Anchoring: Should I ask for the moon or be reasonable!?

Some believe in entering negotiations with extreme demands, recognising they will eventually be negotiated down. Others believe in putting forward reasonable demands from the outset, hoping to avoid pointless negotiation. Which approach works best in practice? Asking for the moon or taking a more reasonable approach?

Going into a negotiation with your bottom line is usually a bad idea. The reason for this is simple: if you go into a negotiation with your bottom line, you are unable to give the other party those little wins and concessions that act as lubricant for many negotiations. Everyone wants to feel like a winner!  The truth is that it is easier to give concessions and make the other side feel like they are getting a good deal if you have inflated your starting position.

Keep in mind that even if you approach negotiations with pragmatism, your counterpart may not. Now and then, you will come across a negotiator who is more focused on his ego and scoring points than getting a good deal. Placing a good deal in front of such a negotiator is a mistake. Not only is a reasonable offer wasted on such a negotiator, but it will do the opposite of what we intend. It will not lead to less negotiation but to more! The offer will be rejected because the other party needs the action! They want to score points!

Considering this, it makes sense to position ourselves in a way that allows the other party to score a few token points and feel as though they are ‘winning’. If we moderately inflate our opening positions, we have room to give without giving up on what we want. This makes it easier to close deals because most negotiators are more ready to close a deal after they have won a few concessions. Whether those concessions are meaningful or not often goes unexamined.

There is another reason why we would want to inflate our opening positions. Opening positions exert considerable influence over the eventual outcome of a negotiation.

The term ‘anchor’ is often used to describe a party's opening position in a negotiation. This is because the first position put forward in a negotiation has been shown to act as an anchor, creating resistance to any attempt to move away from it. There is, essentially, a bias towards placing too much importance on the first position put forward in negotiation.

Put simply, the first position put forward in negotiation forms a yardstick against which all subsequent offers are measured. A seller asking for $100 may expect to receive offers for $95 or $90, but few buyers would attempt to offer $50, regardless of the actual value of the product being sold. This is because they place subconscious reliance on the seller’s opening position.  

There is, therefore, a sort of first-mover advantage in negotiations because the first position put forward can influence the other party’s next move.

‘Anchoring’ is also a useful framework for thinking about negotiations that do not revolve around numbers. For example, the insistence by a seller that its one-sided contract terms are used as a 'starting point' for a contract negotiation would constitute an ‘extreme anchor’. Unless such opening position is resisted by the customer and the playing field is ‘reset’, the customer will be stuck negotiating uphill from an extremely unfavourable starting position, trying to make the one-sided agreement more palatable. The customer would have to justify every amendment, whereas the seller could lean back and secure a good outcome by refusing to play ball or running down the clock.

All this is to say that we must identify and firmly reject attempts by the other party to set unreasonable anchors. To put ourselves in an advantageous position, we should anchor our opening demands with enough room to allow us to make concessions without compromising our bottom line. The trick is not to appear unreasonable in doing this.  

Anchoring high won’t always get you the moon, but it sure beats being deadlocked on Reasonable Road!