The ability to negotiate is a critical skill for salespeople.
There’s also no single perfect approach. Your ability to effectively negotiate a deal is more about your ability to read the situation and act accordingly than it is about talking a prospect into doing what you want them to do.
Instead of seeing your negotiation style as a singular way of doing things, I recommend having a negotiation toolbox you can pull from to quickly adapt your negotiation style to the deal you’re looking to close.
When making a purchase, it’s natural for buyers to experience a phenomenon called anchoring bias, which is the tendency to focus heavily on the first price they see in the context of a sale. During a negotiation, anchoring bias can create a challenging scenario for sales reps depending on the information that has been shared.
By understanding how anchoring can impact the decision-making process, salespeople can be better equipped to handle challenging negotiations with potential customers.
What is anchoring in negotiation?
Anchoring refers to heavily focusing on the first price as a reference point throughout the negotiation process. In the context of a sale, the opening or initial offer is typically seen as an anchoring point.
As a rep, your goal is to facilitate a smooth, efficient sales process. Spending a lot of time going back and forth negotiating terms and pricing with a prospect can slow down your sales velocity, and jeopardize your ability to close a deal. Let’s discuss some of the ways anchoring can impact your negotiations.
How Anchoring Works in Negotiation
As you determine what information to share with prospects, keep in mind that the first value they hear has a high likelihood to influence their decision. If after your initial conversations with the prospect, you feel you can present a package that is financially feasible for them and profitable for you, you can get ahead of anchoring bias by presenting a mutually beneficial first offer.
That’s not to say presenting an initial offer is a guaranteed way to avoid anchoring bias. If you don’t yet have enough information to gauge how much a prospect is willing to spend and you present an offer that is low-value, you may reinforce a low anchor point that can hurt your sales.
With this in mind, some reps may decide to ask for a slightly higher price in their initial proposal. In doing this, there is room to negotiate with the buyer to settle on a lower price that is on par with the asking price for the product.
Challenges of Anchoring in Negotiation
On the other hand, anchoring can create challenges in the negotiation process when there is misalignment between two parties on the value of the offer.
If the buyer makes an offer and is committed to a price that is lower than what you are asking, it can be difficult to talk them into a higher price. In this case, you risk driving down your average selling price if you accept the deal, or you could risk losing the deal altogether if the buyer decides not to buy.
If you find yourself working with a prospect who is exhibiting anchoring bias, consider the following tactics as you navigate your negotiation.
How to Overcome Anchoring in Negotiation
1. Do your research.
Take time to adequately prepare when entering negotiation conversations. Research the background of the prospect, make sure you understand what they are looking for, and run the financials on your end so you know exactly what you can and cannot accept as a final offer.
If you know the prospect has a set budget they want to stick to, prepare possible solutions your company can provide that best suit your sales goals and what problem the prospect is looking to solve for.
Additionally, take some time to research what your competitors are offering for the same solution. In some negotiation scenarios, prospects may want to price-match or reference what another company is offering. If you take the time to prepare a response to this ahead of time, you’re less likely to be caught off-guard.
2. Propose a counter-anchor.
The goal of a counter-anchor is to swiftly disqualify an anchor before countering with your ideal price.
For example, let’s say during a negotiation a buyer begins by offering $22,000 for a product and you can’t accept less than $30,000 for it. Before providing a counter-offer at a different dollar amount, make sure the prospect understands their offer is far lower than you’re willing to accept.
After explaining why that offer cannot be accepted, share the price you would like to see the product go for and explain the value of what they’re getting. This establishes a new anchor point that moves your negotiation in the right direction.
3. Reject the anchor price.
If during the negotiation process, you find the buyer is not budging and that the deal is not worth negotiating at that value, you can choose to reject the anchor. This is typically a last case scenario. Choosing to reject the anchor can lead to a few outcomes:
You can revisit the counter-anchor strategy later in the process, after they’re had more time to deliberate.
If they are set on spending a low dollar amount, you can start from scratch and discuss a different offer or set of terms that better aligns with their budget.
The two parties can reexamine if their collaboration is worth pursuing.
The more experience you have negotiating deals, the more comfortable you will be working through these scenarios. To hone in your negotiation skills, hop on a video call with a colleague and try one of the exercises in this post.
Originally published Dec 22, 2020 8:30:00 AM, updated December 22 2020