Beauty, and value, are in the eye of the beholder – it’s our role as negotiators to help the other party see our case at its highest value possible; anchoring their perceptions to an ideal value.
Value is inherently subjective, and the vast majority of negotiations are deeper than just price alone.
The best way to effectively shape the other party’s perception of value is to Set High Aspirations. However, setting high aspirations isn’t as simple as painting a glistening future of the impact of a successful deal. It requires some grounding, and some strategic work to highlight the realities of your value proposition.
One technique used to Set High Aspirations is Anchoring.
What Is Anchoring and How Does It Work?
Anchoring is a strategy to create a fundamental shift in how the other party perceives a value proposition before it is laid out in full. Effective anchoring occurs when a negotiator influences the other party’s perception of possible consequences by establishing favorable comparative data on the table early in the negotiation that supports a settlement at the high end of the range of reason.
Anchoring means to tether the value of your offering on the higher end of the range of reason. Another element to unpack here is the range of reason, which is essentially a spectrum of theoretically acceptable values for something.
For example, would you be willing to pay $20 for a large ice cream bowl with the works on a hot day inside a theme park? Although $20 is on the higher end, the price is still somewhat in the range of reason for what people are willing to pay for it. However, asking $400 for the same ice cream bowl is way out of the range of reason – unless, of course, that bowl of ice cream somehow adds a few years to your life or something.
Here are three examples of Anchoring:
- In a negotiation for a used car worth about $1,500, the seller points out early in the conversation with a potential buyer that a similar “sport model” of the same car is a collectible and has sold for up to $9,000. The buyer now subconsciously views the value closer towards the $9,000, even though the used car is worth substantially less.
- The buyer of a house worth around $450,000 mentions to the seller during their first meeting that a home in the same neighborhood recently sold for $250,000. The buyer (the anchorer in this case) is attempting to anchor the value of the house he wants to buy for a lower sum to get a price cut on the sticker price.
- In a discussion with a peer regarding the three-week time frame to complete a complicated analysis, the lead scientist mentions that a similar report was received in three days. The lead scientist has anchored the expectation to be sooner, rather than later because a prior data point suggests it can be done much faster.
In all of these situations, the skilled negotiator is already shaping the other party’s perception about the likely result of their negotiation without the negotiation necessarily even kicking off.
Why Anchoring Works
People are social creatures, and we can also be very self-conscious about our decisions. We tend to look to each other for validation prior to making a big purchase. This is why many products on Amazon with higher reviews tend to rake in more sales.
When making decisions, most people rely on comparisons to determine what to do. We look at comparisons with similar past situations, current market price levels, or past contract terms, as each of the data points reflects a decision validated by other human beings
Additionally, our decision-making tends to be influenced more by the first relevant information we receive, and then by subsequent information.
Anchoring Tips and Reminders
- Don’t be too reasonable: Our natural tendency, especially in collaborative negotiations, is to gravitate to some reasonable position, usually the middle ground. By being too reasonable, we fail to test the outer limits of the range of reason and leave more value on the table and reach less than optimal agreements.
- Anchoring helps create perceived fairness: Anchoring urges sellers to think that the position suggested is reasonable.
- Effective anchoring occurs early in the negotiating process: The power of the anchoring technique comes from the fact that people tend to be influenced more by the first relevant data they receive than by subsequent data. When you have good anchoring data in a negotiation, communicate it early.
- Anchoring can be uncomfortable: Effective anchoring creates constructive tension in a negotiation. This type of tension is good and when strategically navigated, it can thrust the negotiation to a good solution for everyone.
- Anchoring occurs in every negotiation: If you don’t anchor the negotiation to your advantage, then it will either be anchored by the other party, or you will simply default to the “reasonable” middle ground. You may as well leverage the power of anchoring yourself before the negotiation takes a natural tendency to a less favorable position for you.
By Anchoring, you’ll be able to increase the subjective value of not only what you are offering, but of yourself as a negotiator.
