Gold Star Negotiations: Applying the Ackerman Bargaining Method
From buying new equipment to countering your kid’s request to stay up another 20 minutes, everyone negotiates. That's why I'm working on a new Extension series of negotiation classes. This series is designed to provide helpful tips and tricks to use and watch out for when negotiating. This week’s Gold Star Negotiations topic is understanding, using, and watching for the Ackerman Bargaining Method. See more articles in this series.
Ackerman Bargaining Method
You have probably used this method without even knowing. The Ackerman Bargaining Method is countering with prices, decreasing in increments, until your target offer price is reached. With each volley of offers the empathy and different stall tactics increase. Think back to that last car purchase you made at the dealership. You had hopes of getting the vehicle for $30,000 and started off with a lower offer. The dealer countered the offer, you had to call your spouse, the dealer needed to talk to the manager, and then you ended up getting the car plus some extended warranty at a cost of $31,250. Sometimes you leave feeling triumphant, and other times you leave with that nagging feeling that you could have gotten more. Let’s look at how this method works step by step.
How To Use
The first and most important step with any purchase is identifying your target price. Your personal finance history, available credit, current market, and other factors all come into play. Let’s say that $30,000 is our target. The next step is to create your anchor price. This price is in the realm of 65% of what you are willing to offer. In our example I would start out with an initial offer of $19,500.
More than likely this price will get a wild reaction from the other party. The key with this low anchor is to devalue the other person’s perception of the item's worth. You need to be careful that the price does not offend though, or the negotiation will be over. If all works as planned, they will respond with some interesting facts about the item and state a counter offer. The next step is to throw out another offer, this time at 85% of the target. Their response this time should not be a wild reaction, but show that they are starting to give thought to the idea. Following their counter you will continue with a 95% offer and then the 100% target price.
This method of 65%, 85%, 95%, and 100% gives the illusion that you are being squeezed out of every available dollar to be had for the item. With each offer you should be showing empathy and responding with different ways to say "No" to their counters if they are above your target. One last note about the target price. It needs to be a precise non-round number. When said aloud, $30,000 sends a message that it is not a solid number, but just something to continue the conversation. A final target price number of $29,972, even if made up, subconsciously holds weight in our minds. It must be a number that has a lot of thought and calculations behind it, right? Maybe not, but that is the mindset we want our counterpart to have.
Also be prepared for the nonmonetary counter. This will usually consist of a number higher than your target price, say $31,250, but include something that is cheap for them to offer, like an extended warranty. You will have to be the judge as to the value of that nonmonetary item.
Practicing and Applying These Tactics
If you are aware of this type of negotiation style, it is not hard to identify. So, how do you beat it? It comes down to the simplest of things. First, don’t let their anchor prices change your strategy. Unless you know your price is unreasonable, stick to your research on the product and stay with the program. The second thing, which is hard at times, is to always have the mindset that you can walk away. If you ever have the feeling that you are trapped and can’t say no, you have become a prisoner. Request to take a break to reset the conversation, and gain back ground. With that you should have the basics to practice. Do some trial runs with friends or family, stay relaxed, and have fun.