The Small BIG: Small Changes That Spark Big Influence (17 page)

S
ometimes the first few minutes at the negotiating table can seem a little like the first few minutes in the boxing ring: both opponents dancing around, reluctant to put themselves out there and make the first move. Just as some boxers are reluctant to throw the first punch, negotiators are often reluctant to put the first offer on the table. From a certain viewpoint this is understandable. They may be worried that being the first to make an offer will telegraph their strategy, or that doing so will perhaps reveal some sort of vulnerability.

But are they right to think in this way? When it comes to negotiation, or pretty much any other situation where you wish to influence someone, is it better to make the first strategic move or should you instead let your opponent do so?

According to research conducted by social psychologists Adam Galinsky and Thomas Mussweiler, you’re far better off making the first offer in a negotiation than letting your counterpart strike first.

In a series of experiments, the researchers found that regardless of whether the person’s role in the negotiation was the buyer or the seller, negotiators who were given instructions to make the first offer typically obtained a superior outcome compared to those who were instructed to wait for their opponent to make the first offer. For example, in one of the experiments, when parties looking to buy a factory made the first offer, the sellers ultimately agreed to an average selling price of $19.7 million. On the other hand, when parties looking to sell the same factory made the first offer, the buyers ultimately agreed to an average price of $24.8 million. The researchers found similar results in the domain of salary negotiations as well.

So what is causing these big differences in negotiations to occur? The primary reason is that when negotiators present their first offer they also “anchor” the other party, perceptually, onto the initial numerical terms. As a result, even though the recipients should ideally determine the value of the negotiated items independent of the numbers provided by the initial offer, they very often don’t. They instead use the opening number provided by their counterpart as an anchor, and then they subsequently insufficiently adjust away from those numbers as the negotiation continues.

Why does this happen? Consider the case of someone selling a used car to a potential buyer. When the seller first suggests a relatively high starting price, potential buyers automatically start to think about all of the information that’s consistent with that high-priced anchor point. Recall how throughout the book we have discussed how individuals are motivated to make accurate decisions efficiently. With a very high initial price, the buyer might ask himself, “Why so high?” and wonder if he needs to correct a potentially inaccurate perception of the value of whatever is being negotiated.

In trying to answer that question, the buyer is likely to spontaneously focus on the features that are all in line with the initial high price—for example, the luxurious aspects of the car, its reliability, and great gas mileage. Now consider what would happen if the buyer had made the initial (and far lower) offer. The seller might answer his own “Why so low?” question by spontaneously focusing on features of the car that are consistent with the buyer’s low anchor—for example, that the car has several noticeable dents and scratches, the overall mileage is high, and there’s an “old car smell” that now makes him wish he had showered immediately after a hard workout at the gym instead of waiting until he drove home each morning to get clean.

Because it’s the counterpart of the person who makes the initial offer who automatically starts thinking about the features of the initial offer, that person is likely to start thinking that the true value of whatever is being negotiated is actually closer to the initial offer than originally thought. Accordingly, regardless of whether your role is that of the buyer or the seller, or employer or employee negotiating over this year’s raise, or manager or subordinate trying to come to an agreement on resource allocation, you should consider carefully what would constitute an appropriate anchor in your negotiations and then be the first to make that offer rather than wait for your negotiation partner to make theirs. As Galinsky and Mussweiler demonstrated in their studies, this small act of going first could lead to some big differences in the results you get.

While small, it’s a change that could pay big dividends. Of course, you need to ensure that your initial offer is within the realm of reality, even if it is geared toward the limits of what is realistic. For example, it’s probably unrealistic to set the initial price for your Honda Civic at $100,000, claiming that it has a one-of-a-kind scent that the buyer can’t find elsewhere! But as long as your initial offer is within the bounds of reason, it’s important to throw that first punch instead of allowing your opponent to do so. Failure to take advantage of such an opportunity may lead you to finding yourself down and out within a few minutes of the opening bell.

Parents take note. Be sure you get in the first bid with those bedtimes!

Of course, we recognize that you can’t always beat your counterpart to the punch. Are there any strategies available in situations in which your opponent is the one who comes out swinging? For example, prospective home buyers have to deal with published list prices that are already established before anyone even begins to negotiate, and many companies tell individuals their starting salaries immediately after offering them their jobs. Fortunately, Galinsky and Mussweiler proposed and tested a rather simple but incredibly effective strategy for escaping this psychological trap:
Focus on your ideal price
, which will lead you to spontaneously consider information that’s inconsistent with your opponent’s anchor.

One easy way of doing this might be to come into the negotiation not only with your ideal price in mind, but also with a written list of why that ideal price is justifiable. Even if you don’t bring up every one of these points in the negotiation explicitly, simply having it there in front of you may very well be a strong enough cue to counteract the otherwise automatic process of questioning whether one’s own original judgment was accurate.

D
uring the 2013 summer transfer period, English soccer club Arsenal FC offered to buy the Uruguayan striker Luis Suarez from their Premier League rivals Liverpool FC for the sum of £40,000,000 + £1. The precision of Arsenal’s bid stuck out like the proverbial sore thumb (or should that be toe?) compared to the more typical round number transfer fees. It had been designed primarily to trigger a clause in Suarez’s contract that entitled him to be informed of bids from other clubs that were in excess of £40 million. Despite their highly precise offer, Arsenal’s bid failed.

In the previous chapter we talked about how the first offer made in a negotiation typically acts as an anchor serving to influence your opponent’s subsequent offers and counteroffers. Should we therefore conclude that the reason Arsenal’s bid failed (despite the fact that they made the first offer) was down to the preciseness of their opening bid? Certainly not. The Suarez situation was a lot more complex than a simple haggling over the numbers. But a claim could be made that because of the unusual preciseness of Arsenal’s offer, it did serve another function—it piqued global interest and attention. Evidence to support this claim comes from the fact that the story itself ran for weeks and generated thousands of column inches in the sports pages (no doubt further fueled by the fact that Suarez already had a reputation for being a somewhat controversial player).

It turns out that there is another place we can turn, beyond the sports pages of the papers, for evidence not just of the attention-grabbing nature of a precise offer but also of the remarkable influence that precise opening offers can have in your negotiations. That place is, of course, persuasion science.

Behavioral scientist Malia Mason and her colleagues Alice Lee, Elizabeth Wiley, and Daniel Ames believed that people could improve the result of their negotiations not just by ensuring that they made the first offer, but also by ensuring that first offer was a precise one. In one study, participants were asked to read an account of a fictional negotiation concerning the sale of a used car. In each case the participants assumed the role of the seller and received one of three offers made to them by potential buyers. One offer was an even-number offer of $2,000 and the other two offers had precise endings: $1,865 and $2,135. After each participant received their opening offer, they were then asked to respond with a counteroffer of their own. Interestingly, those sellers given an initial offer that ended in a precise number were much more conciliatory with their counteroffer, typically countering with an offer 10 percent to 15 percent higher than the opening offer. However those given the $2,000 opening typically countered with an offer that represented a more than 23 percent difference. Given these results, it seems that the small extra act of providing a precise opening offer in a negotiation can be a potent strategy that potentially reduces the gap between the two parties as the negotiation progresses. Why?

The researchers thought that recipients of precise offers are much more likely to believe that the person making that offer has invested time and effort preparing for the negotiation and therefore has very good reasons to support the precise offer they are making. This was consistent with a subsequent test conducted by the researchers in which they measured participants’ perceptions following the negotiations and found them likely to agree with statements such as “The young man put considerable energy into researching the value of the car” and “He must have had good reasons for the price he suggested.”

It is also interesting to note that the researchers found that this effect was consistent regardless of whether the precise offer was higher or lower than the $2,000 round-ended opening offer. This insight leads to an intriguing thought that when the time comes to sell that uniquely scented Honda Civic that’s taking up space on your driveway, you could end up financially better off by opening with a reduced but more precise offer of, say, $3,935 than a larger, less-precise one of $4,000. Of course should you be in the market for such a car you might be advised to pay special attention to the seller whose opening demand is unusually specific.

This precise number approach shouldn’t just be reserved for one-off transactional negotiations such as selling that secondhand car. The researchers found similar results across a range of other negotiation contexts. For example, in a second experiment, experienced managers and executive MBAs were split into 130 pairs for a series of live negotiations. Consistent with the previous study, those executives who made an opening offer in the form of a precise number received counteroffers that were on average 24 percent closer to their opening offer than those who made a round-number offer. In every case this anchoring to the initial offer carried right through to the final settlement.

As we advocated in a previous chapter, one small change that a negotiator can make that can lead to improved results is to make the first offer. This research provides one extra small but important shift in approach that can lead to another big difference in
outcome
—making that first offer a precise one.

Accordingly, having already researched all the information, equipment, materials, and resources required to prepare that highly detailed proposal for a prospective client, don’t make your subsequent negotiations harder by making the mistake of rounding up your quotation in the mistaken belief that doing so might make it easier for a prospective customer to process. Instead, present that precise number early on in your negotiations.

A similar approach should be taken when negotiating a review in your salary and benefits package. Although it may be easier and simpler to ask your boss for a raise of 10 percent, asking instead for a raise of 9.8 percent or 10.2 percent should result in less resistance due to the precision of the number. Of course, you should be prepared to justify why you are asking for that number—perhaps that is the exact average raise of everyone in your position at work. Similarly, a babysitter hoping to net an average hourly rate of $15 would be advised to open with an offer of $15.85 rather than $16 when negotiating with parents.

This kind of approach could also be useful when it comes to managing projects and persuading people to complete tasks by a certain time and date. This research would suggest that rather than asking people to get back to you in two weeks, you might get more timely responses if you actually stipulate 13 days. In a similar vein, rather than requesting that a job be completed by the close of the business day or by the end of the week, you might be more effective signaling a precise time: for example, “Could you please get this back to me by 3:47 p.m. on Thursday?” Not only might this small change result in more timely responses to your requests, it might also help you manage your email more effectively and get you back enough of your weekend that you can watch those overpaid professional athletes strut their stuff.

A
recent analysis of prices charged in a major American supermarket revealed an interesting fact. About 80 percent of the store’s products were given a price ending in the number 9. This finding wasn’t just limited to a single store or even a particular chain of stores. It seems that most retailers adopt a similar policy. The practice of pricing goods with odd-ended numbers is not a cultural anomaly solely reserved for the American market, either. Studies in Germany, Great Britain, and New Zealand have found similar pricing patterns.

So where did this strange practice of odd-ended pricing originate? One potential explanation can be traced back to the standardization of the American currency in 1891. When imported goods from Britain underwent a currency conversion from pounds to dollars, they would end up with an odd price. The perception that British goods were often considered to be of a higher quality meant that odd price endings became associated with a mark of superiority. Another commonly cited reason for the introduction of odd price endings was that it was a pretty good strategy to reduce employee theft. Odd pricing would force employees to issue change, therefore making it more difficult for them to pocket a payment without recording the transaction on a sales slip. Records show that when the department store Macy’s adopted 99-cent sales in the early twentieth century, they reported a rise in sales, leading to the practice then being adopted by retailers around the world.

Given the almost ubiquitous practice of 99-cent prices it is interesting to note that another well-known retailer recently made the decision to buck this pricing norm. In 2011 Ron Johnson, a former senior vice president at Apple, joined JCPenney as its new CEO and a short time later launched an “Everyday” pricing policy across its stores. The cornerstone of his initiative was a decision to use whole numbers on price labels rather than the more familiar .99 endings. For example, a pair of denim shorts previously tagged at $18.99 or $19.99 would be priced at $19 or $20, respectively. The rationale given for the idea was a simple one: Prices ending in round numbers are clear and straightforward and convey a simple and honest message. JCPenney’s small shift in pricing strategy, while a setback for the copper cent, would surely be a victory for common sense. Most importantly, though, JCPenney thought it would be a victory for their customers who would surely vote with their wallets.

And vote with their wallets they did. The following year JCPenney’s sales tanked by almost 30 percent.

Given that the economy, at the time, was still in the early stages of recovery and could be described, at best, as fragile, it would be absurd to suggest that JCPenney’s decision to move to round number price endings was wholly responsible for the monumental slump in its sales. There was likely a multitude of other factors that contributed to its nose-diving sales. But there is good evidence that JCPenney’s “Everyday” pricing policy probably didn’t help. And it certainly didn’t help Mr. Johnson, who was soon removed from his CEO position.

At first glance the idea that shifting a customer’s attention from a precise price ending (for example, $0.99) to a round price ending (for example, $1.00) appears to be one that should have little impact on whether a positive purchase decision is made or not. After all, the difference is a paltry penny. The saying may advocate “take care of the pennies and the pounds will take care of themselves,” but the value of a penny these days is so small it hardly seems worthy of attention at all.
4

In such a context JCPenney’s pricing shift should have made little if any difference. But as we have consistently shown in this book, small changes can lead to a big difference—even if that small change concerns one penny on a sales tag.

But why?

One reason is that a .99 price ending acts as a signal for “a good deal.” Research by Charlotte Gaston-Breton and Lola Duque suggests that this can be especially effective with younger consumers or when there is low involvement in the decision to purchase, such as with lower-value items. Other research has found that products that have .99 endings tend to cause a “leveling down” effect when it comes to perceptions of price bands. In other words, a product sold at $19.99 can be categorized in the “less than $20” band but the moment it costs a penny more it’s in the “$20 and above” band, creating a subtle but important contrast.

In addition to influencing the price category that a product falls into, a one-cent change in price ending might also serve to signal another important feature of the price—the left-most number. In the previous example, not only does a product priced one cent cheaper at $19.99 fall into the “less than $20” category, but the left-most number also changes from 2 to 1. It turns out that this “left-digit effect” is important primarily because it is what people typically pay attention to first.

Researchers Kenneth Manning and David Sprott provide compelling evidence for how a small change in price ending that affects the left-most number in the price can have a dramatic influence on people’s purchasing decisions. In Manning and Sprott’s studies, participants were given the opportunity to purchase one of two pens that were presented to them side by side. Pen A was the lower-priced option and Pen B was the higher-priced option because of a couple of extra features it had. The participants were then asked to evaluate the two pens and make a choice about which one they would like to purchase. The researchers had assigned participants to one of four different price conditions:

Despite the fact that the difference across the first three price conditions was very small (there is just a one-cent difference between conditions 1 and 2) the impact was very large indeed. Pen A was selected by 56 percent of participants in condition 1, but by 69 percent in condition 2 and 70 percent in condition 3.

Why such a big uplift? Notice that compared to condition 1, where the left-most digit is the same for both Pen A ($
2
.00) and Pen B ($
2
.99), in conditions 2 and 3 the left-most digit is different, making Pen A seem like a much cheaper pen relative to Pen B in those two conditions.

But now let’s consider condition 4, where a small change has resulted in the difference between the left-most digits being two dollars—Pen A ($
1
.99) and Pen B ($
3
.00). It turns out Pen A fared best of all with this combination, with nearly 82 percent of participants purchasing Pen A. This is a neat demonstration of how a small change to the left-most digit can have a big effect on resulting choices.

We bet that Ron Johnson now wishes he and the rest of the JCPenney team had understood the science of persuasion before embarking on his “Everyday” round-ended pricing policy. This research shows that changing the price of, say, a pair of socks from $8.99 to $9—that is, making it a penny more expensive—has the effect of making the socks actually seem nearly a dollar more expensive because consumers are so focused on the left-most digit.

More generally, the implications of this study have a variety of potential applications for those looking to influence the choices and decisions of others. Most obviously, those responsible for setting prices in retail environments may benefit from the knowledge that a small shift in price—which might literally be just one cent upwards or downwards—can disproportionately alter a consumer’s judgment of the cost of that product as well as their purchasing decision. For example, a business that sells lower-priced, high-margin products such as own-brand goods may be able to improve their profitability by making small changes to the price endings of their products that increase the perceptual difference between the left-most digit of their price and that of a premium product. Of course, should it be the case that the goal is to increase the likelihood that people will choose a more expensive product, then the opposite would be true. Notice that in the pen study many more folks chose the more expensive pen when the left-most digit was the same for both options.

Less obviously, there might be other ways to use the intriguing influence that numbers that are slightly less than whole numbers often have on others’ decisions. A personal trainer might find that a client is a little more compliant to a training program framed as 9.9 kilometers on the treadmill rather than a round-ended 10 kilometers. A doctor may measure helpful differences in a patient’s adherence to exercise by advocating a slightly lower number of steps on their pedometer—say 9,563 rather than the more usual 10,000. In these scenarios, these goals should seem disproportionately more attainable to the client or patient, and therefore they should be more motivated to work to achieve them.

Finally, a small change to the way times and agendas are framed may result in more acceptances and fewer declines for future meetings you are hosting. While speculative on our part, changing that upcoming 2-hour gathering to one that is scheduled for 1 hour 55 minutes might result in a few extra attendees.

Perhaps this small, but important, change informed by persuasion science will spawn a completely new approach when it comes to persuading people to attend your meetings. But before you think about contacting Apple, Microsoft, or Google to suggest they change the default settings on their electronic calendars, be aware that we have already copyrighted “The 29-Minute Meeting.”