Economy 1.0 says, regarding negotiations, “let the opposing party give us their number first.”
Guess what – in some cases, this is the wrong strategy.
Suppose you have a high-performance Economy 2.0 sales team. In that case, they know that studies repeatedly have shown that the first-mover advantage favors the initial offer in a single distributive issue negotiation.
When negotiating a single issue (such as the final price) where both parties have dramatically opposed positions and care equally about the outcome, providing the initial offer favors the party responding first. The initial proposal, in this case, acts as an advantageous anchor for the offering party. Anchoring is the assimilation of a judgment to a relevant or irrelevant numerical value. Initial offers anchor recipients’ decisions in negotiations, and counter-offers are assimilated to the initial numerical value. Because the first offer functions as an anchor, there is a bargaining advantage for making the first offer: Senders of first offers get better outcomes than the recipients.
In multi-issue negotiations, the story is quite different. In their study, The First-Mover Disadvantage: The Folly of Revealing Compatible Preferences, authors David D. Loschelder, Roderick I. Swaab, Roman Trötschel, and Adam D. Galinsky show that a first-mover disadvantage occurs when initial offers in multi-issue negotiations disclose compatible preferences on an issue. On issues where each party has the same appreciation for a problem, revealing that information in an initial offer gives the receiving party leverage they can use in the negotiations. In these situations, when first offers convey inside information on compatible preferences, receiving parties will claim more value than the sending party.
Loschelder, Swaab, Trötschel, and Galinsky also found that the degree of the advantage was moderated by the recipient’s social value orientation (SVO). Social value orientation refers to preferences for outcomes for self and others. It is common to differentiate between pro-self (i.e., egoistic and competitive) and pro-social (i.e., cooperative and altruistic) value orientations. Social motivations have a strong influence on negotiators. Pro-self-negotiators will exploit insider information and be less open to collaboration and problem-solving. Pro-social negotiators, on the other hand, strive to maximize both their own and their counterparts’ outcomes; they refrain from exploiting insider information to their advantage.
Takeaways:
- Outcomes of negotiations on single distributive issues favor the first mover.
- There is a first-mover disadvantage in multi-issue negotiations when the first-mover discloses information on an issue where both parties have compatible preferences.
- Social value orientation will moderate the outcome. For example, pro-self negotiators are more one-sided, while pro-social look to satisfy all involved.
- Only High-Performance Economy 2.0 Sales Teams know how to leverage this insight in the marketplace.
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