Most of us have experienced the discomfort of the first few minutes of negotiation. We exchange pleasantries, then struggle with what to say next.
Most of us have been taught that the first one who speaks in a negotiation loses. There are notions that if we speak first, we will somehow show our hand and disadvantage ourselves.
This couldn’t be further from the truth.
Here are the 3 reasons you should always be prepared to make the first offer:
- The Anchor Rule – There is a negotiating law of nature that every negotiator should be aware of and that’s the Anchor Rule. The Anchor Rule states, “a number a person sees or hears prior to making a guess influences that guess.” Why is this important when it comes to negotiations? Negotiations are all about guessing. We wonder if the other side will approach us in a collaborative or competitive manner. We wonder if their notion of the value of product, service, company, etc. is aligned with ours. Negotiation is so much about guessing, that it is highly susceptible to the Anchor Rule which acts as a magnet for driving deal outcomes. In fact, research from Northwestern University states that when a first offer is made in a negotiation, it correlates .85 with the outcome. If 1.0 is a perfect correlation, then .85 is pretty close to a perfect correlation. Our research over the last 16 years has proven that the person who makes the first offer drives the outcome of the negotiation. The point is, if you don’t make the first offer, then the other side will which establishes an anchor for the negotiation and will drive the outcome of the deal in their direction. We highly recommend that you drive the outcome of your deal. As such, you should make the first offer. But, how you do it is critical. A few rules of thumb include:
- Make sure your anchor is rational and you can support it with facts and data
- Make sure you know what alternatives the other side is considering to assist in the determination of your anchor offer position
- Be sure to give yourself room to make concessions
- Avoid ridiculous first offers as you will likely offend the other party and damage your credibility
- Influencing Counteroffers – If you make the first offer, the other party’s counteroffer is heavily influenced by that offer. In most cases, the other party will make shifts and adjustments to their counteroffer to fall more in line with your initial offer.
- No one knows what a good deal is for you better than you – As mentioned before, the person who makes the first offer drives the outcome of the negotiation. If you know what a good deal is for you, then you should make the first offer so you can drive the outcome to a deal that meets your good deal criteria. However, if you let the other side make the first offer, they now have called the outcome of your deal, and it may not be optimal for you.