Negotiation Tip: Pricing Strategy with Anchoring

In our recent Negotiation Strategies course, I watched lawyers fight over pricing … and we hadn’t even started the negotiations yet.

I had organized the buyers for a roleplay into an online breakout room to discuss their strategy for the negotiation. One group felt that it was the job of the seller to introduce the price. Another group felt that this was a tactical mistake and wanted to communicate the opening price.

Who was right? As always, it depends.

The Anchor Effect

You probably feel that there is something useful about creating an opening price. For example, if you want to buy a car, you know that you will probably get a better result if you open at Euro 25,000 rather than the seller opening at Euro 35,000.

This feeling is called the Anchor Effect. It reflects a cognitive bias in our mind that causes us to view an opening price (or other key factor) as a strong orientation pole for the negotiations. Once we orient ourselves around a particular pole, the negotiation results are much more likely to end up being close to that original pole.

Research Your Anchor

Some of my students hear this advice and get super greedy. They try to set an opening price that is absurdly favorable to themselves. And, as a result, the other side just walks away from the negotiation.

Anchors won’t work if the other side doesn’t think of them as reasonable. Before you try to set an anchor, you need to figure out what their “reasonable” is. To do this, investigate their BATNA (Best Alternative to a Negotiated Agreement, aka their Plan B). For example, if they go back to the market, what price can they get?

Once you understand their “reasonable”, then go ahead and open with an aggressive price offer that pushes the boundaries of their reasonable but won’t force them to walk away.

Final Thoughts

If you’re not setting the anchor, someone else is. So, do you research and claim your advantage.