Join Lisa Gates for an in-depth discussion in this video Anchoring, part of Negotiation Fundamentals.
One of the most powerful tools in your negotiation toolkit is anchoring. Anchoring is the practice of creating a reference point around which a negotiation will revolve. Whoever makes the first reasonable offer sets the anchor, and the remainder of the negotiation will revolve around it. For example, listing your house for 355,900, as opposed to a round number like 356,000 influences the buyer to make counter offers in smaller increments.
So not only do you want to anchor first, you want to anchor in your favor. This means if you're a seller, you want to anchor with a higher price; if you're a buyer, then you want to anchor low. You can use anchors strategically to negotiate anything, but let's take a look at why they work. Anything you're negotiating has positive and negative attributes, or qualities that suggest a higher or lower value. So high anchors direct a person's attention toward an item's positive attributes, whereas low anchors direct attention to its flaws.
If you're buying a used car, you will likely point out features like high mileage or damage in the upholstery. As the seller, you might focus on perfect mechanical maintenance and freeway miles. Making the first offer is crucial, and when your offer is credible and specific, your bargaining partner will typically adjust very little from the anchor. Another benefit of making an aggressive first offer is that you'll be able to encourage more concessions from your bargaining partner.
So let's say you offer $10,000 for a car that lists for 15,000, then the dealer counters with 14. You might be willing to adjust upwards if the dealer sweetens the pie with a couple of features you want, or say a better interest rate. In fact, one of the best predictors of negotiation satisfaction is the number and size of concessions your bargaining partner makes in your favor. Now just as anchors maybe used to your benefit, they may also be deployed against you.
If you think an offer or a counter offer or a concession might cause the conversation to break down, remember to ask diagnostic questions to gain clarity and test the strength of their offer. Then you want to paraphrase your new understanding and assure them that with all the moving parts, you're confident you can come to an agreement. Anchoring is a power tool. By anchoring first and anchoring in your favor, you give yourself wiggle room to trade things of value, which in turn will bring you closer to your bottom line.
- Preparing for a successful negotiation
- Using diagnostic questioning
- Opening the negotiation
- Dealing with conflict
- Framing and anchoring the discussion
- Making concessions and asking for reciprocity
- Encouraging cooperation