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Negotiations Training Tips:
Who Should Make the First Offer?
By James A. Baker
Negotiations Training Institute
February 2009
One of the most frequently asked questions in
negotiation strategy is this: who will make the first offer? Here
are some tips to help you decide.
After You — No, After You!
There is a bit of common wisdom regarding first offers, saying that
it is always best to let the other side go first. The reasoning for
this is simple. If you go first:
• Your offer may be more advantageous to the other side, causing you
to leave money on the table that could have been yours.
• Your offer may be so advantageous to your side that the other side
becomes offended or discouraged and breaks off the negotiation
immediately, destroying your hope for any deal at all.
• Regardless of the quality of your offer, by going first you lose
an opportunity to learn important information about the other side’s
position which would be revealed in their proposal.
The reasoning above is usually based on a desire to present a
proposal that will be appealing to the other side while still
providing you with something close to your optimum solution.
However, because you may not yet have any certainty regarding what
is possible, the fear of getting it wrong makes you hesitate to take
the lead. Fear and uncertainty are a negotiator’s biggest enemies,
often leading to offers, counteroffers and concessions that are
unnecessarily low or outrageously high.
Take the Lead and Seize the Power
Even though it may seem counterintuitive, negotiators who step
confidently into the Proposal phase project an aura of power that
can begin to create uncertainty for the other side! Experienced,
successful negotiators will testify to the fact that, no matter
which side seems to have the power on paper, it is the negotiator
who projects confidence and certainty during the Proposal and
Bargaining phases that ends up with the power advantage. The more
confidence and certainty one side projects for their proposal, the
more likely it is that the other side will begin to question the
validity of their own opening proposal. Therefore, unless you have
had no time to adequately prepare for the negotiation (in which case
you may be on the defensive for quite a while), there are
significant advantages to making the first offer.
The First Proposal Anchors the Bargaining Range
The truth is, while the first offer is usually not accepted, it
almost inevitably determines the neighborhood — or the range —
around which the rest of the negotiation will take place. Thus, the
first offer serves as a place holder or anchor that will keep the
conversation from drifting too far above or below the opening
proposal.
Research into the anchoring influence strongly suggests that
negotiators making a first offer usually enjoy a substantial
negotiation advantage. There is also strong evidence that the size
of the first offer influences the outcome of a negotiation — with
higher or more aggressive first offers delivering better outcomes.
First offers predict final settlement prices better than subsequent
concessionary offers.
Three Types of Opening Proposals
The Cautious Proposal: A cautious proposal is any proposal that is
too close to your bottom line. Inexperienced or ineffective
negotiators often make cautious first offers because they are
uncertain about how the other side will react and/or they are
fearful of coming away with nothing.
The important thing to realize is that a cautious opening offer will
NEVER be improved upon during a negotiation, and is most likely to
be degraded to something even less favorable, because it anchors the
bargaining range poorly. You can’t come away with more by asking for
less.
The Aggressive Proposal: An aggressive proposal is one that is
positioned at, or even a little above, your “wish” level. Most
people would say that they never actually expect to achieve their
wish level during a negotiation; however, they are likely to come
closer to it by anchoring the opening proposal in the general
neighborhood of their wish. Even if it is degraded during the
bargaining process, the chances are the final agreement will at
least settle at or above your initial aspiration. As long as it is
not patently ridiculous, it is likely to serve you well.
The Unreasonable Proposal: An unreasonable proposal is any proposal
that is so far outside the bargaining range — and so far beyond the
other side’s bottom line — that it is immediately perceived to be
outrageous or even insulting. Frequently, the unreasonable proposal
will bring an abrupt and contentious end to the negotiation, because
it sends the message that either you are completely out of touch
with the market, or you are an irrational and untrustworthy
negotiation partner, or both.
By James A. Baker
Houston, Texas
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