During the 2013 summer transfer period, English soccer club Arsenal FC offered to buy the Uruguayan striker Luis Suarez from its Premier League rival Liverpool FC for the sum of £40 million + £1.
The preciseness of Arsenal’s bid stuck out like the proverbial sore thumb compared to the more usual round number transfer fees and had been designed primarily to trigger a clause in Suarez’s contract that entitled him to be informed of bids from other clubs that were in excess of £40 million. Despite their highly precise offer, Arsenal’s bid failed.
Research shows that the first offer made in a negotiation typically acts as an anchor serving to influence your opponent’s subsequent offers and counter offers. Should we therefore conclude that the reason Arsenal’s bid failed, despite the fact that they made the first offer, was down to the preciseness of their opening bid? Certainly not.
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The Suarez situation was a lot more complex than a simple haggling over the numbers. But a claim could be made that the unusual preciseness of Arsenal’s offer did serve another function – it piqued interest and attention.
Evidence to support this claim comes from the fact that the story itself ran for weeks and generated thousands of column inches in the sports pages (no doubt further fuelled by the fact that Suarez already had a reputation for being a somewhat controversial player).
Persuasion science
It turns out that there is another place we can turn, beyond the back pages of the papers, for evidence not just of the attention grabbing nature of a precise offer but also the remarkable influence that precise opening offers can have in your negotiations. That place is of course persuasion science.
Researchers Malia Mason and her colleagues Alice Lee, Elizabeth Riley, and Daniel Ames believe that people could improve the result of their negotiations not just by ensuring that they make the first offer, but by also ensuring that first offer is a precise one. In one of their studies participants were asked to read an account of a fictional negotiation concerning the sale of a used car.
In each case the participants assumed the role of a seller and received one of three offers made to them by potential buyers. One offer was a round-ending offer of R2 000 and the other two offers had precise-endings and were either R1 865 or R2 135. After each participant received their opening offer they were then asked to respond with a counter offer of their own.
Interestingly, those sellers given an initial offer that ended in a precise number were much more conciliatory with their counter offer, typically countering with an offer 10% – 15% away from the opening offer. However the counter offer of those given the R2 000 round typically countered with an offer that represented difference of over 23%.
Given these results it seems that the small extra act of providing a precise opening offer in a negotiation can be a potent strategy that potentially reduces the gap between the two parties as the negotiation progresses. Why?
A potent bargaining strategy
The researchers thought that recipients of precise offers are much more likely to believe that the person making that precise offer has invested time and effort preparing for the negotiation and therefore has very good reasons to support the precise offer they are making.
This was consistent with a subsequent test conducted by the researchers where they measured participants’ perceptions following the negotiations and found them likely to agree with statements such as, ‘The young man put considerable energy into researching the value of the car’ and ‘He must have had good reasons for the price he suggested.’
It is also interesting to note that the researchers found that this effect was consistent regardless of whether the precise offer was higher or lower than the R2 000 round-ended opening offer. This insight leads to an intriguing thought that when the time comes to sell that uniquely scented Honda Civic that’s taking up space on your driveway, you could end up financially better off by opening with a reduced but more precise offer of say R3 935 than a larger less precise one of R4 000. Of course should you be in the market for such a car you might be advised to pay special attention to the seller whose opening demand is unusually specific.
Strike first
This precise number approach shouldn’t just be reserved for one-off transactional negotiations such as selling that secondhand car. The researchers found similar results across a range of other negotiation contexts. For example, in a second experiment, experienced managers and executive MBAs were split into 130 pairs for a series of live negotiations.
Consistent with the previous study, those executives who made an opening offer in the form of a precise number received counter offers that were on average 24% closer to their opening offer than those who made a round number offer. In every case this anchoring to the initial offer carried right through the final settlement.
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Other research shows that one small change that a negotiator can make that can lead to improved results is to make the first offer. This research provides one extra small but important shift in approach that can lead to another big difference in outcome – making that first offer a precise one.
Accordingly, having already researched all the information, equipment, materials and resources required to prepare that highly detailed proposal for a prospective client, don’t make your subsequent negotiations harder by making the mistake of rounding up your quotation in the mistaken belief that doing so might make it easier for a prospective customer to process. Instead present that precise number early on in your negotiations.
A similar approach should be taken when negotiating a review in your salary and benefits package. Although it may be easier and simpler to ask your boss for a raise of 10%, asking instead for a raise of 9,8% or 10,2% should result in less resistance due to the precision of the number.
Of course, you should be prepared to justify why you are asking for that number – perhaps that is the exact average raise of everyone in your position at work. Similarly, a babysitter hoping to net an average hourly rate of R150 would be advised to open with an offer of R150,85 rather than R160 when negotiating with parents.
Project management benefits
Beyond your negotiations, using precise offers could also be useful when it comes to managing projects and persuading people to complete tasks by a certain time and date. This research would suggest that rather than asking people to get back to you in two weeks you might get more timely responses if you stipulate 14 days.
In a similar vein rather than requesting that a job be completed by the close of the business day or by the end of the week you might be more effective signalling a precise time e.g. ‘Please could you get this back to me by 3.45pm on Thursday.’
The all too common promise to ‘do it by the end of the week’ is the primary reason why you are more likely to receive email on a Friday afternoon / evening compared to most other days.
Not only might this small change result in more timely responses to your requests, it might also help you manage your email more effectively and get you back enough of your weekend that you can watch those overpaid professional athletes strut their stuff.
