Week 42 – Spare Yourself the Game of Price Poker – Chapter 11
Large projects and investments always involve considerable amounts of money. Somehow it seems to be public knowledge that one should negotiate these kinds of prices. But is that always necessary? What do you think of fixed prices? Personally I think they’re a great idea, and I’ll tell you why.
You probably know the scene from Monty Python’s comedy classic “Life of Brian”, in which the protagonist, which is on the run, wants to buy an artificial beard. The seller tells him that the price for the beard is 20 shekels, and as Brain is about to pay, the seller says, “Wait a minute! We’re supposed to haggle…” The funny exchange that follows has always stuck in my memory and serves as a symbol for how a sales professional never expects the customer to agree to a price. And that’s the problem.
How about avoiding time-consuming price negotiations? What would happen if you named a realistic price from the very outset? How do you approach fixed prices? How do you go about establishing a fair price without coming across as obstinate?
Change Your Attitude
A major obstacle between you and a profitable negotiation is you, or better: your mindset. For the sake of simplicity, let’s assume you’re looking to sell a $10,00 dollar project.
Is there any room for concessions? $9,000 or $9,800? What is the bottom line? These kinds of thoughts are distracting, because you loose track of the important questions by thinking, “What’s a good price?” rather than asking, “What is it worth?”
What would happen if an McDonald’s employee had a ten percent negotiating margin? That would be a one-dollar burger for 90 cents. This would spread like a wild fire and everyone would demand the ten percent discount. The revenue of McDonald’s would decrease and their profits even more.
Turn Your Prices Into Fixed Prices
Yet another example: Let’s assume that I am a big fan of shopping. If I am looking for new clothes, I’ll visit a men’s wear shop on a Saturday and spend some time there. I take some advice from the sales clerk and try several things on. I might end up with two, three or even more suits that I want to purchase.
At the checkout I start negotiating: “I’m about to buy a considerable number of suits here, you should have a good price for them!” Almost every time, I get a discount, which goes directly into to lunch with my sweetheart. The reason is, the clerk might think, “I’ve spent almost an hour with this guy. If he doesn’t buy now, my daily quota is blown up.”
At other times it doesn’t work. The clerk will say, “Well, the season is almost over and prices have just been adapted, so there is really no room for negotiation. But feel free to make a selection.” And there comes the bowl of colored cufflinks. He knows that I have no desire to to the whole thing over again at another store.
What’s the difference between the first and the second sales clerk? Let me tell you, it’s the mindset. The former thinks, “I have to” whereas the latter thinks, “I can.” The former one thinks of a problem: “I have to win this costumer over,” while the latter one believes that he has the solution: “I can give you what you need.”
Why is it so hard for salespeople to state that there is no room for price reduction? Because even less experienced buyers can tell intuitively if there’s still a margin to push for. How? By small gestures, formulations in the conditional aspect, and other unconscious signals.
Fixed Prices = Good Strategy
An entrepreneur can alter prices at any time. When I began to work independently, I did that in every negotiation. I was constantly thinking, “Is this my final price? How much lower am I willing to go?” Then the day came where I finally had enough of this. I came to a point where I convincingly could say, “That’s it. Either you accept or you can look for another offer.” And then came the client’s decision, and often I got the deal.
At some point I resolved to take the pressure off myself by using fixed prices. I do this for a few years now and I only review the prices once a year, January 2. The price I decide on holds for the entire year. This helps me to find clients who fully appreciate my service.
A company that has no set price strategy for each market and leaves the price adjustments to individual salespeople will be giving away a lot of revenue. Often a company will have a price flexibility staggered through the hierarchy of the company, i.e. the sales manager can grant more reductions than a sales representative in his team. And the sales director in turn has even more “pricing competence.” Or should that rather be “pricing incompetence?”
Every purchasing organization can see right through this, and thus not only drives a hellish bargain, but even organizes management seminars at the expense of the supplier, precisely on the topic of price negotiation.
What you need to take away from this, is that an “adjusting the price on a case-by-case basis” is not a sustainable strategy. Therefore companies should appoint one person for each market, who is responsible for setting fixed prices. That would leave the sales team free to focus on making good sales pitches. It works for me, for McDonald’s, for Apple and many other companies as well. Why shouldn’t it work for you?
Next week, we will have an insight into the psychology of price negotiations.