Wednesday, August 11, 2004

In Negotiations, make the first move?

Received knowledge dictates that in negotiations one ought not make the first move, but this article suggests otherwise. By putting the first number on the table, you can anchor the perceived value of the deal at a higher level.

The answer lies in the fact that every item under negotiation (whether it's a company or a car) has both positive and negative qualities—qualities that suggest a higher price and qualities that suggest a lower price. High anchors selectively direct our attention toward an item's positive attributes; low anchors direct our attention to its flaws.

But the article cautions that the person that has more information has the advantage in any negotiation:

There is one situation in which making the first offer is not to your advantage: when the other side has much more information than you do about the item to be negotiated or about the relevant market or industry. For example, recruiters and employers typically have more information than job candidates do; likewise, buyers and sellers represented by a real estate agent often are privy to more information than unrepresented buyers and sellers are. This doesn't mean you should sit back and let the other side make the first offer. Rather, this is your opportunity to level the playing field by gathering more information about the item, the industry, or your opponent's alternatives to the negotiation. The well-prepared negotiator will feel confident about making the first offer and anchoring the negotiation in his favor.