Should you make the first offer in your negotiations? If so, how aggressive should it be? These are critical questions in negotiation, ones that have been repeatedly examined in negotiation research and teaching. The findings and advice have varied, however, leaving negotiation practitioners uncertain about how to proceed.
In a new study, a team of 15 researchers, led by Leuphana University of Lüneburg, Germany, Professor Hannes M. Petrowsky, conducted a meta-analysis of 90 previous studies that examined the question of whether and when to make the first offer in negotiations. Their findings offer more definitive guidance on this age-old question.
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Should You Make the First Offer?
Let’s start by looking at past views on when to make the first offer in negotiations.
According to one perspective, you should rarely or never make the first offer in negotiation. Doing so risks revealing too much information early on about your flexibility and alternatives, this thinking goes. Choosing instead to wait for the other side’s offer could give you important information that you could use to both claim and create value in your negotiation.
By contrast, many studies on anchoring in negotiation have found that the party that makes the first offer gets the best results. That’s because the first offer serves as an anchor that powerfully sways subsequent proposals and offers in its direction.
Another open question is how aggressive your offer should be. Based on their research findings, Columbia Business School Professor Adam Galinsky and others have recommended not only making the first offer in negotiation but also making an aggressive first offer to take advantage of the anchoring effect.
By contrast, in his recent book, Negotiation: The Game Has Changed, Harvard Business School Professor Max Bazerman argues the potential benefits of an aggressive first offer could be overshadowed by the risk that it will increase the odds of impasse. Bazerman notes that past research on when to make the first offer in negotiations has sometimes excluded the results of negotiation simulations that end in impasse, thus skewing the results. Moreover, he points out that participants in research studies may be more motivated to reach agreement than negotiators in the real world.
Factoring In Impasse and Negotiator Satisfaction
In their meta-analysis of past studies on first offers in negotiation, Petrowsky and his research team accounted for these concerns by looking at not only agreement value, or the amount of value claimed in negotiations, but also the rate of impasse and subjective value, or how satisfied negotiators were with their outcomes. They reasoned that even if negotiators objectively got a great deal, an overly ambitious opening offer could sour the relationship and leave the other party dissatisfied.
The team found “substantial positive effects of first offers for agreement value, with making the first offer and making it ambitiously leading to economic gains for the offer maker.”
However, ambitious first offers did indeed increase the odds of impasse. In addition, negotiators were less satisfied with their final agreement when their counterpart made an ambitious (versus moderate) first offer. These effects were stronger for less complex negotiations, such as one-off negotiations involving a single issue or small number of issues. The researchers corroborated the findings from their meta-analysis in two experiments.
When to Make the First Offer
So, what do the results tell us about when to make the first offer in negotiations? Overall, the results “paint a more nuanced picture of first-offer effects than has emerged before,” according to the authors, “challenging prior suggestions to ‘go first and go ambitious.’” While making the first offer tends to lead to better results for oneself, doing so also increases the risk of an impasse and of harming the relationship with one’s counterpart.
While cautioning that every negotiation is different, the authors offer advice to those who manage negotiators. In simple, distributive, onetime negotiations, they write, “Advising procurement or sales to move first and to do so ambitiously should yield significant economic gains.” But they caution: “When negotiations structures are complex and integrative, or when relational outcomes are paramount, waiting for the other party to move first or making more modest first offers might deserve consideration in the interest of preventing relational losses and non-agreements.”
In addition, another rule of thumb may prove helpful. If you appear to know more about the zone of possible agreement (ZOPA) than your counterpart, you should feel more confident dropping the first anchor than if they are the more informed party. For example, in a job negotiation, the recruiter generally knows more about the ZOPA—that is, how much they can offer, in terms of salary and benefits—than the candidate does. As a result, candidates are usually wise to wait for a first offer, lest they ask for too much or too little.
Question: What other advice do you have on when to make the first offer in negotiations, based on your own experience?
