It's our role as negotiators to help the other party see our case at its highest value possible, anchoring their perceptions to our ideal price or reference point.
Value is inherently subjective, and the vast majority of negotiations are deeper than just price alone.
The best way to effectively shape perception in a negotiation is to set high aspirations. But this isn't as simple as painting a glistening future of the impact of a successful deal. It requires some grounding, and some strategic work to highlight the realities of your value proposition.
One powerful technique to set high aspirations in negotiation—and achieve them—is anchoring.
Here at RED BEAR, we use a tried and tested negotiation methodology that helps you set higher aspirations and anchor them effectively. When you do it effectively, you can establish your target value in any negotiation.
What Is Anchoring and How Does It Work in the Negotiation Process?
Anchoring in negotiation is a strategy that tethers the value of your offering on the higher end of the range of reason. It helps to create a fundamental shift in how someone perceives a value proposition before it is laid out in full.
Effective anchoring occurs when a negotiator influences the other party's perception of possible consequences by establishing favorable comparative data early in the negotiation process, which supports a settlement at the higher end of the bargaining zone.
To do this effectively, you need to understand the range of possible agreement. This is essentially a spectrum of theoretically acceptable values for something, from the initial offer to the final offer, with wiggle room in between.
For example, would you be willing to pay $20 for a large ice cream bowl with the works on a hot day inside a theme park? Although $20 is on the higher end, the anchor price is still somewhat in the range of reason for what people are willing to pay for it in the right circumstances.
However, asking $400 for the same ice cream bowl is way outside the range of reason – unless, of course, that bowl of ice cream somehow adds a few years to your life or something.
The Anchoring Effect: Why This Powerful Technique Works in Decision Making
People are social creatures, and we can also be very self-conscious about our decisions. We tend to look to each other for validation prior to making a big purchase. This is why many products on Amazon with higher reviews tend to rake in more sales.
When making decisions, most people rely on comparisons to determine what to do. We look at comparisons with similar past situations, current market price levels, or past contract terms, as each of the data points reflects a decision validated by other human beings.
Additionally, our decision-making tends to be influenced more by the first relevant information we receive, and then by subsequent information. This is known as the anchoring effect, a common tendency that can significantly impact negotiations.
“Our decision-making tends to be influenced more by the first relevant information we receive, and then by subsequent information.”
Three Examples of Anchoring in Negotiation
We've established what anchoring is and why it can be so effective at the bargaining table. But what does it actually look like in action?
Let's explore a few real-world examples and how they might play out.
Example 1: How Anchoring Bias Influences Decision Making
First up, let's take a look at how anchoring bias can influence the decision-making process.
Imagine you're negotiating the price of a used car worth about $1,500. Early in the conversation, you point out to the prospective buyer that a similar "sport model" of the same car is a collectible that sells for up to $9,000. This higher price serves as an anchor point. As a result, throughout the rest of the negotiation, the buyer subconsciously views the value of your used car as comparable to $9,000, even though, in reality, it's worth much less.
And guess what? You don't have to be the one selling to set anchor points like that. Buyers can do it, too.
Example 2: How Buyers Can Use Counter Anchoring to Win
Let's say you're selling a house worth around $450,000. A buyer tells you during your first meeting that a similar home in the neighborhood just sold for $250,000. In this scenario, the buyer is trying to anchor the price of your house to the lower price tag, using counter anchoring.
These two scenarios focus on monetary value, but that's not the only way you can use anchoring.
Example 3: Non-Sales Applications of Anchoring
Here's an example of where else anchoring could be applied:
A lead scientist is discussing an analysis with a projected three-week turnaround. They tell the peer that a similar analysis was returned in only three days—anchoring their work to the faster timeline, because they believe it can be done sooner.
In all of these situations, the skilled negotiator shapes the other person's perception of the likely result by establishing comparisons that align with their goals. And they've often started doing this before the negotiation even starts.
The skilled negotiator shapes the other person's perception of the likely result by establishing comparisons that align with their goals
Anchoring Tips and Reminders to Improve Your Negotiation Skills
Now that we've explored the what and why of anchoring, let's dive into how anchoring works in practice. In this section, we'll break down some concrete tips to help establish more impactful comparisons and set powerful negotiation anchors that win.
These aren't just abstract ideas – they're battle-tested strategies that can help you navigate even the trickiest negotiations with confidence.
- Don't be too reasonable: Our natural tendency, especially in collaborative negotiations, is to gravitate to some reasonable position, usually the middle ground. By being too reasonable, we fail to test the outer limits of the range of reason and leave more value on the table and reach less than optimal agreements.
- Anchoring helps create perceived fairness: Anchoring urges the other person to think that the position suggested is reasonable.
- Effective anchoring occurs early in the negotiating process: The power of the anchoring technique comes from the fact that people tend to be influenced more by the first relevant data they receive than by subsequent data. When you have good anchoring data in a negotiation, communicate it early as an initial offer or first price.
- Anchoring can be uncomfortable: Effective anchoring creates constructive tension in a negotiation. This type of tension is good and when strategically navigated, it can thrust the negotiation to a good solution for everyone.
- Anchoring occurs in every negotiation: If you don't anchor the negotiation to your advantage, then it will either be anchored by the other party, or you will simply default to the "reasonable" middle ground. You may as well leverage the power of anchoring yourself before the negotiation takes a natural tendency to a less favorable position for you.
Remember, mastering these anchoring techniques takes practice and patience. As you apply these tips in your negotiations, you'll develop a keener sense of when and how to set effective anchors. Stay observant, be flexible, and don't be afraid to adjust your strategy as the negotiation unfolds. With time, you'll find that anchoring becomes an integral part of your negotiation toolkit.
Stay observant, be flexible, and don't be afraid to adjust your strategy as the negotiation unfolds.
How to Use Anchoring in Negotiations to Win
The ultimate goal of anchoring is to increase the subjective value of not only what you are offering, but of yourself as a negotiator. It's a powerful tool in salary negotiation, price negotiations, and any situation where two parties need to reach agreement.
To effectively use anchoring in your negotiations, you need a solid understanding of anchoring bias, not just how to use it, but also how to overcome anchoring when it's used against you. Counter anchoring and setting a strategic counter offer are essential negotiating skills that can help you respond to the other party's anchor and steer the negotiation in your favor.
Remember, the first offer in a negotiation often sets the tone for the entire process. Whether you're selling, buying, or trying to reach an agreement on any terms, mastering the art of anchoring can give you a significant advantage at the bargaining table.
By applying these techniques and continuously refining your approach, you'll be well-equipped to navigate complex negotiations, influence the other side, and achieve more favorable outcomes.
To learn more about anchoring and hone your negotiation skills, contact us to learn more about our negotiation training programs.
