Should you make the first offer or should you let the other party make the first offer?
There are two schools of thought here. The first says that you should always let the other party make the first offer. The second says that you should make the first offer. Both think they’re right, so which is actually right. Well, I’m not short on opinions, so allow me to weigh in on both.
Always Let the Other Party Make the First Offer
The folks in this camp believe that if you let the other party make the first offer, you may get a significantly better offer than you expected. You may be coming in with completely different expectations about where the offer should be than the other party and so getting them to offer first not only allows you the opportunity to get something that may be more than you expected, but it also allows you the ability to garner more information before you release any intel. Getting this information allows you to build a better tactical response and be more prepared, thus giving you the upper hand. Naturally, the response from most people is, “Surely this doesn’t give you that much of an upper hand!” Actually it does. With the information you get, you can build your blocking (some people call it bracketing) appropriately or you can get crazy and double block (double bracket). This leaves you in a stronger position and allows you the ability to control more of the negotiation.
Always Make the First Offer
Now this school of thought says that you should always make the first offer because of a psychological bias that we all have where we rely heavily on the first piece of information that we get (the anchor). When we make the fist offer, we are ‘anchoring’ the other party’s mind at that point and research shows that we’re much more likely to end up closer to the anchor point then the counter point of the other party.
Now, which is right?
Both.
I know, it’s a round-about answer, but both are right in certain circumstances. For example, if I know the other party is strong at negotiation and I let them make the first offer, I know they’re going to try anchor me anyway. And so, I can preemptively strike by setting an anchor of my own. Now the natural question becomes, “but if they know that you’re likely trying to anchor them, won’t they counter with a significantly lower counter?” Yes, but in my experience, I’m still more likely to end up closer to my number.
If the party is not well versed in negotiation, I almost always let them make the first offer because I know that most people hardly ever ask for more than they expect to get. Especially if I’ve been conditioning them to believe that they’re not going to get anything out of me. This allows me to set my counter WAY lower and gives me the opportunity to get significantly closer to my number.
So it goes both ways. There’s no hard and fast rule here. Anchoring can be powerful, but so can allowing the other party to make the first offer. It really just depends on the circumstance.