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.
Alternatives enable negotiators to gain concessions from co-negotiators because they have a BATNA – Best Alternative To a Negotiated Agreement, defined by Harvard’s Roger Fisher and William Ury.
Strength of the alternative is important in determining whether it helps or hurts a negotiation.
When an alternative is weak, it can undermine negotiating outcomes more than having no alternative because it establishes an “anchor point” based on competing options.
Anchoring is a frequent cognitive bias characterized by overvaluing one piece of information, according to Hebrew University’s late Amos Tversky and Daniel Kahneman of Princeton.
Negotiators usually anchor on the value of alternatives when making a first offer, and people with weak alternatives generally make lower first offers than those with no alternative.
“Lowball” first offers based on few or poor alternatives usually undermine a negotiator’s final outcome.
Professional athletes and their agents provide many anecdotal examples of negotiating better deals when they have no “back up” offers and “nothing to lose” because they can set ambitious anchor points.
In a separate study of job negotiation, 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 indicated that they preferred an unattractive alternative offer, confirming the popular assumption that any alternative is better than no alternative.
Another of Schaerer’s lab studies asked volunteers to imagine they were selling a used music CD by The Rolling Stones.
Participants were randomly assigned to three groups and gave each cohort received different information about their alternatives, ranging from:
- 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.
Not surprisingly, people with the strong alternative felt the most powerful and those with no alternative felt the least powerful.
However, people with a weak alternative felt more powerful than those with no alternative, but they made lower first offers, signaling less confidence than participants with no alternative.
Having any alternative can help people feel powerful but can undermine negotiation performance.
Schaerer’s team explored this paradox by pairing participants as a “seller,” who offered a Starbucks mug during a face-to-face meeting, and a potential “buyer.”
Before the meeting, the seller received a phone call from “another buyer,” who was actually a confederate of the researchers.
For half of the “sellers,” the potential buyer either made a low offer or declined to bid.
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 without other options when they focused on alternatives.
“Sellers” avoided this pitfall by concentrating on the target price.
These findings validate focusing on the goal when alternatives are weak, and of the power of first-offer anchors.
Negotiators with non-existent or unappealing alternatives benefit from tempering their cautious first offers when they feel powerless.
Instead, the situation can be opportunity to set audacious goals, reflected in an ambitious opening offer.
- How do you overcome lowball anchoring when you have few negotiation alternatives?
- Power Tactics for Better Negotiation
- Women Balance on the Negotiation Tightrope to Avoid Backlash
- Negotiation Style Differences: Women Don’t Ask for Raises or Promotions as Often as Men