Avoid drifting in a negotiation—use an anchor

Pick a place that’s a well known distance away—let’s say you know it’s a 30 minute drive. Ask 3 people “Do you think it will take about 20 minutes to get to ___________?” then ask another 3 people “Do you think it will take about 40 minutes to get to ___________?”

It’s highly likely that the first group will say something like—“It’ll probably be more like 25 minutes,” and the second group is likely to say, “No, it’ll be much quicker—you’ll probably make it in around 35 minutes.”

This effect is called anchoring.

When you give a person a number they tend to use that as an anchor in which they judge other numbers in relation to.
Examples of Anchoring:

• A restaurant will often put a $68 surf and turf special right below a $32 rib eye to make the nice steak feel more affordable.
• A fundraiser dinner labels a Maui vacation at $7,000—bidders will be more likely feel comfortable paying $6,000 for a good deal for a good cause—even if they may not pay $4,000 for the same trip outside of an auction situation.
• If a used car sales person senses that you’re the negotiating type they’ll often rush to set a high price so that when you counter, it will be anchored reasonably close to their offer.
• Grocery stores often show an original price crossed out with a sale price right below it. People tend to judge the value of the product in relation to the discount they get off the anchor price; rather than the actual cost.

Another interesting part of the anchor effect is that we tend to stick closer to the anchor number when it’s specific. For instance—if you want to sell a computer for around $800, it’s better to ask for $793 than $800 because the odd number is a stronger anchor.

How to diffuse Anchoring:

• If someone high balls you with an anchor offer it often works to counter offer $1. It messes with the anchor by making fun of it.
• Before going into a negotiation set a range that you’re willing to negotiate in. It will give you a more objective measure to evaluate the strength of your position.
• Get an opinion from an un biased outside expert on whether a price is fair.