When negotiating, it is legend that he or she who speaks first loses (or wins less). While I agree that “silence is golden”, you will often be required to make an offer to get the negotiation started.
An offer made in a negotiation is frequently called an anchor. Someone has to start the process and sometimes that means you. The first anchor is frequently called the “opening anchor”. Generally, it is price, but it can be quality, delivery date, or quantity. It is said that anchors claim or announce value; unfortunately, once an anchor is made you generally are stuck with it. Anchoring should be done after carefully exploring all options.
Sometimes the first offer is a “non-offer” such as, “We can buy these parts elsewhere for less”. Another way to anchor with a non-offer is to say “no”. In this case, the “no” means not yet, or maybe later, or not ever. This is a more aggressive anchor and challenges the other party to build more value in their response. A non-offer can be risky since it can end a negotiation prematurely. I recommend that you use a non-offer only when you are confident that the other party needs what you have.
When the uncertainty or the gap between the negotiating parties is small, it is OK to anchor early. This can expedite the negotiation and will allow the parties to find the mutually acceptable offer. It might take multiple counter offers after that to find that acceptable offer.
An example of an appropriate use of an early anchor would be when you need to respond to a request for proposal (RFP); in this case, to be a player you are required to respond with a bid or a price. A common response might be to offer a price that is 10% above your desired target price; this price puts you in the ballpark and gives you room to negotiate later.
When the gap is large, you should wait as long as you can before you anchor. The gap is often a matter of understanding the proposed value from one party versus the perceived value from the other party. When pushed to anchor in this situation, I recommend that you respond with questions about the other party’s perception of value to help you understand the size of the gap. Address those questions first. Anchor later.
An example of a situation when a large gap exists is when a customer with $20,000 to spend walks on a Chevrolet car lot with the intent to buy a car. When the customer asks how much the brand new $50,000 Corvette costs, the car salesperson responds by asking how much the customer wants to spend. This helps the salesperson understand how big the financial gap is between the car dealership and the customer. It also allows the salesperson to direct the customer to the cars in the right price range. By delaying the anchor, the salesperson can match the customer with the best car for the money (more or less).
Sooner or later someone will need to anchor. The better you understand the other party’s perception of value, the better prepared you will be to anchor.
John Bradley Jackson
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