September 2012 | Nano Tools | Negotiation & Persuasion
Nano Tools for Leaders® are fast, effective leadership tools that you can learn and start using in less than 15 minutes — with the potential to significantly impact your success as a leader and the engagement and productivity of the people you lead.
Contributor: Adam Grant, PhD, management professor, The Wharton School, University of Pennsylvania
Capture powerful negotiation advantages by knowing whether to make the first offer.
Most people believe that you gain a strong advantage in negotiations by letting the other party put an offer on the table first. By waiting for an offer, you receive valuable information about the other side’s bargaining position. But the overwhelming evidence actually favors the opposite strategy: there is usually much more to gain by making the first move yourself.
Here are three reasons why. First, the initial offer is a better predictor of the final price than any other offer. It acts as an "anchor" that creates a strong pull throughout the negotiation, influencing your counterpart’s judgment even if he or she tries to discount it. Second, by making the first move you set the tone, establishing yourself as confident and well-prepared — giving you a strong bargaining position. And third, by making a first offer that’s favorable to you, you give yourself room for flexibility to make strategic concessions and still retain an advantage. Your counterpart is also likely to be more satisfied with the outcome because you've made concessions.
People who habitually wait to make the first offer miss out on these advantages. Of course, there are three circumstances in which it’s risky to make the first move: (1) if your counterpart is more knowledgeable about the issues being negotiated; (2) if you can’t estimate your counterpart’s alternatives or bottom line; or (3) if your long-term relationship with your counterpart is important. Still, research shows that on average, if you’re a seller, every $1.00 higher in the first offer translates to a final sales price that’s $0.50 higher. The same pattern holds true if you’re a buyer: every $1.00 lower in the first offer translates to a final purchase price that’s $0.50 lower.
Nano Tools for Leaders® was conceived and developed by Deb Giffen, MCC, Director of Innovative Learning Solutions at Wharton Executive Education. It is jointly sponsored by Wharton Executive Education and Wharton's Center for Leadership and Change Management, Wharton Professor of Management Michael Useem, Director. Nano Tools Academic Director, Professor Adam Grant.
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