Going first or second is one of the major challenges during a negotiation. This is an extract from Chapter 9 of High Impact Fee Negotiations and Management for professionals dealing with this issue.
At some stage during a negotiation one of the sides has to go first and put forward their proposal. Most people will, if asked, state a preference for going second. When asked for reasons most will confess that deep down they hope that the opening position made by the other side will be more favourable than their own first proposal would have been. In other words- most people hope to get lucky.
This is probably the area in negotiation literature where there has been the greatest change over time. Traditional advice used to be to let the other side go first (ie go second) so that the negotiator could then respond by saying ‘not good enough’. This is a form of flinching (for more details on flinching see High Impact Fee Negotiations and Management for professionals ) and can be very effective.
Together with most modern commentators I do not advocate going second as it is rather passive and as it allows the other side to take advantage of one of the most powerful negotiation techniques known as anchoring. This is why experienced negotiators prefer to go first. Anchoring is an extremely well researched phenomenon and most experts consider this to work just about in all cases even when one is up against experienced negotiators. Only the most self disciplined are capable of ignoring a well positioned anchor.
One of the reason why anchoring is so effective is that most people will relate the progress of a negotiation and the eventual outcome to the number that was first mentioned, ie the anchor. Psychologically it is easier for a service provider to start high and allow themselves to be ‘negotiated’ down than for a client to go first and be pushed ‘up’.
There are two exceptions to the general principle of going first with a high anchor. The first applies in the rare circumstance that you are quoting in a totally new environment or service and simply have no data as to where a price should be. In this case there is a high risk that going first will result in either a number that is beyond their veto and that you will blow the negotiation or your own credibility or that it is way too cheap and that you will be stuck with a unsatisfactorily low price (and also blow your credibility). My advice under such circumstances would be to delay the negotiation and engage in further research, information exchange or other preparation. Going in blind is poor negotiation.
The second exception is to go in first but with a low number. This can make sense when a deliberate low starting number can generate interest or initiate a dialogue. The aim is of course to have a higher final number by the end. A classic example of such a strategy is a competitive auction where the seller sets a very low reservation price. The intention there is that bidders’ interest will have been generated and that this will lead to a bidding frenzy. Some work has been done to establish that similar effects can operate under some negotiation conditions.
Professionals should be on the lookout for clients looking to apply the anchor effect in their favour by starting this part of the negotiation with a statement such as: ‘we have been offered this service by a competitor of yours for x. If you are able to offer us a y per cent discount on x we can give you the instruction.’- tough not to shrink at such an opener!
The best way to respond to this would be to first flinch and then to ask lots of detailed and probing questions to establish a) if this alternative is real and b) how comparable it is to your offer. Often the offer either does not exist or is simply not comparable as it may for example not be as extensive in scope.