One of my all-time favourite negotiation strategies originates from a study conducted by Malia Mason and Colleagues. These researchers were interested in the effect that precise numbers have when making a first offer.
You see, people tend to speak and write about numbers in multiples of powers of base 10. Think 10, 1000, 10, 000….. and this preference tends to manifest in negotiations.
This phenomenon also translates to real world markets. If you look at the real estate market, most homes, that is 71%, have a listing price at a dollar amount that has 3 trailing zeroes in the price range of $100,000 to $999, 999.
In the 1-to-10-million-dollar range, researchers found that less than 2% of homes are precisely priced.
Why does it matter?
It’s a matter of perception.
But before I get into 3 reasons why precision is a better tactic than using round general numbers, let me remind you that nothing replaces PLANNING & RESEARCH in a negotiation. Meaning, your offer needs to be legitimate. Make what, one of my favourite negotiation scholars, Leigh Thompson calls, a wild ass offer, and people will leave the negotiation table.
So why does precision, when making a first offer, trump general whole numbers? Here are 3 reasons:
The Anchoring Effect: Precise numbers make your first proposal seem more thoroughly researched and carefully considered. This anchors the negotiation in your favor. The anchoring effect is a cognitive bias where people tend to rely too heavily on the first piece of information (the "anchor") they receive when making decisions.
Credibility: Precise numbers give the impression that you are knowledgeable about the item's worth and have done your homework, which tends to increase your credibility. Round numbers, on the other hand, seem arbitrary and suggest a lack of research or understanding.
Less Room for Large Counteroffers: When you propose a precise number, the other party may perceive less flexibility and feel constrained to make smaller counteroffers. For example, a proposal of $5,000 invites a counteroffer of $4,000—a 20% decrease. But a proposal of $5,140 is less likely to be countered with $4,112, even though this is the same percentage reduction.
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To your negotiation success!
Dr. Gill