Tag Archives: Norbert Schwarz

“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 negotiations, found Columbia’s Malia Mason, Alice J. Lee, Elizabeth A. Wiley, and Daniel Ames.
This finding suggests that negotiators 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, perhaps because those who proposed 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 and when they engage in less “cooperative conversational conduct norms” during negotiations.

H Paul Grice

H Paul Grice

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

  • Briefly,
  • Clearly,
  • Relevantly,
  • Truthfully,
  • Offering only as much and content as 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.
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?

RELATED POSTS:

Twitter  @kathrynwelds
Google+
Facebook

©Kathryn Welds

Reduce Evaluator Bias: Showcase Best Features in Any Offer

Less can be more when designing offers, whether when offering services in job applications, crafting sales offers, or positioning for advantage in any negotiation.

Kimberlee Weaver

Kimberlee Weaver

Kimberlee Weaver of Virginia Tech and University of Michigan’s Stephen Garcia and Norbert Schwarz showed that more is not better in augmenting offers when additional elements are of lower quality.

Stephen Garcia

Stephen Garcia

Using the Presenter’s Paradox in a series of studies, they showed that positive impressions can be reduced when they are presented in the company of lower value items.

Norbert Schwartz

Norbert Schwartz

Weaver, Garcia and Schwarz offered volunteer “buyers” different iPod Touch packages: iPod and cover OR this package with a free music download.

“Buyers”, on average, offered to pay more for the lesser package, and sellers inaccurately expected that buyers would prefer the fully-featured package.
This suggests that expectations about consumer preferences may be poor predictors of people’s actual selection and purchasing behaviors.

The average price offered for the basic package, iPod and cover was $242, but the package with one free song download averaged just $177.
The additional feature reduced package’s perceived value by more than 25%.

Those designing and evaluating offers can mitigate the impact of this judgment bias by considering the value of the overall offering, then eliminating lower-value components that might reduce the comprehensive value.

This is relevant to job seekers who might be tempted to “pad” a resume with low-value activities, accomplishments and skills.
Weaver, Schwartz, and Garcia’s findings suggest that showcasing most compelling capabilities provides a more power presentations of personal and product attributes.

Santa Clara University’s Jerry Burger might argue that “more might be more” when he found that Steve Jobs’s “that’s-not-all” (TNA) technique was more effective than the much-researched “door-in-the-face” (DITF) approach in gaining agreement to sales propositions.

Jerry Burger

Jerry Burger

That’s-not-all” offers a product at a high price, then doesn’t allowing the volunteer to respond immediately.
The procedure follows up by augmenting the offer with another product or lowering the price.

Burger found “that’s-not-all” produced superior simulated sales outcomes to the much-researched “door-in-the face” (DITF) approach, which presents an unreasonably high offer, then follows with a more acceptable proposal.

Numerous replications of “door-in-the-face” have shown than people are more likely to agree to a second more modest request after an unreasonable high first proposal.
Even when the same offer is presented as a single offer, people are significantly more likely to accept it when it’s presented after an unreasonable proposal.

Burger suggested that “that’s-not-all” may have produced greater compliance because people felt obliged to respond to a new offer through an implicit norm of reciprocity,  and because the augmented offer changed the perceived anchor point that volunteers used to evaluate the offer.

-*How do you mitigate bias in evaluating offers?
-*How do you design the most attractive offer when offering something for sale?
-*Which technique for designing offers has been most persuasive to you as a purchaser?

Related Posts
:

Twitter:    @kathrynwelds
Google+:
Blog: – Kathryn Welds | Curated Research and Commentary  
LinkedIn Open Group
Facebook Notes:

©Kathryn Welds