Most negotiators prefer to have a “fall back position.”
However, having no alternatives and less power than co-negotiators can improve outcomes, found INSEAD’s Michael Schaerer and Roderick Swaab with Adam Galinsky of Columbia.
When an alternative is weak, it can undermine negotiating outcomes.
An alternative can establish an “anchor point,” a frequent cognitive bias characterized by overvaluing one piece of information, according to Hebrew University’s late Amos Tversky and Daniel Kahneman of Princeton.
People with weak alternatives often make lower first offers than negotiators with no alternative.
“Lowball” first offers usually undermine a negotiator’s final outcome.
Professional athletes and their agents provide examples of negotiating better deals when they have no “back up” offers and “nothing to lose.” They can set ambitious anchor points, and may arrive at a more favourable settlement.
Schaerer and team asked a hundred people whether they would prefer to negotiate a job offer with a weak alternative or without any alternative.
More than 90 percent of participants preferred an unattractive alternative offer, confirming the assumption that any alternative is better than no alternative.
Schaerer asked volunteers to imagine trying to sell previously-owned music in one of three conditions when they had:
- No offers (no alternative),
- One offer at USD $2 (weak alternative),
- A bid at USD $8 (strong alternative).
Volunteers in each group proposed a first offer, and rated the degree of power they felt.
People with the “strong” alternative felt the most powerful and those with no alternative felt the least powerful.
Volunteers with a weak alternative felt more powerful than those with no alternative, but they made lower first offers.
This signaled that they had less confidence than participants with no alternative.
Conclusion: Having any alternative can help people feel powerful but can undermine negotiation performance.
Schaerer’s team investigated by pairing a “seller,” who offered to sell a coffee mug to a potential “buyer.”
Before meeting, the seller received a phone call from “another buyer,” who was a confederate of the researchers.
The potential buyer either made a low offer for half of the sellers or declined to bid for the remaining sellers.
Sellers without an alternative offer said they felt less powerful, but made higher first offers and received significantly higher sales prices than negotiators with an unattractive alternative.
In another situation, half of the “sellers” concentrated on available alternatives (none, weak, or strong) and the remaining negotiators focused on the target price.
Volunteers with unappealing alternatives negotiated worse deals than those with no options when they focused on alternatives.
“Sellers” avoided this pitfall by concentrating on the target price.
Conclusion: Focus on the goal when alternatives are weak.
Negotiators with non-existent or unappealing alternatives can set audacious goals and make an ambitious opening offer because they have the benefit of “nothing to lose.”
This strategy usually renders better results for the disadvantaged negotiator.
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