The anchoring effect describes the tendency for the human mind to rely heavily on the first piece of information introduced into the negotiation conversation.
A ship drops anchor so that it does not drift too far away from the point it ‘dropped anchor’. In negotiations anchors can limit negotiations or can set them up for failure if the anchor is ‘dropped’ in the wrong place. On the other hand, is used wisely, anchors can focus the discussions into a ‘zone of agreement’ where a Win – Win solution exists.
I would not want to describe finding a Win – Win solution as being like looking for a needle in a hay stack. However, if we use that metaphor for an example would you rather be looking for that needle in one specific hay stack or in a field of haystacks? How about looking at one haystack where it is unlikely that the needle can be found?
An example of the anchoring effect could be when buying a car the seller might advertise the sale price as higher than they think the car might be worth. Each subsequent sale price offered is then looked at in relation to that number (‘anchored’ by the number). The buyer might respond with a number lower than they are prepared to pay and every suggested sales price from the seller is ‘anchored’ by that number. Now the ‘old school’ positional bargaining negotiation has begun. I call it positional because neither the seller’s nor purchaser’s ‘offer’ has any reflection of what the car might be worth to themselves or the other person. The negotiation is now not about value – it is about the ‘clash’ of numbers.
The way around this is to know what the car is worth to you. A car driven by a celebrity may be worth more than that same car driven by your next door neighbor (unless your next door neighbor is celebrity!). Know what a similar vehicle is selling for elsewhere (the buyers walk away point) and what another buyer would pay for that vehicle (the sellers walk away point).what is also important is to know what the other negotiators walk away point is.
By doing this you can change the ‘anchor point’ from arbitrary numbers to reason numbers that reflects valid factors that influence negotiation decision making.
If you want to know the other person’s reasoning behind their ‘offer’ just ask them. A simple question such as “how did you arrive at that price?” can give a lot of information to buyers. Asking a buyer” how you arrived at that offer amount?” can do the same for the seller.
Now you know one reason why the traditional advice from positional negotiators is “make the first offer”. You also now know how to counteract that ‘ anchor’ by asking “why” and seeing if the first offer properly reflects reasons that make that first offer worth considering as an ‘anchor’ from which to negotiate.