First Offers and Aggressive Offers: Optimal Negotiating Tactics

When negotiating ensure that you make the first offer and make sure it’s an aggressive one: this is almost always the optimal negotiation strategy. That’s the conclusion from a study looking at negotiation tactics and the anchoring effect (from the same researchers that discovered the optimal starting prices for negotiations and auctions).

One of the researchers gives a good overview of the study‘s findings in an article for Harvard Business School’s Working Knowledge that provides succinct negotiation tactics and reasons for why you should make the first offer. Topiccs include: when you should not make the first offer, how to counter first offers, how to construct a reasonable—yet aggressive—offer, how to protect yourself from the effects of anchoring, and more.

Some key points worth considering (in no particular order):

We might expect experts to be immune to the anchoring effect. Real estate agents, for example, should be able to resist the anchoring effects of a property’s list price because of their presumed skill at estimating property values. Testing this theory, [it is clear that] anchors affect the judgment of even those who think they are immune to such influence. But why?

Every item under negotiation (whether it’s a company or a car) has both positive and negative qualities—qualities that suggest a higher price and qualities that suggest a lower price. High anchors selectively direct our attention toward an item’s positive attributes; low anchors direct our attention to its flaws. […]

The probability of making a first offer is related to one’s confidence and sense of control at the bargaining table. Those who lack power, either due to a negotiation’s structure or a lack of available alternatives, are less inclined to make a first offer. Power and confidence result in better outcomes because they lead negotiators to make the first offer. In addition, the amount of the first offer affects the outcome, with more aggressive or extreme first offers leading to a better outcome for the person who made the offer. Initial offers better predict final settlement prices than subsequent concessionary behaviors do.

There is one situation in which making the first offer is not to your advantage: when the other side has much more information than you do about the item to be negotiated or about the relevant market or industry. […]

How extreme should your first offer be? My own research suggests that first offers should be quite aggressive but not absurdly so. Many negotiators fear that an aggressive first offer will scare or annoy the other side and perhaps even cause him to walk away in disgust. However, research shows that this fear is typically exaggerated. In fact, most negotiators make first offers that are not aggressive enough.