One of the most frequently asked questions in negotiation strategy is this: who will make the first offer? Here are some tips to help you decide.
After You ? No, After You!
There is a bit of common wisdom regarding first offers, saying that it is always best to let the other side go first. The reasoning for this is simple. If you go first:
? Your offer may be more advantageous to the other side, causing you to leave money on the table that could have been yours.
? Your offer may be so advantageous to your side that the other side becomes offended or discouraged and breaks off the negotiation immediately, destroying your hope for any deal at all.
? Regardless of the quality of your offer, by going first you lose an opportunity to learn important information about the other side’s position which would be revealed in their proposal.
The reasoning above is usually based on a desire to present a proposal that will be appealing to the other side while still providing you with something close to your optimum solution. However, because you may not yet have any certainty regarding what is possible, the fear of getting it wrong makes you hesitate to take the lead. Fear and uncertainty are a negotiator’s biggest enemies, often leading to offers, counteroffers and concessions that are unnecessarily low or outrageously high.
Take the Lead and Seize the Power
Even though it may seem counterintuitive, negotiators who step confidently into the Proposal phase project an aura of power that can begin to create uncertainty for the other side! Experienced, successful negotiators will testify to the fact that, no matter which side seems to have the power on paper, it is the negotiator who projects confidence and certainty during the Proposal and Bargaining phases that ends up with the power advantage. The more confidence and certainty one side projects for their proposal, the more likely it is that the other side will begin to question the validity of their own opening proposal. Therefore, unless you have had no time to adequately prepare for the negotiation (in which case you may be on the defensive for quite a while), there are significant advantages to making the first offer.
The First Proposal Anchors the Bargaining Range
The truth is, while the first offer is usually not accepted, it almost inevitably determines the neighborhood ? or the range ? around which the rest of the negotiation will take place. Thus, the first offer serves as a place holder or anchor that will keep the conversation from drifting too far above or below the opening proposal.
Research into the anchoring influence strongly suggests that negotiators making a first offer usually enjoy a substantial negotiation advantage. There is also strong evidence that the size of the first offer influences the outcome of a negotiation ? with higher or more aggressive first offers delivering better outcomes. First offers predict final settlement prices better than subsequent concessionary offers.
Three Types of Opening Proposals
The Cautious Proposal: A cautious proposal is any proposal that is too close to your bottom line. Inexperienced or ineffective negotiators often make cautious first offers because they are uncertain about how the other side will react and/or they are fearful of coming away with nothing.
The important thing to realize is that a cautious opening offer will NEVER be improved upon during a negotiation, and is most likely to be degraded to something even less favorable, because it anchors the bargaining range poorly. You can’t come away with more by asking for less.
The Aggressive Proposal: An aggressive proposal is one that is positioned at, or even a little above, your “wish” level. Most people would say that they never actually expect to achieve their wish level during a negotiation; however, they are likely to come closer to it by anchoring the opening proposal in the general neighborhood of their wish. Even if it is degraded during the bargaining process, the chances are the final agreement will at least settle at or above your initial aspiration. As long as it is not patently ridiculous, it is likely to serve you well.
The Unreasonable Proposal: An unreasonable proposal is any proposal that is so far outside the bargaining range ? and so far beyond the other side’s bottom line ? that it is immediately perceived to be outrageous or even insulting. Frequently, the unreasonable proposal will bring an abrupt and contentious end to the negotiation, because it sends the message that either you are completely out of touch with the market, or you are an irrational and untrustworthy negotiation partner, or both.
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February Negotiation Quick Tip – The Best of the Worst
When preparing for a negotiation, it is not uncommon to think in terms of getting your dream deal vs. having to settle for your bottom line, while hoping to come away with something in between. However, do you have any idea what your options might be if you end up with no deal at all? Actually, sometimes it might be preferable to end up with no deal, rather than be saddled with a definite losing proposition. In order to know for sure, you need to think ahead. If you aren’t able to negotiate an acceptable deal, what is the best alternative you would have? Maybe it would be just keeping your money in your pocket and waiting for a better deal to come along. What would be the worst alternative you could face without a successful negotiation? You might be letting a one of a kind opportunity slip away just because you weren’t willing to stretch another 10%. A negotiation can either be smart or foolish based on the alternatives you might have chosen instead. Knowing in advance what those alternatives are, will help you make a winning decision at the negotiating table.
