The first offer dilemma in negotiations – should you make the first offer? Few questions related to negotiation techniques have yielded more academic attention and debate among practitioners in negotiation research.
One of the most common negotiation techniques: Don’t ever make the first offer, or risk “showing your cards” and perhaps unknowingly giving away some of the bargaining zone. Others provided experimental and real-world examples of negotiation evidence that making a first-offer will allows you to “anchor” the negotiation favorably (anchoring in negotiation), particularly if you have a good sense of the bargaining range (see also, zone of possible agreement or ZOPA) and (even better) your counterpart does not.
In a series of negotiation technique research studies, researchers Ashleigh Shelby Rosette of Duke University, Shirli Kopelman of the University of Michigan, and JeAnna Abbott of the University of Houston provide evidence that might reconcile these competing perspectives. For their research, they asked MBA students to negotiate a single-issue price deal and recorded who made the first offer, the amount of the offer, and the deal outcome.
Making First Offers, the Anchoring Effect in Negotiations, and Negotiation Success
The subjects then were asked questions about their emotional state, such as whether they felt anxious during negotiation scenarios and whether or not they were satisfied with the outcome. The negotiators who made the first offer felt more anxiety than those who did not – and, as a result, were less satisfied with their outcomes. Yet, backing up prior bargaining studies, those who made first offers did better in economic terms than those who did not.
Advantages of Using Anchoring in Negotiation
If you value only the economic outcome of your deal, make the first offer in order to anchor the negotiation in your favor. But if you value satisfaction with the negotiation process more than the outcome itself, you may want to avoid the stress and anxiety of making the first offer.
The authors also recommended finding a “personal antidote that would prevent feelings of anxiety from emerging altogether.” For example, “some negotiators may find it helpful to role-play making the first offer and repeat this behavior in a safe simulation setting until they feel comfortable enacting it in a real-world negotiation.”
What are your opinions on making the first offer? Let us know your negotiation techniques in the comments.
Originally published in 2012.
Great post! I really like the way you have explained each and everything so well. Very well done with the article!
I wonder how prepared where the MBA students who made the first offer and what was the real cause of their anxiety. I can assume that when we make a high but reasonable first offer, we should not feel too anxious. However, in term of happiness, we might be anchoring OURSELVES to this high initial point. As it is unlikely that the other side is going to accept our first offer, we might be inclined to be unhappy comparing our starting point (high offer) & the result we get at the conclusion of the negotiation process. What do you think?
Besides the evidence re: anchoring, I believe making the first offer can be very productive. Many of my mediation participants are often reluctant to initiate with an offer. However, if the initial offer is framed as contingent on an exchange for something from the other side (ie. specific timing or payment, or a favorable payment plan, etc.), I believe it can be very effective, and injects a collaborative energy into the negotiations from the get-go.
In my humble opinion a first offer naturally should be made be made by the party initiating the deal as he makes the first step towards negotiations. This however is dependent on what system of negotiation you embark on. A collaborative approach will require all cards to be put on the table and this will involve value creation and the interests of both parties taken into consideration. Therefore irrespective of who makes the first offer, stress is eliminated as all things are summed up together
To me this is a trivial result that practitioners have been long aware of. You have a potential advantage if you anchor high but of of course there is a risk of being too high and kick yourself out of the game. Also in highly competitive situations anchoring high is a bad idea because you will be pushed to your bottom limit anyways so you better start low in order not to lose credibility in the negotiation process. So: whether or not it is smart to anchor high depends on the context.
I see the first offer as a boundary, not so much as an anchor. As a Plaintiff’s demand or a seller’s asking price, the money will not likely go higher. It sets the stage and the action happens with the counter. If the numbers are backed by rational data or history of other situations, it should be better received by the opposing party. The more understanding of each party’s position – the better.
Very much depends on the item being negotiated and the culture! Some cultures normally ask/offer a ridiculous price, but that sets the anchor to an assumed middle point (not the initial offer). For example in gem dealing in Mozambique, the seller is expected to make the demand initially and this will be about double the expected price. In other cultures, for example in British property and business negotiation, a fair end point offer is respected as the initial play and not deviated from much.
In this forum the responses are very interesting. I believe the type of negotiations will greatly vary the approach. In salary negotiations, from the employers, side negotiations must be a positive interaction for both parties because the end result will be a lasting relationship. Because of this, it is my practice to make the best offer I can and not vary much. Great variation could lead your new employee to think they left room on the table no matter how high you go. On the other hand it may lead them to think you tried to low ball them which is not good for a relationship. When it comes to employment, do the best you can for the potential employee it will pay off. Make you variations in the package not the total value. Exchange base salary for retirement contributions, sign on bonus for relocation expense, etc.
At the core of the collaborative approach to negotiating is relationship management. I am one of the proponents who believe negotiators shouldn’t make the first offer. It is very beneficial to weigh your options. From the standpoint of giving the other side the opportunity to make you an offer, very few things can go wrong. For example, if you dont like their offer, you can review it, if you like their offer, they will be grateful you didn’t decent into the arena of haggling.
I think it is important to consider two issues in deciding whether to make the first offer
1) the information gap
2) your BATNA
If you know the potential value of the item to the other party (or have a good idea of the range of values) then making a first offer is viable and good alternative- if you don’t you could either be leaving ‘money of the table’ or have unreal expectations that could harm future discussion
BATNA – if you have a strong BATNA and you make the first offer and it harms your negotiations -no harm no foul- you can move to your next option