B2B Street Fighting Blog

how anchoring can influence a business negotiation

Posted by Marie Dudek Brown on Fri, Sep 28, 2012 @ 02:35 PM

how anchoring can influence a business negotiationOne of the many ways that a negotiation can be intentionally or unwittingly anchored is through the sales process.  For example, if in the sales process you've done a great job of anchoring on selling the total value of your company's solution to the customer, in all likelihood that's the kind of package you'll end up negotiating.  On the other hand, if in the sales process you've only called on the lowest-level purchasing agent, and she's been pushing hard for you to offer them the lowest price, price is most likely what you'll end up negotiating.  The old adage "You negotiate what you sell" is true.  The quality of the sales process does have an impact on how easy or difficult the negotiation is.

Let's say, for example, that you're meeting with a buyer who tells you that his number one priority is a short-term, low purchase price.  However, you've already met with the CFO, who told you that she's more concerned about the long-term, total cost of ownership.  In that case, you know that either the buyer is bluffing or he's not aware of the larger and more strategic initiatives at the firm and is, accordingly, using an inappropriate and strategically useless anchor.

Here's another example of how anchoring can influence the business negotiation conversation.  A few years ago, Margaret Neale, a professor at Stanford Univerity and coauthor with Max Bazerman of Negotiating Rationally (Free Press, 1992), decided to test how the listing price of a house affected realtors' estimations of its value.  Selecting a house in Phoenix, Arizona, she first had it appraised to arrive at a listing price, then asked four groups of real estate brokers to evaluate the house.  Each broker received a packet containing all the information brokers usuallly have to make such evalutions, including data on the house itself, the price of similar houses in the area, price per square foot, and so on.  There were, however, two differences in the packets the brokers received.  In two of the groups' packets the listing price and the price per square foot were lower than the original appraisal, and in the other two groups' packets they were higher.

All the realtors conducted walk-throughs of the house, did their calculations and then presented the results.  Although they all claimed, both before and after their presentations, that the listing price had little or no impact on their calculations, Professor Neale found, when the evaluations were presented, a direct correlation between the listing price and the realtors' evaluations.  The more money the realtors thought the owner wanted for the house, the higher they assessed its worth.  The point here is that anchoring - in this case on a price - can affect someone's thinking about the value of what's being negotiated and, accordingly, the subsequent negotiation.

For all of these reasons, it's extremely important for you to anchor the negotiation to your mutual advantage.  Look for ways to provide anchors in two areas:

  1. in trades that include items beyond just price
  2. in consequences of no agreement (CNA) that include elements other than price.

You can do this by asking carefully worded questions based on your estimations that enable you to shift and broaden the discussion beyond price alone. If, for example, you think your customer is focused primarily on price, you might say something like: "I understand that price, warranties, service and length of contract are important to you.  How would you rank them most to least important?"  By doing so, you can subtly set the tone for multiple trading items.  Similarly, in regard to CNA, you might say to the customer:  "In addition to a good price, how important is it to you that suppliers have the capacity to service you globally?"  Assuming that you have a better global solution than your competitor (the customer's CNA), by raising this question you can find out how the customer feels and begin to subtly hint at the gap between what you and your competitor have to offer. 

Think about a live negotiation you are focusing on now and try to determine if you and your customer have already become anchored in a way that might be either a hindrance or a help in the negotiation.

 

Tags: negotiation skills for sales

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