There is a lot of research and lore around the tactical advantages of making the first offer, move, or gesture in a negotiation. The success of this strategy really depends on the circumstances. Being the first to offer should be used cautiously and is done primarily in developed markets, where price and terms are stable and standards mature. Still, care must be taken. If you set a term or state a price that is too aggressive with respect to norms or expectations, you will not be taken seriously. Conversely, if you set a firm term or price too near your walk-away, you may find yourself with no room to give concessions. This may also tip your hand about eagerness to close. In systems with imperfect information, highly variable or undeveloped markets, we always have some information; your cost and desired markup. There are mathematical models to help determine optimal states, so called Baysean Games where one party has private information and the other does not. But some information interpreted by analogy is sufficient.
Seller, who is too eager to open may do themselves a disservice by offering their product for $500 at the outset, when Buyer would have been willing to pay $700. Seller effectively, negotiated against herself.Conversely, Seller may make the first offer at $800 where she would like a substantial markup as she possesses private information on her price and what mark-up is optimal. The information she does not possess may be the Buyer’s, who is, for example, trying to solve a recurring $850 cost problem and a $800 one time fix is reasonable. If not reasonable, it is the Buyer’s responsibility to push back and say $700 in this example.
There are a few rules and possibilities to consider when making the first move as a procedural tactic:
- If the opening ask is too divergent from the norm, it can derail or end the negotiation, especially in crowded markets;
- You should never expect to get a better deal than your opener;
- Using an opening, when you are unsure of risk, margin or cost, as a “qualified bracket” may be best, such as “what are the ranges of possibilities, all things being equal?”;
- If you have some information, solicit a qualified bracket yourself, “all things being equal, what are the extreme ranges here?” are unsure of the price and cost, for example for new or unknown risk, offer a range that is qualified;
- Instead of offering a qualified range, ask a straight open-ended question, “what does that look like?”; and
- Ask the very aggressive question, “What is your[ Budget/Cost/Margin]?” Some negotiators use their first move to define the most they are willing to give or get. Go down (or up, depending on the issue) from there. If you open strategically, you may set up your adversary to negotiate against themselves.