February 12th, 2018

What is an Anchor in a Negotiation Why Does It Matter?

In a negotiation when one party throws out a number that is anchoring your price. You could do it or the other party could do it, but once a number has been offered that tends to be an anchor as a starting point for negotiations. What are the implications? That is the point of this article.

Once an anchor has been offered that tends to move the negotiation from a process of collaboration to a process of haggling over price. Generally if price is the only issue, throwing out the first price is a good idea. With an anchor in place studies have shown that others tend to give the anchor significant weight. One study with college students when a question was asked to provide an answer where the answer could have been between 1 and 100 and a random number of either 35 or 65 was presented as an anchor, students moved their answer 25 points depending on which anchor was offered up front. In other words if they were shown 65 their answers tended to be 25 points higher. If they were offered up 35 their answers tended to be 25 points lower. Just the thought of an anchor had that much impact on the results. So what does this have to do with a negotiation?

The first is that anchors really do impact ones perspective on the Zone of Possible Agreement (ZOPA). That is what our side deems of what we see as the possible ZOPA and what the other side deems as the possible ZOPA can be impacted by the first anchor offered. This may or may not be acceptable within the range of each party. You may believe that either you or the other party knows more and has a stronger position in the negotiations.

If the other party throws out the anchor first recognize it for what it is and understand the implications with what is being presented here. We tend to give it to much weight. If it is not realistic at all, you need to educate the other side that it is not realistic so that they know that the anchor is not working to move towards an agreement, but actually may have impacted the negotiations negatively. Explain why. In this instance it may be necessary to de-escalate the situation.

Once you have diffused either or both yourself and the other party that is when to consider presenting a counteroffer. Now stop and think how you will respond. You need to move quickly with your counter proposal demonstrating the reasonableness of your proposal. The other party may not be able to meet it, because it is beyond their BATNA, but at least if that is the case you can part ways and move on. On the other hand it may actually stimulate a legitimate discussion and you can work towards an acceptable negotiated agreement. Remember, stay cool, stay focused, recognize the technique and consider this process.

Contact Mike Gregory to speak to your group of consult with you, and check out his website, books and free content. Michael Gregory, NSA, ASA, CVA, MBA and a Qualified Mediator with the Minnesota Supreme Court, is an international speaker that helps others resolve conflict, negotiate winning solutions and inspire leaders. Mike services clients business to IRS, business to business and within businesses. On point resources are available online at Mike’s web site. Mike may be contacted directly at mg@mikegreg.com or at (651) 633-5311.