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How do parties open the negotiation – “Target Point” and “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” and 2) the opening bid or “anchor point”, representing the best deal one can hope to achieve.
• Setting a Target – The target point is a party’s aspirations for a negotiation outcomes. It is the terms at which one realistically expects to achieve a settlement. When setting a target – there are several principles to keep in mind:
⁃ Focus on Objectives – Setting a target requires the negotiator to be proactive in thinking about her objectives. Going into the negotiation unclear about one’s objectives will often result in a failure to grab all available value.
⁃ Specific, Achievable, and Verifiable – Targets should be specific, difficult but achievable, and verifiable. Making the target specific avoids the target wavering during the negotiation. The target should be reasonably achievable under the circumstances. Setting an unrealistic target can alienate or anger the other party. The results of the negotiation should be verifiable or able to be ascertained. If you have no way of making certain that the outcome is reached, it is difficult to hold the other party accountable to the terms of the negotiation agreement.
⁃ Bundle, Package, and Trade Off – Do not handle each issue separately in the negotiation. You should always deal with interest collectively as a package deal. As such, you should set your target point based upon these combinations. To do so, you must be able to measure the importance of the applicable interests and determine your willingness to trade one interest for another. This approach may result in multiple equally-valuable target points made up of various combinations of the interests at stake.
• Setting an Opening Bid – An opening bid or anchor point should be the best possible outcome you hope to achieve in the negotiation. Anchoring, as the name implies, also 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. As such, being the first party to make an offer is a powerful position. 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 negotiate from these points in an effort to shrink the bargaining range within the zone of potential agreement (ZOPA). In practice, the opening bid should generally be a bit higher or greater than the target point, as this gives room for concessions in the negotiation. Opening a bit higher 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 possible. Failure by the parties to move the bargaining range within the ZOPA generally results in non-agreement and the parties walking away. When there is a positive ZOPA (I.e., there is overlap between the parties’ resistance points), failing to bring the terms of a negotiation within the ZOPA 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 is that an unreasonable opening offer may have a negative effect on the counterparty. For example, a unrealistic anchor point could be seen as outrageous or overly competitive. The counterparty may believe that she has 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 negotiation positions to be 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.
• Discussion: Can you think of any other valuable points to consider when setting a target point? How do you think understanding the expectations of the other party affects one’s own target point? Can you come up with an example of how dealing with interests collectively when setting a target point was more beneficial? When should a party make the first offer or anchor first in a negotiation? Can you think of an example where an unreasonable opening offer destroyed an otherwise possible negotiated agreement?