Negotiating: Ask For What You Want, Then Ask For a Little More…
Posted on December 06 2018
Professors Daniel Ames and Malia Mason of Columbia Business School recently discussed ‘range offers’. They say when it comes to negotiation, ask for what you want, then ask for a little more.
They say if you’ve ever had to negotiate the price of something, you’ve probably used what’s called a range offer. For instance, when trying to sell your gently used Honda, you might try to get between $5 and $6 thousand bucks for it. Range offers are very common, and the professors say experts have generally assumed they’re a terrible idea. The theory being your counterpart will ignore the less attractive number and hone in on the number they want to hear. In other words, you might be better off just asking for the higher end of the range from the beginning.
The professors say since there hasn’t been a lot of evidence to support this theory, they decided to go prove range offers don’t work. Only problem, they say, is they were wrong. Range offers can work, but it depends on how you use them and what you want to achieve.
Imagine Professor Ames is a caterer. He’s asked to prepare a fancy dinner for a fundraising gala. He’d like to get $75 per person. He may start by trying for $100. But what if instead of a point offer, he asked for a range? What if he asked for $100 to $120? The professors say conventional wisdom suggests the range won’t matter because customers will ignore the $120 number.
However, their research suggests going for the range offer would actually lead to a better negotiated outcome. They say their research revealed two reasons for this:
First, the range offer affects what your counterpart thinks about your bottom line. Asking for a $100 (point offer) lets your counterpart think they can get away with far less than if you’d started with a range offer of $100 to $120.
The second reason, the professors note, is because of politeness, believe it or not. Most people don’t want to be rude; even in a negotiation. By offering a range, you appear more flexible to your counterpart. When hearing the range offer, they often feel it would be rude not to offer an accommodation in return. (COMMENT: This reminded me of the idea of reciprocity laid out in the book Influence by Robert Cialdini) This leads your counterpart to make a more ‘appealing’ counter offer.
The professors note there are a few limits you should observe though. They say a range of 5% to 25% captures the most benefit and is viewed as being normal. A range beyond 25% doesn’t appear to bring any additional benefits and risks being seen as weird. Also, if your offer is way above what’s considered reasonable for your good or service, it won’t matter if you range. It will be seen as too high.
The professors also found a lot of people aim too low when constructing range offers. If you have a single point offer in mind of $100, you might tend to back down from there and ask $80 to $100. They says it’s like starting off with a concession, almost like shooting yourself in the foot right out the gate. You can view their full comments here.