Caveat Venditor!

Kelvan, not Cujo

Source: J. Krueger

If you do not know where you are going, every road will get you nowhere. ~ Henry Kissinger

Anchoring and low-balling are two powerful negotiation techniques. In anchoring, one agent makes a rather extreme offer, expecting the other party to reject it. A deal may be struck after several rounds of approximation. Often the first mover is the seller who floats an asking price. A buyer who pays without making a counteroffer likely overpays. When negotiation evolves, the extremity of the first offer is correlated with the final outcome. The more the seller initially asks, the more she finally obtains. Conversely, if the buyer makes the first offer, the lowest initial offer leads to the lowest final outcome. In other words, the first mover can take advantage of the anchoring effect (Loschelder, Trötschel, Swaab, Friese, & Galinsky, 2016).

Low-balling is a shady tactic. As the first mover, the seller makes an attractive offer – in apparent contrast to the anchoring tactic. The intent is to get the buyer to commit to the deal, at which stage the seller worsens the offer (Burger & Caputo, 2015). She might reveal constraints or limitations of the product or service, or reveal previously hidden costs. Whereas anchoring is ballsy, low-balling flirts with illegality. It is certainly unethical. It is also possible for the buyer to low-ball the seller, but this is rarely explored. Per example, suppose you hire a child sitter without telling him of Cujo’s presence in the domicile, a circumstance that will make his job less pleasant.

Protection against anchoring and low-balling requires an awareness of the possibility that these tactics may be used. In anchoring, one solution is to be the first mover, and thereby leave it to the other party to look for protection. If this is not possible, one may close one’s inner eye, pretend to not have seen the first offer, and then make one’s own offer as if it were the first. This is difficult because anchoring effects are partly automatic and thus difficult to control (Strack, Bahík, & Mussweiler, 2016). A pragmatic solution is to double-down on the adjustment. Suppose the carpet merchant asks $2,000 for the Berber, and you cannot pretend to not know this. Instead of setting your own offer independently and low (which you are unable to do because of the power of anchoring), you mentally move away from the asking price, that is, you adjust. Perhaps you get to $1,000 before feeling foolish or greedy. So stop and breathe. Now, take this $1,000 and add another downward adjustment. Perhaps you get to $500 this time. This is much better. Had you stopped after the first adjustment, you’d have probably ended up paying $1,500. Adding the second adjustment will probably save you $250. These numbers are crude illustrations, but remember that psychologically the first counteroffer is as critical as the initial asking price. Make it count by using the anchoring tactic yourself.

In low-balling, the buyer’s solution is to walk away. If you don’t you are essentially agreeing to a deal that you didn’t agree to. You are acting contrary to your best interest. The fact that low-balling is often effective casts a dim light on the rational-agent theory of human decision-making. According to that model, people do what is best for them. Having demonstrated low-ball effects on compliance, social psychologists searched for a positive explanation. Robert Cialdini (2007), who has looked most deeply into this phenomenon, believes that once people agree to a deal, they feel committed to it and they perceive their own rejection of a modified [and worsened] deal as a matter of personal inconsistency. In other words, they attribute the reneging not to the seller but to themselves. Likewise when the buyer low-balls the seller. Meeting Cujo, the would-be sitter has grounds for renegotiation. Again, the challenge is to overcome inner resistance. The pull of commitment can be as strong and as automatic as the pull of the anchor. The seller (i.e., the sitter) may now flatly void the commitment, and wait to see if the buyer makes a better offer, or he may offer a revised price himself, perhaps with anchoring in mind.

Transformation: Let’s explore the last scenario. Buyer B wants to purchase a service from Seller S. B offers a price, which S rejects. S then makes a counteroffer, but B does not respond directly. Instead, B reveals new conditions requiring more service from S. If S does nothing and B eventually agrees to B’s counteroffer, the deal is worse than what S had proposed in the counteroffer – because more service is now required. S is now in the odd position of having her counteroffer on the table, while knowing that it has been corroded without being directly addressed. But S has options. She can revise her counteroffer in light of the new conditions, or she can withdraw it. Which is better?

If the new – aggravating – conditions are a fait accompli, S can raise her asking price again, by translating the cost of the increased effort relative to the price in the counteroffer and adding it. This revision would be designed to nullify B’s attempt to get more for the price of the counteroffer than S had intended to provide. B can now reject the revised counteroffer, and the likely outcome is that a deal will be found for the extended service to be sold at a price between S’s first and second counteroffer.

If S withdraws the counteroffer without upgrading it, things become more interesting. B might conclude that negotiation has failed, and look for another provider. Or B might return with an offer that takes the additional service work into account. The critical psychological ingredient is the communication and the perception of power and intent. In the standard scenario, S says: “I want $$$ for the service,” and B will try to lower this number as much as possible. In the reverse scenario, S says: “I will not accept $$,” so that B will try to increase that price as little as possible. This scenario effectively switches the roles of the two agents. Whereas in the standard scenario, S reveals an acceptable price, she only reveals an unacceptable price in the reverse scenario. It is left to B – if B has enough interest – to figure out what an acceptable price is. S retains the power to say no – which is a good power to have when dealing with a low-balling B.

Jiu-Jitsu. Negotiations are most likely to be successful if they unfold within a context of shared assumptions. Ideally, negotiations follow a script that both parties know and respect; at the end of the process a mutually satisfying resolution awaits: a win-win (see here for a Berber example). Critical to these assumptions is an understanding of the give-and-take dynamic and of certain taboos. Most negotiators expect and respect the dance of offer and counter-offer, which gradually converges B and S on an agreement if there is a positive bargaining zone. Subtle violations of this script may sow confusion, tactical advantage, and possible resentment. Suppose S makes an offer to provide a service for $$$. B, instead of making a counter-offer, challenges S to justify the asking price line by line. S can decline to respond, play an ultimatum game (take it or leave it), or ask B to return to the script and make a reasoned counter-offer. Having to justify her initial offer puts S in a defensive frame. What will it take to convince a reluctant B that $$$ is indeed a reasonable rate? It is a dangerous path for both parties to take. If S offers a detailed justification, B may respond by denying S's rationale, which is a more antagonistic result than to respond by saying 'I cannot pay $$$ but I can pay $$, and here are my reasons.' A rejection of S's justification is a judgment on S's own valuation of her service and her reasoning about it. It is a trap. Anticipating this trap, S might lower her asking price without explicit justification. This may be what B is really angling for, and, if it succeeds, this tactic is as brilliant as it is devious. B would have induced S to lower her price without having made a counter-offer herself. So this is a trap too. What should S do? Probably nothing. 'Time is on my side,' as Mick Jagger sang.

The third-party gambit. To put more Jiu in the Jitsu, one party can muddy the waters by introducing - truthfully or deceptively - a third party. Again, this violates the simple script of give and take between two parties. A default assumption is that whichever party introduces a third party does so out of strategic self-interest. When S proposes to sell a service to B for the amount $$$, B may - instead of outright rejecting or disputing the offer - claim that third party T (the boss, the back office, corporate, HR, or the store police) will not consider this offer. A rejection is being communicated without being attached to the messenger, B. B may return to original Jiu-Jitsu and ask S to soften the offer (i.e., sell for $$) in order to placate T. A sophisticated B will claim to be on S's side and help S negotiate with T. What should S do? Reject involvement with T! S makes clear to B that the negotiation is between S and B. Whichever claims T may lay on the process is for B to deal with. If, for example, B claims that T will refuse S's offer, B can make a counter-offer to S that respects the real or asserted interests of T. This way, the script of give and take between S and B is preserved.