In business negotiations, “anchoring” is a powerful technique that one can use to their advantage. However, beware of falling for the anchor dropped by the other person/party you are negotiating with.

What is Anchoring?

Anchoring is the practice of setting a reference point (or "anchor") around which negotiations revolve. This reference point is usually the first number or offer put on the table. Once this anchor is set, it tends to heavily influence the negotiation process, often determining the final outcome.

How Does Anchoring Work?

Imagine you’re negotiating the price for a used car. The seller starts by saying, “I’m asking for $15,000.” This initial price sets the anchor. Even if you believe the car is worth less, the $15,000 figure will influence your counteroffer and the entire negotiation. Your mind, consciously or not, uses this anchor as a baseline for evaluating what comes next.

Using Anchoring to Your Advantage

1. Set the First Anchor: If possible, be the one to set the initial reference point. This can help shape the entire negotiation in your favor. For instance, if you’re selling a service, start with a price that reflects your upper target range.
   
   

2. Make a Strong First Offer: Ensure your anchor is ambitious yet justifiable. This creates room for negotiation while steering the final agreement closer to your desired outcome.
   
   

3. Re-anchor if Needed: If the other party sets an anchor that is far from your expectations, counter with your own strong anchor. For example, if you’re buying that used car and the seller says $15,000, you might respond with, “I was thinking more along the lines of $10,000.”
   
   

Beware of Falling for the Other Party’s Anchor

1. Stay Objective: Recognize when an anchor is being set. Pause and evaluate the situation objectively. Don’t let the initial number cloud your judgment.
   
   

2. Do Your Homework: Come prepared with your own research and data. If you know the fair market value, you’re less likely to be swayed by an unrealistic anchor.
   
   

3. Reframe the Discussion: Shift the focus away from the anchor by bringing in other factors. For example, if negotiating a salary, you could highlight industry standards, your qualifications, and your experience to justify a higher offer than initially suggested.
   
   

An Example of Anchoring and Re-anchoring

Consider a scenario where you’re negotiating a salary for a new job. The employer offers $50,000 as the starting salary (the anchor). If you’ve researched and know the industry standard is around $60,000, you can counter-anchor by saying, “Given my experience and the average salary in our industry, I was expecting something closer to $65,000.”

In conclusion

Anchoring is a powerful tool in business negotiations. By setting the first anchor, you can guide the negotiation toward a favorable outcome. However, it’s crucial to recognize when the other party is setting an anchor and to counteract it with objective data and strategic reframing. Drop that anchor wisely and steer your negotiations towards success!

Also read: Know Your Customer(s)...Really Well!

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