Image Credit: Stefanie Seskin
Most negotiators know that when we are negotiating pricing with the other side, it is always in our best interest to be the first one to make a price offer. This serves to anchor the price and the negotiations can take off from there. However, there is a variation on this practice that a lot of us may not be aware of. It turns out that with a simple modification we can create an even more attractive offer for the other side.
The Best Way To Make An Initial Offer
Negotiators know that during a negotiation first impressions based on our negotiation styles and negotiating techniques can be everything. However, it turns out that first offers can be just as important. Most negotiators know that because of the anchoring bias the initial offer made in a negotiation – however arbitrary it may be – serves as an “anchor” that pulls the negotiation discussion in its direction. Research into the power of anchoring bias in negotiations continues.
One key question that needs to be answered is if your anchor offer should be a single figure or a range offer. An example of this situation is if you’re about to negotiate the price of a used car with a potential buyer. You know that the car’s fair value is about $5,000–$6,000, your research shows. Should your aggressive first offer be a specific price – say, $7,000 – or a price range, such as $6,500 to $7,500? A study found that expressing offers in a range can be a wise move in distributive negotiation, thanks to the anchoring bias.
If You Offer A Range, What Type Of Range Should You Offer?
There are three different types of ranges that negotiators tend to use when making price offers in distributive bargaining, varying from the unambitious to the bold. These types of offers are:
- Bolstering range: When a bolstering range offer is made, it includes the single-figure offer at one end and a more ambitious number at the other end, such as a seller asking $7,000–$7,500 rather than $7,000 for their car.
- Backdown range: A backdown range is one that features the single-figure offer at one end and a less ambitious figure at the other end, such as the same seller asking $6,500–$7,000 for their car instead of $7,000.
- Bracketing range: A bracketing range is one that spans the single-figure offer, such as an offer of $6,800–$7,200 rather than $7,000 for the same car.
So what types of ranges should negotiators use? Research has shown that if negotiators construct unambitious ranges, their offers lead to disappointing outcomes. Alternatively, bolstering price ranges – those that aggressively stretch the bounds of a single-figure offer – can be highly effective in price-haggling negotiations, thanks to the anchoring bias.
Buyers who receive bolstering-range offers make greater concessions and more conciliatory counteroffers than do buyers who received the other types of offers. Why is this? Because they assumed that their sellers had more ambitious bottom lines, or reservation prices. In addition, buyers faced with bolstering-range offers were more concerned than buyers who received a single-figure offer that their counterpart would perceive them as impolite if they made an assertive counteroffer. A range offer seems to signal greater flexibility than a single-price offer. Likewise, recipients of range offers may prefer to counter within the suggested range. Bolstering-range offers seem to produce the best results.
What All Of This Means For You
The goal of any principled negotiation that we find ourselves in is to get the best deal possible. What we’d like to be able to do is to get the other side to agree to a proposal that we place in front of them. That proposal will probably have a price attached to it. If we want them to agree to the proposal, then we’ll need to find a way to get them to agree to our price. In order to make this happen, we may need to use anchoring to get our way.
In a negotiation, the person who makes the first price offer often “anchors the price” and the negotiations continue from there no matter what the price was. What negotiators want to know is if they can make anchoring more effective by using price ranges with their anchors. It turns out that there are three different types of ranges that negotiators can use with their anchor prices. It is most important that we use ambitious ranges, otherwise we may have disappointing results.
There is no question that anchoring prices by being the first to suggest a price is a powerful negotiating technique. However, it turns out that we can make this tool even more powerful by using ranges when we make our first offer. If we can combine these two techniques together, we may be able to steer the pricing portion of the negation in the direction that we want it to go. Anchoring with ranges is a skill that we all need to take the time to learn.
– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Negotiating Skills™
Question For You: If the other side pushes back against your range, do you think that you should propose a different range?
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