Rate Cards - On Anchor Pricing, Perceptual Contrast and Reciprocal Concession
For a long while, I have contextualized a law firm's rate cards from a perspective best described as game theory meets Br'er Rabbit. The firm's rate card triggers anchoring bias by which the target client's decisions are influenced with reference to the anchor price. The very nature of an anchor price is that it is artificially high so that the real target price will seem reasonable by comparison.
Recently, I have been reading psychologist Dr. Robert Cialdini's seminal marketing book Influence: The Science of Persuasion. In his book, he adds an additional layer of nuance to this phenomenon. The anchor price principle he refers to as the "perceptual contrast" principle. Under this lens the 2nd price seems smaller than it actually is in comparison to the initial price.
Cialdini takes this idea a step further with the idea of reciprocal concession. The social value of reciprocity requires us to respond in kind and is deeply engrained in human cultures. Under this rejection-then-retreat approach the partner makes a larger request, he expects the client to refuse then makes a relatively-speaking smaller request, which was his target all along. Viewing the 2nd request as a concession the client responds with his own concession, which is to accept the 2nd offer.
By simultaneously engaging both the repricocity and contrast principles, this tactic has a "heads I win; tails you lose" effect. If you accept the larger price it is a bonus to the firm. If you don't, the firm's chance of winning the price that is their real target is greatly improved.
One might argue that the client, insulted by the original price might walk away or after agreeing to the 2nd price, feel manipulated in a way that sours the relationship. However, Cialdini shows that the research indicates that the methodology has a remarkable insulating effect agains those possible outcomes. In fact, the approach has the impact of making the client feel responsible for the retreat and therefore more satisfied with the outcome.
In an interesting legal twist, that I'll offer as a cliff-hanger, Cialdini makes a strong argument that these principles are what may have led to the green light in the DNC break-in that led to Watergate.
Given this, what can the client do to immunize him or herself against these powerful influences? The answer is "Know thy benchmarks."
Just as you would research market price before buying a new fancy appliance or renovating to your home, when making a purchase on behalf of your employer, you have a fiduciary duty to access external benchmark pricing data, as well as become familiar with your internal benchmark data. If as a negotiating attorney, you do not have time for this, this is one of the principle reasons that legal operations and procurement teams exist. Armed with data, you can go into the negotiation with a more accurate anchor price and therefore more easily able to identify and disarm attempts to trigger a compliance device.
Cialdini's book presents this information, backed with scientific study results, as well as the aforementioned Watergate analysis, by page 50, leaving you with another 180 pages of useful information and entertaining anecdotes. Well worth reading for whichever side of the negotiating table you find yourself on.