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Price Anchoring

How to anchor the price in negotiations to build win-win deals.

Price Anchoring

There’s a popular negotiation maxim along the lines of: “The side that states their price first is the side that loses the negotiation.”

It’s bollocks.

The thinking is that when the other side makes the first offer, you have the advantage of seeing their cards before you put forward your price. You don’t want to give away some of your bargaining zone, right?

That’s a disempowering way to frame it, though. It only hurts to be the first to state a price because it literally hurts – the anxiety and vulnerability linger beyond the moment, making even a successful deal feel unsatisfying. If you struggle with the emotions, you can role play with a safe partner until you’re de-sensitised enough to try it in the real world.

Whether you’re the buyer or seller in the negotiation, being the first to put an offer on the table puts you at a huge advantage. This is chiefly due to a cognitive bias known as the anchoring effect, and it’s most obvious when negotiating the price.

The first number stated creates a kind of gravity around it, keeping subsequent numbers from orbiting too far. It can influence almost every other aspect of what’s being negotiated, as if it’s been painted into the conversation.

There are only 2 situations where anchoring the price could work against you: either your number falls outside the zone of possible agreement (ZOPA) – you’ve high-balled the buyer (or low-balled the seller) – or you answer the “What does it cost?” question too soon. Naming your price too early has the conversation focus on price instead of value. After this point, it’s almost impossible to circle back to a solid discussion about value.

In all other scenarios, anchoring the price can work in your favour.

But does being the first to name the price and anchoring the negotiation make you a cunning sales snake? No, only if you’re high-balling.

Making an offer that fits within your client’s ZOPA likely means you’ve accurately assessed her needs and helped her build a perception of fair value that justifies your price. Both sides can be satisfied with this outcome.

So, if feeling “nice” in your negotiations is important, avoid making the first offer. But if you want a business built on deals that satisfy both you and your clients, be the first to name the price.