What is anchoring? Anchoring is the mental process of introducing bias to our favor.
Why tell? Instead, how about a story? My nephew has decided to help me paint a room in the house for the summer. The enterprising soul wants money but not a crushing summer job. Unfortunately, for him (or maybe fortunately), I have a strong policy of requiring children to negotiate. As such, he has been negotiating with me since he was a toddler. This time, this time, this backfired. Recently, I had taught him about anchoring and the power of using an unrealistic number to anchor-first when starting out a negotiation. I asked him, “What would you like to make on the room?”
And without missing a beat he stated, confidently: “$500”. Nearly choking I was caught of guard. He had used my weapon against me. I figured I was going to pay $75 at most for the afternoon of labor. I countered: “Well, I was really looking at $100”.
“Any less than $275 wouldn’t be fair,” he said. We ended up settling on $250.
How does this help you? Most people only negotiate a few times in their lives and don’t have the experience to negotiate well. We need to better negotiate to get better deals and save our time and money for better endeavors. By using anchoring we can not only save money but save our time and by using Anchoring we can really hit hard to start a negotiation off strong and in our favor.
In fact, don’t think of a negotiation as a waste of your time. Think of negotiation as a savior of your time! Let’s take my most recent negotiation where I saved $10,000 on a car and see what the 8-hours I spent were worth in opportunity cost:
A strong negotiation that nets $10,000 in savings or earnings will give you give 426 hours of your life per year! Looks like the 8-hours of pain was worth the effort.
Use anchoring as a great tool in your tool-kit for how to start any good negotiation. And remember, a good negotiation leaves both parties happy to do business again another day!