Interesting Discussion on Anchoring over at Settle It Now.

The day before I posted about Professor Guthrie’s CLE presentation on The Psychology of Negotiation and Influence, Vickie Pynchon posted Insights from Social Psychology to Help You “Win” Your Next Negotiation.

When Michael Webster of the BizOp News blog commented about the efficacy of anchoring, Vickie posted a response entitled Aggressive First Offers which spawned an interesting discussion.

As it turns out, my lovely wife uses anchoring and aggressive first offers in her business all the time, so we were able to provide real-world examples of the usefulness of this tactic. Head over to Vickie’s blog to read all the comments or click Read On to read my wife’s comments on anchoring.

As I mentioned above, my wife negotiates for a living and will readily attest to the real world benefit of anchoring and making the first offer. She is a music supervisor. Movie and TV producers retain her to negotiate and acquire the rights to use commercial music in audio/visual productions. In her business, there is no generally accepted cost structure for these compositions. While the amounts that are agreed upon for these rights are based loosely on past experience (with similar pieces of music and even the same piece of music), it is truly a free market where the price of the commodity (a song) is determined by what a buyer is willing to pay and a seller is willing to accept.

Despite the fact that she is the “buyer” in the deal, it is her practice to always include an offer in her initial contact with the “seller.” She finds that this allows her to control the negotiation to a certain extent. Over the years she and her business partner have learned that unless you indicate to the seller the amount you are willing to pay, they will make irrational demands.

Sometimes, she avoids negotiation altogether by making the first offer. For example, she licensed a song that went to #2 on the charts and was on the charts for 20+ weeks. Based on prior experience with similarly popular songs, she expected the song to cost $6000 per week for the type of use needed (and had advised her clients as much). She initially offered $3000 per week, and the parties accepted the deal without modification.

More often then not, there is significant negotiation involved. She is currently working on a deal to procure the rights to a song off of an album by a Grammy nominated, platinum selling artist. The song is less well-known, but the album reached #2 on the charts. She advised her client that the project would cost between $90,000 and $95,000 and made an initial offer of $52,000. The copyright holder countered with $104,000. The deal is still in progress, but she expects to close the deal somewhere around $80,000 – less then expected.

She has also dealt with rights holders who have an irrational opinion of the value of their music and anchoring does not work. She recently had a deal fall apart when a rock band with a moderate following on the college and alternative charts refused to even negotiate. Based on the chart-success and apparent popularity of the song the client wanted, she believed the project would settle somewhere around $7000. When she offered the band $5000, they responded with a quote of $11,000. She then raised her offer to $6,000, but the band refused to move and the deal fell apart. Unbeknownst to the band, they are now on her blacklist and she will advise clients against using them at all in the future.

In short, she firmly believes that anchoring works.