Negotiation Tools: Anchoring

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(This post is one in a series based on Never Split the Difference; Negotiating as if Your Life Depended on It by Chris Voss with writer Tahl Raz. Voss has 24 years of FBI experience and was the former FBI Lead International Kidnapping Negotiator. He now runs a practice that trains individuals, corporations and law enforcement to negotiate more effectively and more confidently.)

Find other posts on negotiation here and here.

Never be the first to mention salary, the common wisdom goes. The first to discuss numbers loses the negotiation. Is that true? And if so, why?

The answer can be found in a term called anchoring. The first number mentioned in a negotiation serves as an anchor point, and no matter how skilled or sophisticated the negotiators are, it’s very hard to adjust your position without considering the anchor number.

Here’s how it works. Your boss asks you how long it will take to do the research project she’s just assigned you. You’re a savvy negotiator, so you anchor the project by saying, “I think it’s going to take me a full two weeks to do a good job.” Your boss is surprised; she was expecting it to be done this week. “Are you sure?” she asks. “We need to have the report before we can bid on the ABC job.”

“Well,” you say thoughtfully. “If I can get Joe to take over for me on X and Z, I can push hard and get it to you by mid week next week.” Since you anchored the date at two weeks, the earlier deadline looks like a good deal; you’re likely to get the time – and help – you need.

Anchoring is why dealers put the MSRP on the window sticker of the new car. Why you see the original price on a retail sale tag. Why you see offers of “4 for $12” instead of “$3 each.”

Adam D. Galinsky, writing for the Harvard Business Review, writes that “how we perceive a particular offer’s value is highly influenced by any relevant number that enters the negotiation environment.” That’s the reason that the first number offered is called an anchor.  Even when the other party knows that the number has no special relevance, it’s difficult to adjust your counter offer in a completely independent way. If someone offers to sell you an item and you counter at half the price, you’re still working with his price as the anchor. Studies have shown that even experienced professionals who should be immune to the effects of anchors (like real estate agents and art dealers) cannot avoid being influenced by the first number, even though they often deny it.

An anchor can be even more powerful when it’s presented as a range. In a recent study, four Columbia Business School psychologists found that job applicants who named a range received significantly higher overall salaries than those who offered a number, especially if their range was a “bolstering range,” in which the low number in the range was what they actually wanted.

If you want your anchor to be believable, be very, very specific. Chris Voss says that numbers that end in zero inevitably feel like temporary placeholders, guesstimates that you can easily be negotiated off of. But anything you throw out that sounds less rounded — say, $ 37,550 — feels like a figure that you came to as a result of thoughtful calculation. Remember that next time you’re in a sales or salary negotiation. Try to stay away from round numbers.

The rule of thumb for whether you should be the party to anchor is how much information you have about what the other party might be willing to pay. If you throw out an anchor price that is at the low end of the other party’s range, you risk leaving money on the table. If you feel you have enough information about what they’re willing or able to pay, putting your anchor down first might be a savvy strategy.

Next time you make a major purchase, try telling the salesperson: “I have this much to spend. Do you think we can come to an agreement?” Yours will be the anchor price, and you just may get a better deal than you thought possible.

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