Who Should Make the First Offer?
Who should make the first offer?
Who should put the first offer on the table in a negotiation? You, or the other side? In my UC Berkeley Executive Education Negotiation class, generally about 80% of participants say “the other side should”. This is a common misperception.
The opening offer creates the focal point or the “anchor” around which discussion takes place. Research in the field of negotiations shows that the outcome of the negotiation will tend to settle around that initial anchor.
Why do most people like to have the other side open first? Usually because they want to know what the other side is thinking and adjust around that offer. However, adjusting one’s offer based on what the other party has said, gives away power. The burden of adjusting away from the initial anchor also now sits squarely on the shoulders of the recipient of the offer—a challenging task. Some hope that the other side will make a too good to be true offer—but how often does that occur? Less than 1% of the time? Does it then make sense to give away power 99% of the time?
A skilled negotiator will always prepare thoroughly before starting a negotiation in order to set the initial anchor. In many industries, especially high tech, there is uncertainty around what a service/product should be valued at. As a result, there is a feeling that the first person to make an offer loses. This is not true. The other side has no idea what the value should be either. Thus, the person who makes the initial offer sets expectations and will have power over the negotiated outcome. The only exception to this guideline is in salary negotiations– where it is often better to have the other side make the first offer. We will discuss this in more detail in an upcoming blog.
In upcoming posts we will also discuss when to make an offer, how to make your first offer (package multiple items!), and what to do about extreme offers.