anchoring refers to a strategy in which one party makes the first offer in hopes of determining the outcome of the negotiation. This strategy has been tested over and over again and the results are almost always the same: the person who makes the first offer controls the outcome of the negotiation. If you let the other party make the first offer, there’s a high probability that their first offer will not be their best. However, this number is now the standard by which the rest of the negotiation will be based. So, why would you let someone else determine the kind of deal you will make. No one knows what deal is best for you other than you.
Most business people have never heard of anchoring and are not familiar with the way it impacts a negotiation. Therefore, it is common for a salesperson to get anchored right away by the other party. Instead of allowing this to happen, it is important to recognize the tactic and put a stop to it right away.
How to Overcome Anchoring in Negotiations
Do Your Research: Take the time to adequately prepare for the negotiation and research the background of the other party. Make sure you understand what is motivating them and find out their financial position so you know what they can and cannot afford. Additionally, take some time to find out what your competitors are offering and keep that in mind when negotiating pricing.
Propose a Counter-Anchor: The goal of a counter-anchor is to immediately respond and discredit the first offer before countering with your ideal price. For example, say your counterpart offers $20,000 for your service but you cannot accept anything less than $30,000. Before countering with a different dollar amount, make it known that their offer is far lower than you can accept. Explain your reasoning and the value that they will be getting and then share the price that you would like. This establishes a new anchor and moves the negotiation in the right direction.
Reject the Anchor Price: In some cases, you will find that the other party is not willing to budge on their offer and in this case you should politely reject the anchor. When you reject the anchor, ask if you can revisit this conversation after they have had more time to think about it. You can also start over and discuss a different offer or set of terms that better align with their budget. This provides an opportunity for both parties to reexamine their goals so they can move forward.