Opening a Negotiation in B2B - Poor Practice versus Best Practice

1. Apply the Never Open Rule

Every negotiation begins with the element of the "Opening", which consists of 3 phases. Typically, one starts with small talk, then jointly sets the agenda, and finally moves on to discussing positions on various topics (e.g. job description, fixed and variable compensation, notice period, vacation, etc.). At this point, the following question should be posed: Which rule should govern the opening?:

• It is considered Poor Practice to recommend applying the "First Offer Rule", where one makes the first offer and thereby becomes the First Mover. For example, Lipp/Kesting/Smolinski write in their article “What is your best price?” in the Negotiation Journal, May 2023 on page 1, in regards to the academic world, that "Scholars typically recommend making the first offer." The expert Ruzana Glaeser even describes this answer to the question of who should make the first offer as nothing more than an "amateur answer" (https://www.forbes.com/sites/ellevate/2020/01/31/the-anchoring-effect-in-negotiation-and-how-to-eliminate-it/).
• In contrast, Best Practice calls for applying the "Never Open Rule". This rule states that you should generally allow the other side to open the negotiation, making you the Second Mover.

In my personally developed Driver-Seat-Concept, I recommend the Never Open Rule and designate this third phase of the Opening as the "Smart Start".

In the following section 2, I outline the background of Poor Practice.

In section 3, I explain why the Never Open Rule corresponds with Best Practice (keyword: information asymmetry).

In section 4, I clarify why the so-called anchoring-effect is neutralized in professionally conducted negotiations (keywords: knowledge instead of estimation, defense motive).

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2. Background of the First Offer Rule and an Example of Poor Practice

The First Offer Rule is based on laboratory experiments concerning the so-called "anchoring-effect". This effect is defined as follows: "Under uncertainty, initial values can influence subsequent judgments. The judgment or estimation is typically adjusted toward the anchor value (so-called anchor assimilation)" (Werth/Mayer, Sozialpsychologie, 2008, p. 81, emphasis by the author). The anchoring-effect assumes that (i) the negotiation partner (Second Mover) experiences judgment uncertainty regarding the anchor position (e.g. "we demand a seven percent salary increase") - due to lack of preparation - and (ii) this forces the Second Mover to make a spontaneous, intuitive estimation (“estimation instead of knowledge”). The typical result is typically the same: The Second Mover, forced into an impromptu estimation, adjusts his position in line with the anchor provided by the First Mover.

Such experiments are conducted by scientists under highly controlled laboratory conditions (for example, participants are solely students, Duration of the experiment: 11 minutes (1 minute for orientation, 10 minutes for negotiation), Compensation for participating: EUR 3.00, Bonus of EUR 1.00 for reaching a deal; see Lipp/Kesting/Smolinski, What is your best price?, Negotiation Journal, May 2023, pp. 14 and 27).

These experiments address cases in which the respondent does not know the correct answer (see Werth/Mayer, p. 72). Translated to negotiation experiments, this means that before the Second Mover perceives the anchor position, he does not know what he should demand.

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Example of a Laboratory Experiment:

Amos Tversky and Daniel Kahneman first manipulated a roulette wheel numbered from 1 to 100 so that it stopped at either 10 or 65. The students participating in the experiment observed the wheel, which was made to spin by Tversky/Kahneman and, once it stopped, noted the number on the wheel, so either 10 or 65. Afterwards, Tversky/Kahneman asked two questions. Question No. 1: Is the percentage of African states in the United Nations higher or lower than the number you just noted (i.e. above/below ten percent or above/below 65 %)? Although the answers were recorded, they were not the focus. The question was merely intended to reinforce the anchor (ten or 65). Question No. 2: How high do you estimate the percentage of African states in the United Nations to be? Despite the obvious fact that the roulette number offers no useful information, the students were influenced by the anchor from Question 1: the group that noted 10 estimated an average of 25 %, while the group that noted 65 estimated an average of 45 % (see Kahneman, cited in Rock, Erfolgreiche Verhandlungsführung mit dem Driver-Seat-Konzept, (2019), p. 343).

Note: If the experiment were altered to include a third group that was told in advance, "Please note: 28% of UN member states are African states," these students would likely rely on their knowledge and answer "28%" instead of adjusting to the provided anchor. This illustrates that knowledge is the most effective defense against the anchoring-effect. This is the defensive mechanism, that laboratory experiments deliberately disable.‍

Example of Poor Practice:

A very illustrative example is provided by the "Working Paper Forschungsförderung, Number 323, March 2024 by Mann/Warsitzka/Hüffmeier/Trötschel (see https://www.boeckler.de/de/faust-detail.htm?sync_id=HBS-008812) entitled "The UNITED-Mindset for Union Negotiations". In this Working Paper 323 ("WP 323"), the authors initially recommend “anchoring” on page 11.

On p. 12, they state: “By making an opening offer, union negotiators deliberately exploit the anchoring-effect.” On p. 11, WP 323 claims that a union can gain an advantage by making an “ambitious first offer” (emphasis by the author). Their reasoning is outlined on page 12 of the WP 323 and refers to laboratory experiments showing that: "Ambitious opening proposals lead to better outcomes for the offering party (Galinsky/Mussweiler, 2001)."
The WP 323, however, exhibits two major flaws:

• The blanket recommendation to “anchor” ignores the aspect of information asymmetry. For professionals, analytical thinking demands applying the Never Open Rule when you lack sufficient information regarding the other party’s stop positions (refer to the following section 3).
• The statement “Exploit the anchoring effect to your advantage” overlooks, among other things, the fact that the motto of these experiments (“estimation instead of knowledge”) is not identical to the motto of professionally conducted B2B negotiations (“knowledge instead of estimation”). Moreover, proponents of Poor Practice ignore the typical motivation of B2B actors (keyword: defense motive). In the professional B2B world, the anchoring effect is neutralized by applying Best Practice before, during, and after the negotiation (refer to the following section 4).

3. The Never Open Rule as Best Practice

The aforementioned First Offer Rule, developed in the laboratory, cannot be directly transferred to practice, as the conditions of the professional B2B-Reality differ from the specific conditions dictated in the labs.‍

Partner-Analysis Old

Malhotra and Bazerman therefore recommend in their book "Negotiation Genius" (2008) on page 30, that in real negotiations one should set the anchor (i.e. make the first offer) only if sufficient information about the other party’s stop positions (referred to there as "reservation value") is available.

However, when an information asymmetry exists (i.e. you do not know the other party’s stop-positions), you should let the other side open.

The necessity of this primary decision point (which I refer to here as “Partner-Analysis Old”) is evident: Only those who, based on a partner analysis, have gathered sufficient information about the positions that the negotiation partner is likely to assert (“partner positions”) can reliably judge whether the intended “anchor-position” (e.g. EUR 160,000 fixed annual salary) is (i) better than the partner’s position (e.g. EUR 120,000 p.a.) or (ii) worse than the partner’s position (e.g. EUR 180,000 p.a.). In the latter case, your own anchor becomes an invisible boomerang - for example, you might demand EUR 160,000 as an anchor, while the partner (unknown to you) would have offered EUR 180,000, an offer they likely wouldn’t make if the First Mover only demanded EUR 160,000. As a First Mover, you will probably never learn this, which is why I refer to it as an “invisible” boomerang. As a First Mover, you never hear the Second Mover laugh about the boomerang.

In addition to Malhotra/Bazerman, it must also be noted within the framework of Partner Analysis as a central decision point that every decision for every partner position, by each partner, "is always made on the emotional level in the tension between desires and fears. It is (only) subsequently substantiated with rational, fact-based arguments" (Salewski, Die Kunst des Verhandelns (2008), p. 47).

Or simply put: “We decide with 'our gut' and then justify those decisions 'with our head'” (p. 47). People prefer "what has the highest expected hedonic value for them" (Pfister/Jungermann/Fischer, Die Psychologie der Entscheidung, 4th ed. (2017), p. 310). In doing so, they rely on a simple evaluation of subjective benefit, in the sense of: “a pleasant feeling” versus “an unpleasant feeling” (see Pfister et al. (2017), p. 310).‍

Partner-Analysis New

Based on this insight (decisions are always emotional), you should proceed with the "New Partner-Analysis" as follows: (1) First, clarify before the Opening whether you have sufficient information about the gut decisions your negotiation partner has made regarding his positions; (2) if you have sufficient information, you may make the first (ambitious) offer in order to (possibly) trigger the anchoring effect; (3) if, however, you do not have sufficient information about your negotiation partner's gut decisions, you should not make the first offer; instead, let your negotiation partner open and thus remain the Second Mover.

If one lacks sufficient information about the partner-positions, the first offer becomes a purely intuitive and completely aimless proposal. Lipp/Kesting/Smolinski describe this phenomenon on p. 55 of their highly recommended (and scientifically acclaimed) article “Toward a Process Model of First Offers and Anchoring in Negotiations”: “First offers are somewhat comparable to a 'battleship' game. With no knowledge of the opponent ship’s location, a random shot must be performed. If one has additional reference points, such as the first hit on an opponent’s ship, the shots can be more targeted. This is a difficult and complex process strongly influenced by impressions.”‍

Conclusion 1:‍

If one assumes that in professional B2B practice there is usually insufficient information before the negotiation about which gut decisions the partner has made regarding their respective positions, an information asymmetry exists that logically leads to the rule of not making the first offer ("Never Open Rule"). Warning: Even if you believe you have sufficient information, you should immediately discard that assumption. My legal colleague, George H. Ross, rightly advises in his highly recommended book "Trump Style Negotiation" (2006) on page 37, to question all assumptions about the negotiation partner: "The key is to start out with the belief that all of your assumptions and estimates about the other side are wrong and then be pleasantly surprised to learn some of them were right."

A Boomerang-Example from the professional B2B world clearly illustrates the risk of “random shots, … strongly influenced by impressions”: a potential CEO (currently receiving a fixed salary of EUR 100,000 per annum) aimed to earn EUR 150,000 per annum in the future and therefore planned to demand an anchor of EUR 160,000 per annum. I asked him if he knew exactly what his negotiation partner would offer him. He said “no.” I recommended that he let the partner open (Never Open Rule). The result: the future employer offered EUR 180,000 fixed, plus EUR 20,000 variable per annum and an upper mid-range company car. By applying the Never Open Rule, my client ultimately doubled his previous fixed salary. The Never Open Rule (developed for the real B2B-World) is thus far superior to the academic First Offer Rule (“Scholars typically recommend making the first offer”).

Conclusion 2:

Upon closer examination, when you apply the New Partner-Analysis professionally, you are always the Second Mover. If you know the gut decisions your negotiation partner has made regarding his positions, that knowledge acts like an anchor (see Lipp et al., p. 59). However, by applying Best Practice (with the Decision Maker setting your own positions), you neutralize the anchoring-effect (see the following section 4).

4. As a Second Mover, Neutralize the Anchoring Effect

Now it is explained why the assertions from the academic world found on p. 12 of WP 323 “By making an opening offer, union negotiators deliberately exploit the anchoring-effect” and on p. 11 of WP 323, that a union can secure an advantage in negotiations by making an “ambitious first offer” (emphasis by the author), clearly do not hold true.

4.1 The Best Practice Leads to the Preemptive Neutralization of the Anchoring Effect

As noted above, the anchoring effect is based on an estimation by the Second Mover, which he must make in the experiment because he does not know how to decide. Conversely, if you know in advance what you will definitely demand, you do not estimate during the negotiation; there is no judgment uncertainty, and the intended anchoring-effect is preemptively neutralized by the "knowledge" acquired before the negotiation.

For this very reason, in professionally conducted B2B-Negotiations, negotiators receive instructions from their Decision Maker before entering the negotiation. These instructions cover all positions to be asserted on every respective issue (e.g. salary increase, duration, signing bonus, etc.). In line with the motto "Knowledge instead of Estimation," the negotiator perceives the anchor during the negotiation but does not begin to adjust spontaneously as the Second Mover; rather, he simply cites the positions that were provided to him before the negotiation.

If he hears positions on topics for which he is unprepared, the professional negotiator, for example, says, "I'll take note of that and consult internally." By reporting this to the Decision Maker, the latter can - from a distance - analytically consider the "anchor" and develop a counter-position. This analytical approach also neutralizes the anchoring-effect.

The recommendation to think analytically is in full agreement with Nobel laureate Daniel Kahneman’s advice, as he has examined the anchoring effect in depth. In his book Thinking, Fast and Slow (p. 172), he suggests that if you only start deciding what to demand after encountering the anchor, you should consciously consider the opposite and deliberate on arguments against it. Similarly, Malhotra/Bazerman propose 5 strategies to neutralize the anchoring effect ((2008), p. 31 ff.), stating: “The best way to stave off influence is to stick to your original game plan” (p. 31). Leigh L. Thompson also emphasizes: „It is essential that you plan your opening offer before hearing the other party`s opening – otherwise you risk beeing anchored by the other party`s offer. … Thinking about … one`s own target point completely negates the powerful anchoring impact“ (The Mind and Heart of the Negotiator, 6th edition, (2015, p. 69)). This approach aligns perfectly with my Driver-Seat-Concept: Prepare your positions in advance and have your negotiator present them.

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This neutralization - even among experts - is not universally known. For example, in August 2024, a negotiation trainer posted on LinkedIn: “I just can’t grasp this whole neutralization thing.” Another professor, who has studied the anchoring effect extensively, wrote on LinkedIn at the end of August 2024: “The best thing about the anchoring-effect is that it works whether you believe in it or not, whether you’re negotiating large M&A deals or the price of apples, and whether you’re a scientist or a practitioner... I am more than willing to change my opinion if the opposite is proven using scientific methods. So far, I haven’t found such a study, but maybe it will come along someday…” This statement overlooks four key points: (i) the anchoring effect (the Second Mover’s estimation) does not operate when it is neutralized (see Malhotra/Bazerman, p. 31 ff.), (ii) the most effective neutralization is achieved through positive knowledge (“Knowledge is the best antidote to anchoring!”; https://www.forbes.com/sites/ellevate/2020/01/31/the-anchoring-effect-in-negotiation-and-how-to-eliminate-it/; (see also the following Mark Schweizer), (iii) such neutralization through positive knowledge occurs in professionally conducted B2B-Negotiations (the Second Mover knows which positions he will represent before entering the negotiation) and (iv) regarding the allegedly missing study, Thompson points out on p. 69: “... Thinking about ... one`s  own target point completely negates the powerful anchoring impact.”

In contrast, laboratory experiments deliberately eliminate the defense mechanism of "knowledge"; the Second Mover is not allowed any prior information, remains uncertain in his judgment, and is forced to estimate. This is akin to (i) simulating a penalty shootout in the lab and placing the goalkeeper outside the goal (suppressing the defense), (ii) deriving a rule from the simulation (for example, "all that matters is to shoot into the goal, and you'll always score"), (iii) recommending that rule for every real penalty shootout, and (iv) neglecting the fact that in a real penalty shootout, there is a goalkeeper standing in the goal who might save the ball (in reality, there is an active defense, just as knowledge serves as a safeguard against the anchoring-effect)

The renowned Swiss legal scholar Prof. Dr. Mark Schweizer (https://www.markschweizer.ch) described several anchoring experiments in his very impressive 2005 dissertation, "Kognitive Täuschungen vor Gericht - Eine empirische Studie," in § 8 Anchoring (Rz. 191 ff.), and noted, among other things: “A mitigating influence on the anchoring-effect is the estimator's knowledge of the actual target value. This becomes immediately clear when one considers the extreme case in which the person knows the correct value with certainty: no judge would estimate the dispute value for an appeal to the Federal Court in property-related civil disputes any higher if asked beforehand whether the true value is above or below CHF 100,000. The unambiguous answer to this question is provided by law (Art. 46 Federal Act on the Organization of Federal Justice) and is known to most judges; thus, any influence by the anchor is excluded.”

4.2 Neutralize with the Defense Motive (instead of estimation)

Furthermore, in professional B2B-Negotiations the anchoring-effect is neutralized by the so-called Defense-Motive, which typically prevails on both sides. Anyone who has followed collective bargaining in the media knows that neither the union nor the employer is willing to accept the other side’s anchor as a benchmark for estimating their own demands. Intuitive assimilation can be ruled out in professionally conducted B2B-Negotiations, particularly in collective bargaining.

The defense motive is a key component of the Heuristic-Systematic Model ("HSM") in social psychology. This model identifies 3 fundamental motives that shape how information is processed (see Fischer/Asal/Krueger, Sozialpsychologie (2014), p. 92), one of which is the defense motive - that is, the tendency to justify or defend one's attitudes/decisions/positions. This motive is clearly observable on both sides during collective bargaining and effectively neutralizes the anchoring-effect.