The benefits of this understanding are reflected throughout the sales process but exhibit particular influence during the final phases of the sales cycle, specifically the price negotiation phase.
In their research, “Precise Offers are Potent Anchors: Conciliatory Counteroffers and Attributions of Knowledge in Negotiations”, authors Malia Mason, Alice Lee, Jill Willey, and Daniel Ames of Columbia University, tested and proved through three separate studies that. “…specificity with which a first offer is expressed has appreciable effects on first-‐’offer recipients’ perceptions and strategic choices.”
They point out that rarely do the participates in a negotiation come to the bargaining table with all the resources needed and are left to arrive at an accepted outcome “via discussions and series of iterative proposals and counter proposals.” The one factor in the negotiation process which is identified as having the greatest influence is the value of the first proposal on the table. From this initial proposal the discussions and negotiations begin.
Several studies suggest that this “anchor” or opening offer creates biases which favor the initial proposal. This becomes the negotiation field of play.
With the anchor offer driving the negotiations, what type of anchor proposals are most potent and stand up best during the negotiation process?
Through their three studies Mason, Lee, Willey and Ames found that “negotiators who use precise first offers more effectively anchor their counterparts because they seem more informed of the good’s true value than do negotiators who use round first offers.”
They further discovered:
- We tend to round numbers by habit and generalize to the prices we choose as initial offers
- Rounded offer recipients agreed to final settlement prices that reflected greater adjustments to the opening offer
- Precise first offers act as more potent anchors than rounded first offers
- Precise first offers were viewed as more informed and reasoned which lead to more conciliatory counter offers
- There are risks with precise first offers – might signal inflexibility, may create an impasse – these can be overcome by indicating a willingness to accommodate additional discussion to reach a mutually beneficial outcome.
The evidence supporting precise initial offers is compelling. Even when considering the risks, precise initial offers are seen as more informed, reliable and are a stronger anchor in the negotiation process.
Image: Home Buyer Mathew Addington
