Negotiation Anchoring – 7 Anchoring Strategies To Close Better Deals
Negotiation anchoring is a skill that often defines a professional negotiator from others. Most believe that it takes experience and confidence to be able to use anchoring as a negotiation tactic. We know from scientific research that when people are asked to make a judgment in the face of uncertainty, they are easily impressed by the first figure that’s introduced into the negotiation, however irrelevant, insulting, or inordinate it may seem.
For this article, you will learn more about negotiation anchoring, its importance as a negotiation tactic, how to use it, and its pros and cons. After reading this article, you’ll be using negotiation anchoring as a means of cementing your advantage against the other party, thus making negotiations easier!
What is Anchoring in negotiation?
Just like the anchor in the boat, negotiation anchoring means focusing heavily on the first price as a reference point throughout the whole negotiation. Meaning when your or the other party drops the first offering price or bid, all discussions will then rely heavily on it. No matter how many discussions are dropped, the focus immediately goes back to the initial offer.
Simply put, whoever makes the first move drops the anchor and from there, has total control over how the negotiation shifts.
Anchoring Negotiation Example
- Orlando is an applicant for an IT job.
- He is trying to apply for an engineering position in a prestigious IT company
Orlando arrives in the office around 5 minutes early so he can prepare for the final interview. He badly wants the job but he also wants to get a higher salary compared to his previous job.
During the interview, the interviewing manager asks Orlando what his salary expectations are. Orlando immediately answers that his salary expectation is around $10,000 to $15,000 per month. The manager looks at his resume again and then informs Orlando that his company’s salary budget goes from $7,000 to $9,000 and is also entirely dependent on his work experience. Given that Orlando is lacking the experience needed by the job, the manager tries to get him to agree to meet halfway because Orlando’s skillset is perfect for the job.
Without any other option and seemingly regretting that he was very impulsive regarding the numbers on his salary expectation, Orlando decides to take the offer.
First Offer Negotiation – Is it Worth the Risk?
For the example above, the anchoring negotiation happens when Orlando drops the first strike with his salary expectation. He wants bigger pay, which is why he sets his expectations to $10,000 to $15,000 per month. This would’ve set the negotiation to getting what Orlando wants if he did it effectively.
Unfortunately, Orlando did not do his research before meeting the manager for the final interview. And because he doesn’t have any intel regarding the other party, Orlando is hard balling the negotiation into shifting his way without a backup plan.
But then again, If he knew beforehand that the company’s maximum offer was only at $9,000, then could he have moved on and applied at a different company?
That would’ve been another bad move because as stated, Orlando badly needed the job. That’s why employing negotiation anchoring without having a backup plan is not advisable.
So if we’re going to list down the pros and cons of negotiation anchoring, it would be the following:
- Immediately sets the negotiation phase between two parties.
- Saves time because the party who sets the anchor offers the initial price.
- For an experienced negotiator, dropping the first offer will set the anchor and will sweep the negotiation to their favor.
- The first one who drops the first offer is immediately giving intel to the other party.
- Negotiation anchoring gives the other party a chance to create a counter-anchor.
- Without any backup plan, the one who initiates the negotiation anchoring will most likely fail during the negotiations.
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How Important is Anchoring in Negotiation?
Sometimes in a negotiation, he who strikes first sometimes wins.
Of course, it is entirely dependent on the offer given and the data gathered by the negotiator to counter any counter-anchors given by the other party.
But if you were the first to initiate the negotiation anchoring, you can steer the negotiation in your favor. It also shows that you, the negotiator, have a strong will and that you are willing to play hardball to get the results that you want. Of course, too much hard balling tactics will also get you nowhere, so there are things that you have to consider too.
7 Ways to do Negotiation Anchoring like a Pro
1. Do your Research
Like everything else when it comes to negotiations, you need to do your research first.
Before approaching the negotiation table, make sure you have every intel available regarding the other party. If you can get information on how much they’re willing to spend or offer, their resistance points, how well the negotiator for the other party is, or who is going to talk on their behalf, then you as the negotiator will have an easier time deploying negotiation anchoring like a boss.
2. Prepare your ZOPA
For the seasoned negotiator, you must identify your ZOPA to use negotiation anchoring without challenges. ZOPA means Zone of Possible Agreements. It’s no less any different from the BATNA or Better Alternative to No Alternative but for the ZOPA, the options that you’ll be taking are entirely dependent on the other party’s counter-offer.
In Orlando’s case, the hiring manager stated that their company’s budget for a new engineer is only from $15,000 to $30,000. With Orlando’s salary expectation, you could say that Orlando’s ZOPA is at $20,000 to $30,000 only. With that in mind, Orlando is saved from not having another job but at the same time, he doesn’t get the salary that he wants.
3. Proposing a counter-anchor
The idea of proposing a counter-anchor is, again, entirely dependent on your ZOPA and research. When the other side proposes their negotiation anchoring and it’s lesser than the ideal, remind the other party first that the price they are offering is less than what you want.
When you’re done with your explanation, give the other party the offer that you think would do good for you and explain why you think your offer is better. The better your explanation will be, the higher the chances that you’ll succeed with the negotiations.
4. Rejecting the anchor price
Should the other party initiate the negotiation anchoring first, you can immediately reject the anchor price if the other party is not showing any signs of changing it. If the deal is also not worth the trouble anymore, you can also choose to reject the anchor price and walk away. Ideally, this should be your final resort. There is no turning back once you’ve walked away.
5. Always avoid the Anchoring Bias
If you’ve initiated the negotiation anchoring and yet, you refuse to change the terms you initiated, then you’re committing one of the most common mistakes when anchoring a negotiation. This process is called anchoring bias.
Taken from the root word “bias” itself, you are dead set on achieving on getting the results that you want based on your first offer. Avoid this at all costs, as it will completely alienate the other party and will affect your reputation as a negotiator too.
6. To Pause or Not to Pause
Pausing for some time off can be a welcome respite during a negotiation. As a negotiator, learning when to pause and not to pause is an effective strategy for negotiation anchoring. When you’ve initiated the first offer and the other party is trying to give some time for deliberation, you can give them some time to pause. But before doing so, remind them that about the value of your initial offer. This will give the other party some time to think while pondering on the things you’ve said.
However, if you’re on the receiving end of the negotiation anchoring and the other party wants to give you some time off, it’s sometimes better to continue with the negotiations, especially if you’re setting up your counter-anchor. Giving time means getting information, so sometimes, you don’t want to give your opponent this opportunity.
7. Learn from Experience
Negotiation anchoring is one of the many skills that you can learn through experience. You take your losses and learn from them while you relish your victories while checking on the things that you can improve. Learning how to time your anchors is another skill that you’d want to master.
Do all this and you’ll be a master in negotiation anchoring in no time at all.
What is negotiation anchoring?
Negotiation anchoring means getting the first opportunity to lay out your deal. You immediately give an offer in order to confuse or give pause to the other party.
How to anchor in negotiations?
There is only one way to anchor in negotiations. Be quick, decisive, and always have a counter-offer when the other party gives a different offer.
What is a negotiation anchoring example?
It is to showcase an event where the negotiator uses anchoring to tip the negotiation in his/her favor.
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