Everything is Negotiable

Oct 14, 2007 by Adam C. Powell, Ph.D.

Today, I wanted to eat a chicken cheese steak (a Philadelphia specialty) from a food truck. There were two food trucks sitting next to each other. The food truck on the right had a line of about ten customers, and a menu with prices. A chicken cheese steak was priced at $4.50. To my left was a similar food truck, albeit with a menu without prices. The following dialogue ensued:

Adam: How much for a chicken cheese steak?

Hawker: $5.95

Adam: You’ve got to be kidding me. That guy over there is selling them for $4.50. I’ll give you $4.50 for one.

Hawker: Fine.

Simply by contesting the price and informing the hawker of the alternative option, I was able to reduce the price of my meal by almost 25%! The vendor in question was not displaying prices for his menu items, as he was likely making them up on the spot. He probably looked at me, made a quick assessment of my willingness to pay, and then offered me to $5.95 price. I was carrying several bags at the time, so he probably thought that I did not want to inconvenience of walking elsewhere. Likewise, I knew my BATNA (Best Alternative to a Negotiated Agreement i.e. buying from the other guy and waiting), and the hawker realized that my BATNA was credible. As he had no other customers waiting, and still had a substantial profit margin on the sandwich, he readily accepted the deal.

 Many of the items that we buy are negotiable. The two hallmarks of an item that is highly negotiable are:

• Infrequent purchase or unlikely repeat business
• High mark-up

I should add that the hawker was selling his sandwiches next to a tourist attraction. At this location, he likely has few regular customers. Infrequent purchase is often an indicator that a product or service is highly negotiable because in such cases, consumers are less likely to know what the proper price is for the purchase. Vendors can get away with a lot larger spread in the price of a Sealy mattress than the in the price of a gallon of skim milk sold at a grocery store, as consumers are more aware of the proper price for milk than for a mattress.

 This leads to the second point; there is far more mark-up on a mattress than on milk. There is low mark-up on milk because there is a very competitive market for milk; you can buy a gallon of milk on almost every block. The market for mattresses is a bit less competitive, in that some substantial travel is often required to get from one store to the next. The mattress manufacturers delibrately give each store products with different product names to hinder comparison shopping. In the case of skim milk, comparison shopping is easy, as the product is uniform. This uniformity and competition leads to a far lower mark-up.

Adam’s Negotiation Suggestions

• Know the price of an item before you enter a negotiation
• Try to determine what the vendor might have paid for the item, so that you are not unreasonable in trying to obtain the item below cost
• Decide what you are willing to offer before approaching the vendor 
• Ask the vendor the price of the item before making an offer… if you are lucky, it might be lower than your offer!
• Be willing to walk away if the vendor refuses your offer
• Rather than walking away quickly, saunder away slowly, turn around, give the vendor one last look, and then leave
• By leaving slowly, you give the vendor an opportunity to provide a counter offer
• If the vendor’s offers are unsatisfactory, ask, “Is that the best you can do?” This sounds much more polite than, “Is that your final offer?”
• If you have a firm maximum that you are willing to spend, get exact change equal to that maximum, and partition that money from the rest of your cash. An offer is much more convincing if you do not visibly appear to have additional cash to extract. If you were selling an item for $6, would you be more willing to sell it for $5 to the person who handed you a wad of five $1 bills, or to someone who asked you to break a $20?
• People are often more willing to offer a favorable price for a payment in cash (cash payment eliminates a 3%+ Visa fee, and other possible revenue extraction by middlemen)

Products and Services for Which I Have Recently Negotiated

• Carpet cleaning services
• Jewelry purchases
• Unfinished textile purchases
• Street food purchases
• Tailoring services

Where Not to Negotiate

• At a restaurant (although I once had a friend who successfully negotiated getting two glasses of wine at a special price, instead of just one)
• In front of polite company
• At any sort of chain establishment
• At any business in which the people to whom you are speaking are not responsible for setting the prices