How can you use the anchoring technique to negotiate contracts?

Negotiating contracts can be challenging, especially in direct sales where you have to deal with different types of customers, competitors, and markets. However, there is a powerful technique that can help you gain an edge and influence the outcome of your negotiations: the anchoring technique. In this article, you will learn what the anchoring technique is, how it works, and how you can use it to negotiate contracts more effectively.

1 What is the anchoring technique?

The anchoring technique is a psychological phenomenon that occurs when people rely on the first piece of information they receive as a reference point for making decisions. This information, called the anchor, affects how people perceive and evaluate subsequent information, and can influence their expectations, preferences, and willingness to pay. For example, if you see a product marked as $100, but then it is discounted to $80, you are more likely to buy it than if you see it marked as $80 from the start. The initial price of $100 serves as an anchor that makes the lower price seem more attractive and valuable.

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Thomas Ferracci CPCU, ARM

Accomplished and educated WC executive.
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There are no anchoring techniques. You plot your own course and deal with it. You cannot trust anybody else but yourself

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2 How does the anchoring technique work in negotiations?

In negotiations, the anchoring technique can be used to set the tone and direction of the discussion, and to create a favorable impression of your offer. By making the first offer or proposal, you can establish an anchor that will influence how your counterpart evaluates your offer and their own alternatives. For example, if you are selling a service package, you can start by offering a high price that includes all the features and benefits you can provide. This will make your offer seem more valuable and desirable, and will also make your counterpart more likely to accept a lower price later on, as long as it is within a reasonable range of the anchor.

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3 How can you use the anchoring technique effectively?

To use the anchoring technique effectively, you need to consider several factors. Before making an offer, you should research your counterpart, their needs, budget, alternatives, and the market conditions to determine a realistic and optimal range. You must also be confident and assertive when making the offer, backing it up with facts and data. Additionally, you should remain flexible and creative when making adjustments or proposing alternatives if your offer is rejected or countered. Concessions, discounts, bonuses, or other incentives can be used to sweeten the offer; however, you should not give away too much or too quickly as this will reduce your leverage. You should also aim to get something in return for every concession you make.

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Ginar Rustagi

Expert Generalist | Meta Certified Digital Marketing Associate | Social Media Specialist
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In my experience, anchoring can be extremely rewarding if used well. This strategy works well in price-sensitive markets. The best example is Starbucks and their 'fake' mid-range option. The small cup of a Starbucks coffee is seriously overpriced but the Company wants to sell its large cup, so what does it do? It introduces a 'fake' middle option between the two that makes the large cup more appealing. This same strategy can be seen at cinema chains like PVR popcorns. Hence, creation of a 'fake' middle option is one way to using the anchoring technique effectively.

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4 What are the benefits of using the anchoring technique?

Using the anchoring technique can bring you several benefits, such as increasing your chances of closing the deal, improving your profit margin and value, and enhancing your relationship and satisfaction. By making the first offer, you can take control of the negotiation and shape the expectations and perceptions of your counterpart. You can also create a sense of urgency and scarcity, as well as demonstrate the value and quality of your offer. Moreover, by starting with a high offer, you can leave room for negotiation and concessions, while also showing that you are confident and professional. Ultimately, this technique can help create a win-win situation where both parties feel that they have achieved a fair and beneficial outcome.

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5 What are the challenges and risks of using the anchoring technique?

The anchoring technique can also pose some challenges and risks, such as facing resistance and backlash. If the offer is too high or unrealistic, your counterpart may feel offended, insulted, or manipulated. Additionally, you may lose the opportunity to learn and adapt to their needs, preferences, and goals. Furthermore, you may be anchored yourself if not careful and influenced by your counterpart's offer or proposal. This can lead to becoming attached to your own anchor and losing sight of objectives and alternatives. It can also cause bias or overconfidence while overlooking important details or factors.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Alan Whelan

Sales Consultant with 30+ years experience
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Procurement managers often have targets based on % savings so a high starting price can actually suit them. However, discounting heavily from an initial high price creates a credibility issue with the original price. The optimum approach is a realistic start point that allows some reduction for the negotiation phase. Getting that balance right is a fine art. This is when experienced salespeople really demonstrate their worth, not only to their employer but also the customer. Customers want to deal with knowledgeable professional salespeople because it ensures a reality based and smooth negotiation.

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How can you use the anchoring technique to negotiate contracts?

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1 What is the anchoring technique?

2 How does the anchoring technique work in negotiations?

3 How can you use the anchoring technique effectively?

4 What are the benefits of using the anchoring technique?

5 What are the challenges and risks of using the anchoring technique?

6 Here’s what else to consider

Direct Sales

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How can you use the anchoring technique to negotiate contracts?

1

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3

4

5

6

1 What is the anchoring technique?

2 How does the anchoring technique work in negotiations?

3 How can you use the anchoring technique effectively?

4 What are the benefits of using the anchoring technique?

5 What are the challenges and risks of using the anchoring technique?

6 Here’s what else to consider

Direct Sales

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