Negotiation anchoring.

An old mate of mine has only one rule of negotiation “he who mentions price first, loses”

Whilst there are other things that contribute to a successful outcome, he is right about the price. Once an expectation of price has been mentioned, it becomes the point from which other conversation evolves.

Typically: “I want $1,000 for it” “well, I would be willing to pay you $500”

This will evolve to a final price of $750, but had the initial price been $1,200, the end price may have been around $900.

Perhaps the most public example of this anchoring phenomenon I have seen is Alan Greenspan, former head of the US Federal Reserve, the acknowledged expert on the economy, who completely missed the GFC, simply did not see it coming despite many warnings. The preconceptions he had of the way the economy worked simply blinded him to alternatives. Later, after it became obvious that he was wrong, to the detriment of the US and ultimately world economy, he felt obliged to acknowledge his error before a congressional committee.

When negotiating anything, do not forget my mates rule 1, but recognise that it works across a wider field than just price. Any firm preconception will blind you to alternatives in a negotiation, particularly when there is an emotional investment in the result.

About strategyaudit

StrategyAudit is a boutique strategy and marketing consultancy concentrating on the challenges of the medium sized manufacturing businesses that make up the backbone of our economy. The particular focus is on their strategic and marketing development. as well as the business and operational efficiency improvements necessary for day to day commercial survival. We not only give advice, we go down "into the weeds" to ensure and enable implementation.
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3 Responses to Negotiation anchoring.

  1. colinsander says:

    Nice and succinct Allen

    Reminds me of an article I read recently pointing out that really, any negotiation is a conversation ideally based on sound preparation

    Often I see people getting too caught up in a process, losing the whole point of negotiating which is to reach a satisfactory agreement

    • Thanks Colin.
      Time and time again I see the proof of “Dave’s Dictum”, and if you dig around it, usually it comes from one of 2 sources:
      1. A lack of preparation and engagement with the topic. I often see this when a senior exec wants to stroke his/her ego, and intrudes or takes over a conversation that leads to a negotiation,
      2. One party in the negotiation has most of the power, so simply pushed an eganda, as when a manufacturer is talking to Coles or Woolies over here. Try “negotiating” with a 26 year old buyer intent on demonstrating to you, and his superiors, how decisive he is.

      • colinsander says:

        interesting to reflect on where trust sits in these scenarios, and the impact on future interactions too

        truly collaborative negotiating is still pretty rare

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