Tuesday, April 22, 2014

Never Make the First Offer: Is That Bad Advice?

The conventional wisdom is clear:  In a negotiation, you should never make the first offer.  We've all heard this advice, and we probably have tried to adhere to it when buying a car, working out a business deal, or negotiating a salary.  Is this good advice though? Is the conventional wisdom actually correct?

Northwestern negotiation expert Leigh Thompson thinks we should question the conventional wisdom.  She points out that research has never validated this advice.  In fact, some new research suggests that making the first offer leads to better outcomes.  Several good reasons exist for choosing to make the first offer.  For instance, she points out that people are subject to anchoring bias.   In other words, we often rely too heavily on an initial point of data.  We begin with that number, and we adjust from that point... and we would behave differently if not anchored originally by an initial piece of data.   Thus, you can anchor the other party by making the first offer, and you can use that anchor to your advantage. 

Thompson also offers some good advice so as to make an effective first offer.   First, she reminds us that few parties will take the first offer.  Keep that in mind when you put your offer on the table.  Second, be realistic with your first offer.  An outrageous first offer can create a "chilling effect" that will make it hard to come to an agreement with the other party.  Finally, a good first offer is often close to other party's BATNA (best alternative to a negotiated agreement).  Again, if the offer is far worse than the other party's BATNA, it may be viewed as outrageous and make a deal highly unlikely. 

No comments: