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 effective than “precise” offers in negotiations, found Columbia’s Malia Mason, Alice J. Lee, Elizabeth A. Wiley, and Daniel Ames.
Negotiators may improve their outcomes by specifying offers in less typical precise values.
Precise first offers more potently anchored the negotiation range than round number proposals, and those who proposed these precise offers were perceived as more confident, credible, and “well-informed” regarding actual value.
This finding complements observations by University of Michigan’s Y. Charles Zhang and Norbert Schwarz of University of Southern California that consumers have less confidence in precise estimates when they doubt the communicator.
This type of consumer skepticism also occurred when communicators engage in less “cooperative conversational conduct norms” during negotiations.
These conversational norms were defined by Berkeley’s H. Paul Grice in Grice’s maxims, and advocate communicating:
- Offering only as much and content as required.
A less positive aspect of precise offers is that they could signal “inflexibility” to some co-negotiators.
However, this tactic led people who received precise offers generally made more conciliatory counter-offers, leading to smaller adjustments and more favorable final settlements.
Precise offers also led to better final deals even when the negotiator opened with a less ambitious, but precise offer.
Another benefit of precise offers is that they are less likely to 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.
Ambitious first offers may lead a negotiation partner to walk away from the discussion, resulting in an impasse or stalled progress toward a final settlement.
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.
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 number in the team’s analysis of actual residential real estate transactions in two U.S. markets.
In fact, buyers actually paid more when list prices were precise in experiments by Thomas and team.
Precise offers provide some of the benefits of favorably anchoring negotiation discussions while reducing risks of extreme offers.
-*How effective have you found “precise” opening offers in achieving your negotiation goals?
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