We were at the Great Wall of China. A gentleman in my tour group showed interest in a folding fan that a vendor near the Wall was selling. He wanted to bring home a souvenir.
The vendor’s asking price was 125 Yuan (about $18) for the folding fan. After a few minutes of back-and-forth haggling, the gentleman bought the fan for 30 Yuan (a little over $4). We congratulated him on his negotiating expertise!
The next day I was in a store in Beijing and saw the exact same fan being sold for 10 Yuan (around $1.50). And we all thought 30 Yuan was a great deal!
The first number that we saw for the fan – 125 Yuan – became the reference point from which the negotiation started. The vendor ultimately reduced her asking price 75%, but it was still three times more than a retail shop. Lack of knowledge about value exaggerated the anchoring effect and caused the buyer to significantly overpay. Fortunately, this was a low stakes negotiation. In business, the stakes are usually much, much higher.
What should we do when someone makes an unrealistic offer with the hope of anchoring our expectations?
We should quickly defuse the anchor or risk having it fall into the bargaining zone. That is, if we start talking about the anchor it will, consciously or not, become part of the negotiation.
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