We are talking here about a pure price bargain and not negotiation of service terms etc.
“Bargaining or haggling is a type of negotiation in which the buyer and seller of a good or service dispute the price which will be paid and the exact nature of the transaction that will take place, and eventually come to an agreement. Bargaining is an alternative pricing strategy to fixed prices.” – Wikipedia
So, you have got them to the table and now it’s time to turn the table to your benefit. Here are some quick tips to keep in mind while bargaining.
1. Take the first call: While making a deal we are always aware that we need to bargain but we do not know the right price to start. So the the only strategy we rely on is to let the other party quote a price and then make a call 20-25% lower. Although it may seem that the bargain has just begun but the truth is that you have already lost most of it. By making the first call the other party has set a sort of anchor price and both the parties will move around that price only. There is a psychological barrier that kicks in and not many people are confident enough to move drastically away from it.
2. Never be the first one to move: You have taken the first call and then the other party quoted lower. Wait, It’s not your turn to move as yet. Let the other party make one more call that is a little favorable to you and only then take a call. The first one to move from his initial quote will always end up moving more and lose more. By moving first you tend to show some sort of desperation.
3. Don’t take the last call but push for more: After going back and forth few times the deal has now changed into a debate. Let the other party win this argument by agreeing to their last call. Add a friendly touch now and keep selling the quality of your product. You have to sell high and still make them believe that they got a good bargain.
Do not give up on rounding off figures. If the customer tried to round off Rs. 263 to Rs. 260, push for more. The idea is not to fetch the last Rs. 3 but to prove that there was no further scope. If you don’t say no, he would feel there was space for more (round off to Rs. 250?) and would have an unhappy after taste of the deal. See this toon tutorial.
An Indian retailer, Koutons, has tried the anchor pricing strategy very aggressively to their benefit. They place an MRP of Rs.2500 and give 80% discount to sell at 500. This is a ridiculous anchor pricing but still works as the junta believes that the product is worth atleast more than Rs.500. The target audience perceives that they are buying a branded-priced product at an affordable price. What would have happened if there was no inflated MRP tag at all?
I wrote this piece after an insightful conversation with a rickshaw driver. An average rickshaw driver does as much bargain deals in a day as most of us do in a month and also wins almost all of them.
Do not expect miracles over night. Since this is more of an art, it can be mastered only through practice. Try practicing this with a Rickshaw-wala.
Fixed to Flexible is an awesome short book that highlights some formal research on anchor pricing. Must read.
[Naman is a startup enthusiast and has worked with couple of Indian startups as Product Manager. He is the founder of FindYogi]