“Precise” Offers Provide Negotiation Advantage

Malia F Mason

Malia F Mason

Opening negotiation offers typically “anchor” the discussion and shape settlement values. Many people make opening offers in “round” numbers like $10 instead of “precise” numbers like $9.
However, “round number offers” were less powerful than “precise” offers in shaping negotiations during a recent lab study by Columbia’s Malia Mason, Alice J. Lee, Elizabeth A. Wiley, and Daniel Ames.
This finding suggests that negotiators can improve their can improve their outcomes by specifying offers more precisely, such as $103.

Y Charles Zhang

Y Charles Zhang

Precise first offers more potently anchored the negotiation range than round number proposals, reported Mason’s group.
This strong anchor may occur because participants who proposed precise offers were perceived as more confident, and credible, and “well-informed” regarding actual value.

Norbert Schwartz

Norbert Schwartz

This finding complements University of Michigan’s Y. Charles Zhang and Norbert Schwarz of University of Southern California’s observations that consumers have more confidence in precise estimates, except when they doubt the communicator.
In addition, consumers like precise estimates more when they engaged “cooperative conversational conduct norms” during negotiations.

H Paul Grice

H Paul Grice

These norms, defined by Berkeley’s H. Paul Grice, are summarized from Grice’s maxims, which advocate communicating:

  • Briefly,
  • Clearly,
  • Relevantly,
  • Truthfully,
  • Offering only as much and content not more than required.

Despite the apparent advantages of more precise offers, these could signal “inflexibility” to some co-negotiators.
As a result, people who received precise offers generally made more conciliatory counter-offers, leading to smaller adjustments and more favorable final settlements for the person who proposed the precise offer.
Precise offers also led to better final deals even when the negotiator opened with a less ambitious, but precise offer.

Martin Schweinsberg

Martin Schweinsberg

These findings suggests that precise offers can be a useful strategic option because extreme first offers, though offering an ambitious anchor, may offend a co-negotiator by signaling aggression or greed, according to INSEAD’s Martin Schweinsberg collaborating with Gillian Ku and Madan M. Pillutla of London Business School’s and Cynthia S. Wang of Oklahoma State University.
This perception may lead a negotiation partner to walk away from the discussion, resulting in an impasse or stalled progress toward a final settlement.

Gillian Ku

Gillian Ku

In addition, negotiators who see themselves in a lower-power position are more likely to walk away, even though both low-power and high-power negotiators were equally offended by extreme offers.
Though an extreme offer may result in high rewards, it can be a more risky strategy than offering a more moderate precise offer.

Manoj Thomas

Manoj Thomas

Another advantage of more precise offers is that buyers may not recognize their actual magnitude:  Buyers underestimated the size of precise prices, particularly under uncertain conditions in studies by Cornell’s Manoj Thomas and Vrinda Kadiyali with Daniel H. Simon of Indiana University.

In fact, U.S. homeowner participants in their lab said they would pay a higher price quoted in precise numbers than when stated in round numbers, validated in the team’s analysis of actual residential real estate transactions in two U.S. markets.

Vrinda Kadiyali

Vrinda Kadiyali

In both cases, buyers paid higher sale prices when list prices were precise.
Thomas and team were able to manipulate the “precision effect” in later negotiations when participants had earlier experience with round number offers and precise offers.

Precise offers seem to offer some of the benefits of favorably anchoring negotiation discussions while reducing some of the risks of extreme offers.

-*How effective have you found “precise” opening offers in achieving your negotiation goals?

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