Tag Archives: Martin Schweinsberg

Range Offers vs Point Offers in Negotiation for Advantageous Settlements

Daniel Ames

Daniel Ames

Many people hesitate to present a negotiation offer as a range of values, assuming that co-negotiators will anchor on the lower value in the range as a “reservation price.” 

This is based on the powerful of first offers as negotiation anchors, such as in research by University of Chicago’s Nicholas Epley and Thomas Gilovich of Cornell.

Malia F Mason

Malia F Mason

Range offers actually led to stronger outcomes in controlled studies by Columbia University’s Daniel R. Ames and Malia F. Mason because they offer “dual anchors” that signal a negotiator’s knowledge of value as well as politeness.

Nicholas Epley

Nicholas Eple

In addition, negotiator credibility, interpersonal style and knowledge of value increase anchor potency to influrnece settlement outcomes.

Thomas Gilovich

Thomas Gilovich

Range and point opening offers have varying impacts, depending on perceived the proposer’s preparation, credibility, politeness, and reasonableness.

Ames and Mason tested three types of negotiation proposal ranges:

  • Bolstering range, which includes the target point value as the bottom of the range and an aspirational value as the top of the range.
    This strategy usually yields generous counteroffers and higher settlement prices, and is a recommended approach.
  • Backdown range, which features the target point value as the upper end of the range and a concession value as the lower offer.
    This approach often leads to accepting the lower value and is generally not recommended.
  • Bracketing range, which spans the target point offer and tends to have neutral settlement outcomes for the offer-maker.
    Compared with point offers, bracketing range offers provided some relational benefits because they were seen as less aggressive.
Martin Schweinsberg

Martin Schweinsberg

Extreme anchors can be seen as offensive, and may lead to negotiation breakdown, according to INSEAD’s Martin Schweinsberg with Gillian Ku of London Business School, collaborating with Cynthia S. Wang of University of Michigan, and National University of Singapore’s Madan M. Pillutla.
In fact, negotiators with little power in their studies were more likely to walk away from extreme anchors and high-power negotiators were equally offended by extreme anchors.

Gilliam Ku

Gilliam Ku

Previously, Mason and team showed the benefit of precise single number offers, and the current research shows the value of range offers.

Mason and team argued that point offers and range offers are independent and interactive informational processes with influence on settlement values:
“…bolstering-range offers shape the perceived location of the offer-maker’s reservation price, (and) precise first offers shape the perceived credibility of the offer-maker’s price proposal.

  • When do you prefer to present a precise, non-rounded negotiation offers instead of a negotiation range?

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“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 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.

Y Charles Zhang

Y Charles Zhang

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.

Norbert Schwartz

Norbert Schwartz

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.

H Paul Grice

H Paul Grice

These conversational norms were defined by Berkeley’s H. Paul Grice in Grice’s maxims, and advocate communicating:

  • Briefly,
  • Clearly,
  • Relevantly,
  • Truthfully,
  • 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.

Martin Schweinsberg

Martin Schweinsberg

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.

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 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.

Vrinda Kadiyali

Vrinda Kadiyali

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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