We know that in negotiations, our preparation is essential. Our ability to create and maintain a climate of cooperation is crucial. Moving from positions to interests is an essential skill. Knowing the rules for making concessions is a must. Our emotional management is life-saving. Unfortunately, we sometimes do not attach enough importance and time to polish our first offers, with a risk of loss of value.
Among the debates that have occupied and still occupy many people, including highly qualified negotiators, is this one: when we negotiate, which person or entity makes the first proposal? On the basis of what criteria? What are the advantages and disadvantages of each situation? There is of course no trivial or automatic answer, and if someone gives you the way forward, be wary. No two situations are really the same. Therefore there is a treatment of the subject of this article specific to each case, although we will try to identify some general criteria’s.
By way of preamble, there are situations where the answer to this question is almost obvious. As a selling party, the probability of making the first proposal is very high, although, for example, in the real estate sector, this is not especially true or practised.
When the Beatles negotiated their percentage of Abbey Road album sales, a question that came from the producer, they royally screwed up. They offered a percentage that was so much lower than what was on the market at the time that it was difficult to turn down their offer. An obvious first rule, although it is probably not often followed, is to be well informed, that is to say, to be prepared. When a future employer asks you what your salary expectations are, it would be wrong to base them solely on your current (or most recent) salary and your personal ambition to change from the past. It would also be deleterious to reason on the basis of your simple desire to earn a good living. In this case, you also need to find out how people in the company are paid for the same job; you will benefit from knowing how other companies pay employees for similar jobs; it will be useful to know how age, experience, other skills are valued…; you will benefit from gathering information about the firm’s financial health, cash flow, hiring and retention strategy. We see that very quickly, the number of elements to be prepared is high.
Let’s take another example: real estate. In this field too, the person will have to be well prepared if he or she does not want to be « taken for a ride » by better-prepared and/or more specialized contacts, who are quite numerous on the market. If it is you who are led to make the first proposal, find out about the history of ads for this property, take points of comparison in the same neighbourhood, for the same surface, in a comparable area. Of course, do not forget your own ambitions, your financial capacities… because there is a danger of having your attention diverted by the elements put forward by other stakeholders. We will discuss this psychological phenomenon later in this article. You can also avoid a lot of trouble by refusing to make a « second » first offer before the person you are talking to has responded to your first offer. This specific element is developed in the following post: Irrational Escalation of commitment
If we were to summarize ourselves at this stage we could already make a list with a few criteria that would open both doors: that of the first offer and that of waiting for the first offer from the others :
- Our level of preparation
- Our level of information (quality and quantity)
- Our expertise and experience on the subject of the negotiation
- Our expertise and experience in negotiation techniques
In addition to this, there are (at least) two important elements, which alone could make the difference in some cases:
- The anchoring bias
- The effect of the status quo
We are talking about very powerful mechanics that we need to know in order to complete and strengthen our preparation, knowing that it is very complicated to escape from them.
The anchoring bias
This cognitive bias was highlighted by Daniel Kahneman and Amos Tverski in a remarkable experiment. They are both facing large numbers of people, and while Kahneman asks them to write down on a piece of paper the percentage of African countries present at the UN, Tversky spins a wheel of fortune a few metres away from his colleague. Each time they observed the same phenomenon: the audience’s responses varied according to the number (between 0 and 100) on which the arrow of the wheel of fortune stopped. When the number was high, the percentage increased and the opposite was also true, while there was no correlation between the question and the functioning of the wheel. Subsequently, other social psychologists constructed experiments to verify this effect. In another experiment, a bottle of wine with a hidden label was placed in front of the public, whose members had to write the last 2 (or 3) digits of their mobile phone number on a piece of paper before making a price offer at which they would agree to buy the alcoholic beverage. Once again, they saw an influence between two unrelated elements.
How can this be applied to negotiation? The person making the first offer has an opportunity to anchor the psychology of the discussion around and in relation to his or her references, which act as an « anchor » in the minds of others. Whether the interlocutor tries to move away from or towards these anchoring elements does not change the phenomenon, there is influence. It can go so far as to make us forget our own goals, and that is really dangerous. In view of the risk we run when faced with a proposal from other negotiators, we must carefully prepare our objectives and what we agree to accept as a minimum (or maximum, depending on the subject). In other words, we will calculate or determine the aspiration (target) and reservation (ultimate acceptable value) points for each topic under discussion during the negotiation. Since it is very difficult, if not impossible, to escape this cognitive bias, one possible solution is to create a counter-anchor through a counter-proposal.
The effect of the status quo
There are different ways of understanding this effect. The one we are interested in here can be summarized as follows, trying to answer at any point in a negotiation the question: who will be least affected by the status quo? In other words, if nothing changed from the present moment, who would suffer the least? It is not certain that this notion is well integrated by everyone. Yet it is vital. The reflection is about time and its impact on negotiators. Who can afford to wait? Who, on the contrary, should move quickly towards an outcome that is as favourable as possible? We approach the notion of « neediness » indirectly and we know that the more we « need » to negotiate, the more we potentially weaken. This can, unfortunately, result in more, bigger and faster concessions, despite the rules for making them. How can we resist making the first offer if time is short? This is one of the reasons why we would be well advised not to reveal our deadlines.
Let’s summarize. We can consider 6 criteria to identify the appropriateness of making or not making the first offer:
- Our level of preparation
- Our level of information (quality and quantity)
- Our expertise and experience on the subject matter of the negotiation
- Our expertise and experience in negotiation techniques
- Our intention to benefit from the anchoring bias
- Our situation vis-Ã -vis the status quo
There is one more point I want to make here. It concerns how to react to an initial offer from an interlocutor. If it is possible to imagine different typologies, let us retain this one, which has the merit of being simple and ultimately covering most cases:
- A reasonable first offer
- A first hard offer
- A first offer not acceptable in the state but perceived as questionable
Reacting to a reasonable first offer
- Thank the speaker (if relevant and like you)
- Ask how he constructed this offer (facts, logic)
- Don’t accept immediately (even if the offer seems to be providential) because it sends a signal of lack of ambition or a feeling of having made a mistake.
- Take the time to check the facts and logic.
- Bring in an expert, if necessary, pause to check
- Make a counter-proposal or accept if the elapsed time will have diminished the impression of lack of ambition or mistakes made.
Reacting to a first hard offer
- No need to thank (unless you want to show irony). Instead be silent. If possible, no emotional reactions that weaken
- Ask how he constructed this offer (facts, logic). This is the key question
- Option a: counter-offer just as « hard » –> escalation –> possible failure Option b: run away immediately Option c: ask the caller to make a « second » first offer
Options a and b in point 3 are negotiations that are unlikely to continue at the negotiating table and will require us to find something else to do, such as starting a plan B, which is called BEST ALTERNATIVE, which is what we will do if we don’t get it done at the negotiating table.
Reacting to a first offer that is not acceptable as it stands but is perceived as questionable
- Thank the speaker (if relevant and like you)
- Ask how he constructed this offer (facts, logic)
- Concessions and compensations
As a reminder, there are rules for making concessions, the most important of which are listed below:
- Don’t give, exchange
- Make them conditional
- Make your concessions late and later and later.
- Make them smaller and smaller
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