I made arrangements this week to look at a used car I am interested in buying from a private seller.
That meant preparing to negotiate — or, in plainer language, haggle — over the price when we meet.
So you can understand why my interest was piqued when I saw stories about a new study claiming that most people, buyers and sellers, go about haggling in the wrong way — whether it’s over a car, a house, a lawn-sale doodad, a service or a salary.
Malia Mason, a professor at Columbia Business School who led the study, says that most people make the mistake of starting off with a generic round number when making an offer or naming a price. Instead, she says, they should open with a precise number.
In other words, if the seller is asking $7,200 for his car, I’ll do better if I offer $6,833 for it than if I offer $6,800.
Here’s why: The first number you present in a negotiation is known to professionals as the “anchor,” and if the anchor is a round number, the other party assumes it is a “ballpark” figure — just a number pulled out of the air to get the bargaining started.
But if you open with a noticeably specific number (like that $6,833) you create the impression that you’ve actually done some research and have a detailed grasp of the true value of the item or service or job.
“Precise numbers are just one way to communicate to people ‘don’t mess with me’ or ‘I’m informed, I’m not just throwing some number out there,’” Mason told CNN.
Well, as the Wall Street Journal noted in its story on Mason’s research, one of the many experiments that went into the study involved having 130 sets of people negotiate the price of ... you guessed it ... a used car.
“When buyers suggested a round anchor, they ended up paying an average of $2,963 more than their initial offer,” the Journal reported. “But buyers who suggested a precise number for a first offer paid only $2,256 more, on average, than that number in the end.”
Whoa, that’s a difference of over $700. That would buy a lot of gas to put into that car.
In an interview with NPR’s Robert Siegel, Mason explained that the precise number narrows the buyer’s (or seller’s) perceived range of flexibility.
“I’m buying something from you and I say I’ll buy it for $4,985. I think that you hear she’ll buy it for $5,000, but it’s a firm $5,000. It’s not a somewhere between 4,800 and $5,200, which is what 5,000 implies.”
Mason’s study, to be published later this month, apparently did not look specifically at salary negotiations, but she says the theory applies in that situation as well.
“The practical application of these findings – signaling that you are informed and using a precise number — can be used in any negotiation situation to imply you’ve done your homework,” Mason told BusinessNewsDaily.
She adds that you really should have done your homework — in case the other party hears your odd number and asks, “Where did you get that?”
A news release from Columbia about Mason’s findings notes that the precise-number technique is “relevant to almost any negotiation over a quantity” — and that includes not just money, but also time. A project manager negotiating the date of a key delivery, for example, “is better off asking for 14 days rather than two weeks.”
The researchers also caution against the possible risks of being precise.
“Just as overly extreme first offers lead to higher rates of avoidable impasses, overly precise first offers might signal inflexibility and prompt recipients to walk away from mutually beneficial deals,” the release notes.
OK, so there is no “formula” that guarantees you’ll win a bargaining showdown — but I admit I’ve always reached for the round number and usually wind up in a “split the difference” outcome.
So I’m taking Mason’s advice when I meet with the car owner: “Negotiators should remember that... zeros really do add nothing to the bargaining table.”
My only concern is that the seller has also read about this study.
His asking price?
Rich Lewis, a former reporter and editor, teaches at Dickinson College. He can be reached at email@example.com. His column appears Sundays in The Sentinel.