How Important is Timing?
Timing is everything when making or responding to an offer in any negotiation. But before you even think about entering the offer stage, you must know your guiding principles. You need to be clear on what you want to achieve in the negotiation, why you want it, and how much time, energy, and money you’re willing to invest to get it. Ideally, you’d like them to make the first offer. In cases where they are not making an offer and you are prepared, it’s ok for you to make the first offer.
The most important thing is for you to be in the position to either evaluate their offer or make an offer. It’s good practice to understand the current market conditions for the offers you’re considering. If you sell something highly differentiated, you might have the opportunity to command premium pricing. But, if you’re buying and your needs are unique due to the volume you require or the commitments you’re willing to make to a supplier, you might be able to negotiate lower costs.
Guiding Principles
These are your guiding principles before making an offer, or accepting an offer.
- What do you want?
- Why do you want it?
- How much are you willing to invest to get it?
- What are the current market conditions?
If you are unsure about these guiding principles, then you’re not ready to make or accept any deal. Without a clear point of reference, you can’t correctly evaluate any offer that comes your way.
The best approach is to start by understanding yourself and your goals. Then, look at the current market situation. Once you’ve done that, you can decide if and how it’s in your best interest to move forward with the negotiation. After surveying the market and determining what an acceptable and unacceptable offer looks like from your perspective, you face the next decision —
Who Should Make the First Offer?
Making the first offer often boils down to how you think your counterparty will react. Here’s why setting the first offer can help control the negotiation process:
- Anchoring Effect
The anchoring effect is a cognitive bias where the first piece of information offered (the anchor) sets the tone for the rest of the negotiation. According to Tversky and Kahneman (1974), people rely heavily on the first proposal, and subsequent counteroffers tend to be influenced by this initial anchor, often remaining closer to it than they might otherwise. This is because our brains are always looking for shortcuts. We seek to make “good decisions,” not necessarily “perfect decisions,” to conserve time and energy. - Perception of Control
Making the first offer can give the initiator a sense of control over the negotiation. By setting the anchor, the initiator frames the discussion and can steer it in a direction that aligns with their goals. Research by Galinsky and Mussweiler (2001) suggests that the first offer provides a psychological advantage, enabling the offer-maker to lead the negotiation toward a favorable outcome. This is especially relevant when you have a well-defined understanding of what you want, your motivation, and your investment budget to achieve it. - Reduction of Uncertainty
Negotiations can be fraught with uncertainty. Making the first offer helps to reduce some of this ambiguity and sets a clear start for the discussion. This can provide a psychological edge, as noted by Schaerer, Swaab, and Galinsky (2015). They found that those who make the first offer often achieve better economic outcomes due to the reduced uncertainty. - Insights from Experts
Negotiation experts like Roger Fisher, William Ury, Jim Camp, and Chris Voss also provide valuable insights that align with the strategy of making the first offer. In Getting to Yes, Roger Fisher and William Ury emphasize the importance of preparing thoroughly and clearly understanding your goals before making an offer. Jim Camp suggests that setting the first offer can establish a firm position; what you stand for is clear in his book Start with No. In Never Split the Difference, Chris Voss advises using the first offer to gather information and read the counterpart’s reactions, helping to refine subsequent negotiation tactics.
Devil’s Advocate: Potential Drawbacks of Making the First Offer
While making the first offer can provide several strategic advantages, it’s also essential to consider the potential drawbacks and limitations of this approach:
- Risk of Overestimating
One significant risk is that the first offer might be too aggressive, potentially alienating the other party. If the offer is perceived as unreasonable, it can lead to a breakdown in negotiations or create a hostile atmosphere, as highlighted by Galinsky and Mussweiler (2001). This is why it is important to check the state of the current market. Your offer should appear aggressive but not crazy.
Example: A skilled negotiator Louis read that setting a high anchor can shape negotiations. Confident, Louis proposed a $250,000 consulting fee to Tech Innovations Inc., far above their $100,000-$150,000 budget. The high offer shocked the executives, creating a disconnect and doubt about Louis’ understanding of their needs. Despite Louis’ justifications, the initial impression set a negative tone. The strained negotiations eventually failed. Louis learned that overestimating the first offer can push potential clients away, highlighting the need for reasonable anchors to maintain engagement and trust. - Insufficient Information
Presenting the first offer without sufficient information about the counterpart’s interests, needs, or reservation points can be risky. This can lead to suboptimal outcomes if the offer is too low or too high. Research by Schaerer, Swaab, and Galinsky (2015) suggests that negotiators who lack information might set anchors that do not maximize their outcomes. Remember, you should never make or accept offers without understanding your requirements, the current market conditions, and the problem (and the value of that problem) your counterparty is trying to solve by potentially working with you. - Counter-Anchoring Tactics
Savvy negotiators might use counter-anchoring tactics to negate the impact of the first offer. According to Adam Grant (2013), experienced negotiators can effectively dismantle an anchor by re-anchoring or presenting a counteroffer that shifts the focus. Your anchors will never influence experienced negotiators because they already have an understanding of what an acceptable offer will look like. They will ignore your anchor unless it suits their strategy.
Example: CEO Sarah proposed $100 million in a high-stakes merger negotiation to acquire a tech firm, setting a strong anchor. Yet, the opposing CEO, Tom, an experienced negotiator, knew the company’s market value was closer to $150 million.
Ignoring Sarah’s anchor, Tom counter-anchored with a detailed valuation, proposing $160 million and justifying it with the company’s innovations and market potential. Sarah realized her initial anchor lost its influence as negotiations shifted to Tom’s price point.
This illustrates Adam Grant’s (2013) insight: experienced negotiators like Tom dismantle anchors with well-researched counteroffers. Moreover, experienced negotiators aren’t swayed by initial offers; they understand exactly what an acceptable deal looks like and strategically ignore anchors that don’t fit their objectives. - Psychological Reactance
Setting the first offer can sometimes trigger psychological reactance, where the other party feels pressured and becomes resistant to influence. This phenomenon, described by Brehm (1966), can result in the counterpart rejecting the first offer outright and becoming more defensive. Professional negotiators will often say No to most offers to test how strongly you are committed to it. This is one way they influence you to negotiate against yourself. - Expert Opinions on Risk
Experts like Chris Voss and Jim Camp also caution against the potential risks of making the first offer without adequate preparation. Voss emphasizes the importance of tactical empathy and understanding the other party’s perspective before making the first move. Camp highlights that a poorly timed or overly aggressive first offer can backfire, leading to a negotiation impasse.
Summary:
While making the first offer in a negotiation can offer several strategic advantages, including the anchoring effect and the perception of control, it is not without risks. Potential pitfalls include overestimating, insufficient information, counter-anchoring tactics, and psychological reactance. Successful negotiators must weigh these factors carefully and consider the context and dynamics of each negotiation to determine whether making the first offer is the best approach.
Interested in more negotiation training? Check out our Executive Negotiator Framework Course
References
Tversky, A., & Kahneman, D. (1974). Judgment under Uncertainty: Heuristics and Biases. Science, 185(4157), 1124-1131.
Galinsky, A. D., & Mussweiler, T. (2001). First Offers as Anchors: The Role of Perspective-Taking and Negotiator Focus. Journal of Personality and Social Psychology, 81(4), 657-669.
Schaerer, M., Swaab, R. I., & Galinsky, A. D. (2015). Anchors Weigh More than Power: Why Absolute Powerlessness Liberates Negotiators to Achieve Better Outcomes. Psychological Science, 26(2), 170-181.
Grant, A. (2013). Give and Take: A Revolutionary Approach to Success. Viking.
Brehm, J. W. (1966). A Theory of Psychological Reactance. Academic Press.
Fisher, R., & Ury, W. (1981). Getting to Yes: Negotiating Agreement Without Giving In. Penguin Books.
Camp, J. (2007). Start with No: The Negotiating Tools that the Pros Don’t Want You to Know. Crown Business.
Voss, C. (2016). Never Split the Difference: Negotiating As If Your Life Depended On It. Harper Business.
