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Negotiation Anchor Point

How do parties open the negotiation – “Anchor Point”?

After negotiators have defined the issues, assembled a tentative agenda, and framed up the negotiation, the next step is to define two other key points: 1) the specific “target point”, where one realistically expects to achieve a settlement, and 2) the opening bid or “anchor point”, representing the best deal one can hope to achieve.

  • Setting a Target – When setting a target – there are several principles to keep in mind:
    • Targets should be specific, difficult but achievable, and verifiable.
    • Target setting requires proactive thinking about one’s own objectives.
    • Target setting may require considering how to package several issues and objectives.
    • Target setting requires an understanding of trade-offs and throwaways.
  • Setting an Opening Bid – An opening bid or anchor point may be the best possible outcome, an ideal solution, or something even better than was achieved last time. Anchoring, as the name implies, provides a firm location from which to begin a negotiation. The party who first anchors (makes the opening offer) provides either the top or bottom range for the negotiation. The other end of the bargaining range is established by a party’s response to the opening offer. Remember, the opening bid is the best that a party is capable of achieving, as a party generally cannot raise an offer once it is presented. The parties will negotiation from these points in an effort to shrink the bargaining range within the ZOPA. The opening bid should generally be a bit higher or greater than the target point, as this gives room for concessions in the negotiation. This widens the bargaining zone and allows room for adjustment by both parties. The parties make concessions based upon the requests of the other party and adjust their positions accordingly. Once the bargaining range is within the ZOPA, a successful negotiation is likely. Failure by the parties to move the bargaining range within the ZOPA generally results in non-agreement and the parties walking away. This is a sub-optimal outcome in which both parties are left with their inferior alternatives to an agreement.

The risk associated with setting a target and anchoring regards the effect that it may have on the counterparty. An anchor point, which is based off of the target point, could be seen as outrageous or overly competitive. The counterparty may believe that they have misjudged the offeror’s reservation point and be discouraged from continuing in the negotiation. It could also be the case that the counterparty perceives the positions too far apart and walks away. For these reasons, it is important to anchor with a reasonable offer that is close to the target point.

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