When negotiating a payment arrangement with a debtor who WANTS to pay but, quite simply, can’t afford the full amount, will a round number (eg: $1,000 per week) or an ‘odd’ amount (eg: $995 per week) get you a better agreement?
According to a Columbia Business School study it may be better to avoid using round numbers.
To quote from their website …
In making opening offers, people generally use round numbers — listing a car for $10,000, instead of $10,125. New research by Professors Malia Mason and Daniel Ames and doctoral students Alice Lee and Elizabeth Wiley highlights the folly in this round number habit and reveals that negotiators can be more effective when they use precisely expressed opening offers. According to the researchers, the precision with which a negotiator conveys an opening offer — as $100 versus $98 or $102 — signals his or her confidence in its appropriateness.
Another excerpt from a Wall Street Journal article
When it comes to negotiating salary, Ms. Mason’s research indicates that a job candidate asking for $63,500 might receive a counteroffer of $62,000, while the request for $65,000 is more likely to yield a counteroffer of, say, $60,000, as the hiring manager assumes the candidate has thrown out a broad ballpark estimate.
So, how to get the best payment arrangement?
1 establish exactly how much they are SHORT of paying the full amount – read this to find out how.
2 be the first person to come up with a figure – that will become the ‘anchor’. Just like the word suggests, you want to set a reference point around which the negotiation will revolve. Making the first offer can be to your advantage, as this offer might set the height of the negotiation bar. This anchor is the arena where the two parties will wrangle in a tug and pull negotiation scenario. Interestingly enough, many studies have shown that the first offer has a strong psychological pull, almost a magnetic lure. The resulting agreement is often strongly attracted towards the person who proposes the first offer.
3 start your payment negotiation with an ‘unusual’ number.