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Make the first offer.
This is one piece of advice that clearly defies conventional wisdom. In negotiations, information is often equated with power. We believe it’s best to extract as much as possible from the other person before tipping our own hand.
Grant and Galinsky both agree that the research is clear on this point: people who make first offers get better terms that are closer to their target price. The reason is the psychological principle of anchoring. Whatever the first number is on the table, both parties begin to work around it. It sets the stage.
Often we are reluctant to go first because we may be way off, and disengage the other party. But Galinksy notes that this does not play out in the research. He said that most people make first offers that aren’t aggressive enough.
There’s a reason we have the adage, “you get what you pay for.” Higher prices make the buyer focus on the positives, while lower ones invite focus on the downsides. In other words, we find data that supports this anchor. (Consider real estate: a high-priced home makes us look at all the desirable qualities, while a below-market offering brings up a bad location or needed repairs.)
Galinsky says that ideally the best first offer is one that’s just outside your partner’s reservation price, but not so far that they have sticker shock.
When conducting negotiations with a supplier or potential business partner, the conventional wisdom has been that it is smart to let the other side make the first move. Why? Because the tendency is to make a first offer that includes some concessions. As a result, the starting point for the seller has now been shifted in your direction, providing a starting point that can be negotiated towards a new middle ground that is more skewed in your favor.
But research from Stanford Graduate School of Business Professor Margaret Neale says buyers and others in negotiations might want to rethink that approach.
Neale recommends instead often starting with an offer that is “just this side of crazy.”
By doing that, the buyer gains the advantage by defining the starting point to which the other side must respond.
In other words, rather than waiting for a price quote from a potential vendor and then negotiating off of that price point, it may make sense to begin with a very low ball, perhaps unrealistic price point that changes the dynamics about where the ultimate price will go. The trick is to pick a point that gives you this advantage without being so ridiculous from the vendor’s viewpoint that they decide the business isn’t worth pursuing.
