Negotiation Insights: Don’t let an Anchor Number Hinder your Smooth Sailing

Negotiation Insights: Don’t let an Anchor Number Hinder your Smooth Sailing

Note: To truly succeed in your medical career you’ll need three complementary skill sets. Of course, you need to be skilled in the practice of medicine. Secondly, you’ll also need to understand finance. Finally, you need Professional and Medical Business skills. Of all of the professional skills, negotiation is the most important. This is one of an ongoing series from Physician Advocates LLC introducing the science and practice of negotiation to healthcare professionals.

Did you ever look closely at the prices on a menu or maybe appliances in a large home improvement store? Those numbers tend to have some odd characteristics. First off, you’ll see the use of “88” or “99”, as in “$299.88” or “$24,599.99” far more often than can be expected by random chance.  You’ll also notice that the use of zeros as in “$250” is pretty uncommon. What going on here? In everyday use, we often round to the nearest five or ten. We almost never talk about prices in terms of “88” or “99” cents. Why not say “30 dollars” rather than strange sounding “$29.99”?

What you are witnessing is the powerful psychological effect of a concept called “anchoring”. Anchoring is the natural cognitive bias that tends to place too much importance or weight on the first number mentioned.

Let’s do a test. Answer with your best guess

  1. What year did the American Civil War end?
  2. How many words are there in Lincoln’s “Gettysburg Address” speech?

How did you answer? Most people answer somewhat between 1500 and 2000 words. The actual answer is 272 words. What if I did the quiz this way?

  1. How many years is “four score and seven years”?
  2. How many words are there in Lincoln’s “Gettysburg Address” Speech?

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When this type of testing is done, the second group who were asked to answer “87” rather “1865” tended to guess that there much fewer words in the famous speech. This is anchoring in action. When you aren’t exactly certain of an answer, you automatically tend to hang on to or “anchor” your value system around the range of the first number put forth. This effect is extremely powerful and can sway you, even when you are aware of the effect.       

Just like an anchor will limit the motion of a boat to the area around where the anchor sets down, the anchor effect in negotiation tends to limit the “ZOPA” or Zone of Potential Agreement around the value of the first mentioned number.

Anchoring can have a profound effect on the outcome of a negotiation. As a matter of fact, I consider the anchor and counter-offer to be the second most important numbers you need to when developing your negation strategy. Your first most important number is your market value. (Note: the third most important number is your BATNA. This will be covered in future post, so be sure to sign up for our newsletter for updates).

 Here are some tips to help you deal with the anchor effect:

  • Recognize when an anchor number is being introduced. Everyone has experienced this- You are interviewing and your future chairperson asks, “So, what’s your current salary?” Be careful- this is a potential trap. Your old salary will act as your anchor for your new job (note: this scenario is so common and difficult we dedicate an entire section to it in our seminar). Whenever a figure is introduced or requested, even during casual conversation, pay special attention and be careful.
  • You will need to counter-offer an anchor, just don’t do it too soon. If you are not the first person to introduce an anchor number, you will be expected to make a counter offer. Before you introduce a counter-offer, see if you can leverage their offer with a series of negotiation concession techniques.
  • Realize that the anchor is just the first offer and you will be expected to negotiate. You’ve done your market research and planned your negotiation strategy, so you are more than prepared to deal with the offer. Don’t panic, get offended, or change your strategy- It’s all part of the process.
  • Shorten the “chain” on the anchor. An advanced technique to help control the flow of concessions is to shorten the chain on your anchor. Let’s say you make an offer of $10,000. Your negotiating partner might proffer $15,000 as a counter offer. But, what would happen if you said, $8,955? The natural tendency of your negotiating partner would be to stop thinking in terms of thousands and start thinking in hundreds. The counter offer would probably be in the $11,000 range, and maybe even in the $9500 range, especially if they weren’t familiar with the anchoring technique.
  • The party with the most knowledge of the ZOPA should make the anchor offer. One of the most common questions I get is who should make the first offer? The simple answer is the person who understands the market best. If you think your information and knowledge of the market is less than your counterpart, let them start the bidding. If you have more information and you can convince the other party to open the bidding, you may have just earned a major victory if their bid is uniformed.
  • If you are backed into a corner and don’t have good market research, assume the other party’s offer is 20% away from their goal value. Several studies reveal that people tend to make their anchor offer at about a 20% difference from their desired goal. If they offer $10,000, assume they would be happy with $12,000. Of course, a savvy negotiator would be aware of this tendency and could use this knowledge against you.

Understanding the role of the anchor number and how it affects negotiation is vital to your success. Whether you are interviewing, negotiating your physician contract, buying a new car or home, or shopping for a washing machine be aware of anchoring. Build up your negotiation and professional and business skill set, obtain your market value, and develop your negotiation strategy including an anchor and counteroffer value. Fortunately, negotiation is a skill that can be learned and improved with practice. With the proper training, you will be able to reach your dreams and succeed… really succeed.

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What do you think? Have you ever made the mistake of not recognizing an anchor number? How do you determine your anchor number? Did you ever shorten the chain on an anchor to improve your final deal? Share your thoughts in the comment section.

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