LTT Business Bulletin - April 2015
Philip Hesketh, one of LTT’s most inspirational speakers on
How to improve your negotiating skills with an easy-to-use technique
There’s a psychological negotiating technique called the ‘anchoring effect’. The idea is that you set a benchmark at the beginning of the negotiations which then influences the final outcome in your favour.
You’ll have taken part in such exercises if you’ve ever haggled in a souk. The seller demands 100 units of the local currency and you counter this by offering just 30. He comes down a little, you go up a little, and eventually you settle on 50. A great deal for you since you got that delightful stuffed camel for half the asking price. However, his asking price of 100 was possibly ten times more than he was willing to accept. So you actually paid five times more than necessary.
He set it, so he was always more likely to win.
This example illustrates something fundamental about the way we think. Every day we use anchors or reference points to make decisions and evaluations. If you’re an estate agent, car sales person or negotiator of any sort you’ll probably be nodding your head right now. If you’re a nodding dog in a used car you’ll probably be doing the same. Not particularly relevant to the story; it’s just what they do. I thought I’d mention it.
Anyway, establishing anchors is a vital step in the negotiating process for any sales person. It defines the ballpark. And, whether we like it not, the whole negotiating process will be influenced by whatever that starting figure is. It’s a technique also known as ‘Rejection and Retreat’ since the buyer always has the option to walk away from the deal at any time. But if they really want what you’ve got to sell, the chances are they’ll stay and negotiate.
As a seller, that usually means starting at the highest price you think you can get. That’s why car sticker prices on garage forecourts are high. The dealer will always accept less, but it’s up to you to negotiate them down. The same goes for salary reviews. You might hope for a £2k rise but unless you ask for more than this there’s little chance of getting it. Particularly if your employer opens the negotiations by suggesting just one thousand pounds. In that instance, getting £1,500 feels like a result and both parties are reasonably happy.
So why is the anchoring effect so instrumental in decision-making? Well, psychologists think it’s linked to our desire to look for confirmation of things we’re unsure about. For instance, if you see a diamond ring priced at £5,000 you naturally assume it must be worth this much and look for rings of a similar price in other jewellers for confirmation. Unless you’re married to me in which case we’re straight home on the bus. Of course, most of us wouldn’t be able to tell a £500 ring from one worth £50,000. We need an anchor to give us a guide.
Sometimes the ‘anchor’ works even when it is manifestly unhelpful, thanks to our fundamental laziness in not wanting to do too much work to make a decision. For example, the first time we realise we massively overpaid for that stuffed camel in the souk is when we see it in the really expensive Tax Free airport shop at half the price.
“Anchor!” As my wife said to me when she spotted it.
The truth is, the anchoring effect is everywhere in daily life and we just can’t avoid it. The trick is to be aware of it and try to make it work for you. In the meantime, can I interest anyone in a stuffed camel? Great value at just ten quid. Okay, five.
Philip Hesketh is a best selling author and professional speaker and one of the world’s leading authorities on persuasion and influence. You can contact Phil, and subscribe to his regular newsletters (and we really recommend that you do), on his website www.heskethtalking.com