If we continue to negotiate the old way, we will become more and more disadvantaged. The internet has changed significantly…data and information is p[lentiful and the information gap that existed as little as 20 years ago has closed.
Since both sides of the table now have access to significantly more information which means we need to change the way we negotiate entirely. The best place to start is by answering one of the most important questions:
Who should make the first offer?
In my negotiation seminars, I ask the question…Who should make the first offer? The typical response is…let the other side go first.
When I ask why, I hear things like, “I don’t want to make an offer where I find out later that I could have done better”, “You need to know how much the other side is willing to spend before you can go any further”, “It’s what we teach our salespeople to do…they are required to ask for the prospect’s budget., and “He who speaks first loses”.
I completely disagree with these responses.
These comments are coming from old ways of thinking. The fact is none of those statements hold true anymore. Further, they are so very far from the approach of an expert negotiator.
Great negotiators know about the powerful psychology of anchoring. Most business people have never heard of anchoring, but they may have been using it without knowing it.
The Anchor Rule states: the number a person sees or hears before making a guess influences that guess.
What does that have to do with negotiating? Negotiating is all about guessing. Negotiators attempt to guess what the other side will be like. Will they be cooperative or combative? What will they ask us to give up? What will they be willing to give up? Will my outcome be great or not so great? Since negotiation is so much about guessing, it is very susceptible to anchoring and the Anchor Rule.
What the Anchor Rule suggests is that the person who make the first offer drives the outcome of the negotiation. I have tested this idea hundreds of times in actual negotiations and in exercises I conduct in my seminars. The results are ALWAYS the same. It’s like a rule of nature. The person who makes the first offer controls the outcome of the negotiation. This lines up with research out of Northwestern University that illustrates that anchors when set (or first offers) correlate .85 with outcomes. Now that’s powerful!
Negotiating experts are also well aware that we live in an information-rich business world. Which mean there is no excuse for not having enough information to make the first offer. Consider for a moment how smart you can get spending 30 minutes on Google. What if you spent an entire hour?
You should know your market, you should know your prospect’s alternatives…your competitors, you should know what the market will bear and what is ridiculous. So, take the time to understand these things before you get to the negotiating table.
Here’s the thing, if you go into a negotiation and you let the other side make the first offer, you are allowing them to set the direction and outcome of the negotiation whether you like it or not. So, why would you let someone else determine what kind of deal you are going to have?
Here’s something that’s even worse; if you ask someone their budget, do you think they are going to give you the real number? Of course not, yet with their answer, they have just anchored you and you will likely end up near their fictitious, arbitrary number.
Ponder this for a minute…nobody knows what a good deal is for you better than you!
Bottom line? You should be the one to make the first offer, and if you don’t feel like you have enough information to make that offer…do not go to the table until you do.