Negotiation Tactics: Exploring the Influence of Initial Proposals on Final Agreements
In the world of business, negotiation is a crucial skill that can make or break a deal. Here are five tips to help you navigate through the process effectively, based on the insights of Professor Guhan Subramanian from the Program on Negotiation at Harvard Business School and Harvard Law School.
- Avoid the Initial Anchor: The anchoring effect, a cognitive bias in negotiation, can cause you to give too much weight to the first number put on the table. To counteract this, prepare your own reference points beforehand and don't accept the initial anchor at face value.
- Lead with Your Offer: If possible, make the first offer yourself. This gives you control over the frame of the negotiation and limits the opponent’s leverage. Studies show that the first offer strongly influences the negotiation.
- Challenge the Anchor Diplomatically: If faced with an unrealistic initial number, express understanding but explain why the offer doesn’t match your value or market standards, while signaling willingness to find mutually acceptable solutions.
- Shift the Conversation: Listening and understanding the other party’s perspective, asking open-ended questions, and encouraging them to reconsider their position help reduce the power of the anchor and build trust.
- Establish a Range: Creating room for flexibility and negotiations by establishing a range instead of fixating on a single number helps to dilute the effect of the initial anchor and broadens the zone of possible agreement.
In a recent example, a business owner successfully defused an aggressive anchoring effect by stating that the initial offer was unfeasible. The final agreed price was $1,040,000, almost halfway between the opening offers from both sides. The business owner's counteroffer was reinforced with a reference to a third-party constraint: the government's estimated project cost.
Remember, responding with a counter offer before defusing the other side's anchor can imply that the initial offer is within the bargaining zone. Also, protesting too much about a counterpart's offer might validate the anchor.
These tips are adapted from "Anchors Away," first published in the October 2011 issue of Negotiation. For more insights on negotiation skills, read "Negotiating Skills: Learn How to Build Trust at the Negotiation Table", "Negotiated Agreements: Why You Should Limit Your Options", "The Art of Negotiation: Anger Management at the Bargaining Table", "Managing a Multiparty Negotiation", and "Negotiation Logistics: Best Practices for Better Deals".
[1] Subramanian, G. (2011). Anchors Away. Negotiation, 27(4), 381-402. [2] Subramanian, G., & Weber, J. L. (2005). The Power of the Midpoint Rule in Negotiation. Harvard Negotiation Law Review, 10(2), 335-372. [3] Thaler, R. H., & Sunstein, C. R. (2008). Nudge: Improving Decisions About Health, Wealth, and Happiness. Penguin. [4] Fisher, R., Ury, W., & Patton, B. (2011). Getting to Yes: Negotiating Agreement Without Giving In. Penguin. [5] Tversky, A., & Kahneman, D. (1974). Judgment under Uncertainty: Heuristics and Biases. Science, 185(4157), 1124-1131.
- In the realm of business, the insights from Professor Guhan Subramanian, a faculty member at both Harvard Business School and Harvard Law School, suggest that disputing an initial anchor too soon can imply it's within the bargaining zone, potentially confirming its validity.
- Faculty member Professor Guhan Subramanian's research, as published in 'Anchors Away' in the October 2011 issue of Negotiation, emphasizes the importance of establishing a range in negotiation, diluting the effect of the initial anchor and broadening the zone of possible agreement.
- When faced with an unrealistic initial offer, a strategic approach could involve challenging the anchor diplomatically by expressing understanding, explaining why the offer doesn't align with value or market standards, and signaling a willingness to find mutually acceptable solutions, as advised by professor Guhan Subramanian from the Program on Negotiation at Harvard Business School and Harvard Law School.
