Posts Tagged ‘bargaining’

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How To Negotiate To Buy A New Car In 2009

Tuesday, January 20th, 2009
When Buying A New Car, You've Got To Understand How Much Negotiaitng Room You Have

When Buying A New Car, You've Got To Understand How Much Negotiaitng Room You Have

Ok, so let’s be straight about this – buying a new car is one of the biggest negotiations that most of us do on an annual basis. Any time that we have a chance to find out how to do a better job at negotiating this transaction, it’s almost like putting more money into our pockets. Interested now?

Philip Reed, a Senior Consumer Advice Editor over at Edmonds has spent some time thinking about this topic and so it would probably be a good idea to see what he has to say on the topic.

When you get ready to negotiate to buy a car, the first and most important question that you need to have the answer to is just how much room does the dealer have to give? I mean if the car has a list price of $20,000 just how far could you expect to negotiate him down to if you were the best negotiator in the world?

Reed points out that In a $20,000 car, the difference between the sticker and the invoice (dealer cost) is between $1,500 and $3,000. This is the negotiating territory that you are dealing with. I’m very sorry, but no matter how good you are your chances of negotiating the dealer down to $5,000 for the car are basically nil.

That being said, just a bit of negotiating on your side should result in a savings of $1,500 on most cars. Reed’s opinion is that if you negotiate actively you might save $3,000 (dealer holdbacks and rebates mean that you can sometimes buy a car for invoice or below).

A quick aside here: who does the best / worst job of negotiating? Studies by lawyers who have been investigating civil rights claims have revealed some interesting things.

The tests that they conducted reveled that white males receive significantly better prices than blacks and women. White women had to pay forty percent higher markups than white men; black men had to pay more than twice the markup, and black women had to pay more than three times the markup of white male testers.

It sure looks like we all need to be on our toes when we negotiate for a new car – and knowing how low the dealer can go is just the start.

Reed’s next point has to do with just how you go about talking about the 900 lb gorrilla that’s in the room when you are negotiating for a new car – the starting price.

One of the biggest issues here revolves around who brings up price first. The thinking is that whoever mentions it first will set the starting point for the discussions. Since you really don’t know how low the car dealer is willing to go, you are at somewhat of a disadvantage here.

The suggestion is that you hold off and bite your tongue. If the car dealer asks you (and they will) how much you are willing to pay, don’t answer them. Be vague, ask them how much they are REALLY willing to sell it for.

Remember that the sales person that you are dealing with may know about dealer discounts that they will receive that you don’t know about. They may start out at a lower price than you had even dreamed about and this could  help you save a lot of money!

How did your last negotiation for a car go – did you feel like you got a good deal? Have you ever been the first one to put a price on the table? How did that turn out? Did you ever let the other party bring up price first? How did that turn out? Leave me a comment and let me know what you are thinking.

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Posted in car buying | 9 Comments »

Negotiation Tactic: The Reverse Auction

Thursday, January 15th, 2009
The Reverse Auction Negotiation Technique Is A Powerful Tool For Buyers

The Reverse Auction Negotiation Technique Is A Powerful Tool For Buyers

In the world of negotiations, there are few tactics as old and as well thought of as the “reverse auction”. This is a powerful negotiating technique that allows a buyer to get the sellers to offer their best pricing for the most amount of work. Not bad if you are a buyer, eh?

Here’s how a reverse action works for you if you are a buyer: let’s pretend that you wanted to build a house. You go out and get three different offers from three different home builders. As you can imagine, when you get the bids they will contain a confusing mix of different options and time frames.

Your next step will be to call a “reverse auction”. You invite all three builders to meet with you. You have them show up early and have them wait in the same room before they meet with you. After they’ve had a chance to sit and glare at each other for a bit, you then call them in to meet with you one by one.

Each builder will then proceed to tell you why they are the best and why you should avoid selecting the other builders. After you’ve had a chance to talk with all three builders, you now understand the subtleties and the risks that are involved in building the house that you want.

With all of this new information, you are now able to more clearly refine your specifications because the alternatives have become clear. You can now provide the builders with an updated proposal that they can bid on.

You will end up selecting the builder who can provide the best price while providing the most house for that price. By using a reverse auction, you were able to learn a great deal about building a house and you were able to trade off options that you originally did not know existed.

Why does a reverse auction work for a seller? Simple, there are four reasons:

  1. Competition Works: when you allow sellers who are competing against each other to “see” each other, it increases the level of competition.
  2. Apply Pressure To Management: the reverse auction technique allows you to move beyond the salesperson that you are dealing with and actually put pressure on the company’s management.
  3. Almost There Syndrome: each of the sellers has already put a lot of time and effort into responding to your original proposal. This means that they all think that with just a little more effort they can close the deal.
  4. It’s Concession Time: you know that sellers are more adverse to losing a deal during negotiations than earlier in a deal. This means that they may make concessions that they normally would not.

This negotiating technique is not without its downside. You need to keep in mind that whichever seller you select is going to feel as though they were put through the ringer. They will probably resent the auction process and will want to make up for being forced to bid a low price.

What this means to you is that any changes that you want to make to the contact after it has been signed will probably end up costing you dearly. Additionally, the seller may end up delivering the product to you late and may even shave some corners on the quality of what gets delivered.

Have you ever had a chance to use a reverse auction during a negotiation? Was it successful? Were you happy with what was delivered in the end? Have you ever had to compete in a reverse auction process? Did you win? How did you feel if you did win? Leave me a comment and let me know what you are thinking.

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Posted in negotiation tactics | 1 Comment »

What If There Was No “What If” Negotiation Tactic?

Tuesday, January 13th, 2009

The "what If" Negotiating Tactic Is A Powerful Way To Get More Information

The "What If" Negotiating Tactic Is A Powerful Way To Get More Information

During a negotiation, there often arise cases where we’d really like to get the seller to give us information that they really don’t want to give to us. If only there was some way to test the other side’s willingness to settle with us. Oh, and if there was a way to also “zero in” on the seller’s lowest selling price, this would be nice also.

It turns out that such a tactic does exist – it’s called (what else) the “what if” tactic. An example of how you’d use this tactic would be if you were buying blue widgets from someone.

You’d ask the seller to give you a quote for 100, 1000, 10000, and 20000 blue widgets (sorta like asking “what if I was to buy…”). Once you have a response to your request for bids, you’ll have lots of information about their pricing scheme, any setup charges, learning experiences, and production costs.

The “what if” tactic is very powerful when used correctly. In order to help you get the most out of this tactic, here are several suggestions that can help you get information during a negotiation:

  1. What if we change the specifications?
  2. What if we change when the work is actually done?
  3. What if we buy more items than just the ones being negotiated?
  4. What if we provide the required materials?
  5. What if we increase / decrease the warranty period?
  6. What if we increase the quantity?
  7. What if we agree to a longer contract?

Now all of these suggestions are great news if you are trying to buy something. But what if you are the one doing the selling? In negotiations, everything is an opportunity.

Once you hear the buyer starting to ask “what if” type questions, you should start to be on alert to what might be coming next. Here are several ways that the seller can react to the  “what if” tactic:

  • Don’t come up with new prices “off the cuff”. Take time to plan your prices carefully.
  • Realize that not every “what if” question actually needs to be answered. You can avoid answering these types of questions by using responses such as “they won’t”, “we can’t”, or “that will be very expensive”.
  • Use the buyer’s deadline to avoid answering a “what if” question. Tell the other side that in order to answer one of their “what if” questions will require more time than they have available to negotiate.
  • If you offer a concession, then make it contingent on you receiving their order immediately.

The selling party has a counter tactic called “would you consider” which can be used in response to “what if” questions. Both of these tactics can open new negotiating possibilities that may help both parties move towards a successful solution.

Have you ever used the “what if tactic” during a registration? Did it work for you? Have you ever had this tactic used on you during a negotiation? How did you respond to it? Leave me a comment and let me know what you are thinking.

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Posted in how to negotiate | No Comments »

So Just How Do You Negotiate With Pirates?

Thursday, December 18th, 2008
Pirates Aren't Just In Movies - So You Had Better Be Ready To Negotiate With Them!

Pirates Aren't Just In Movies - So You Had Better Be Ready To Negotiate With Them!

Negotiating is both an art and a science. We study what works and what doesn’t in order to make sure that the next time that we are in a business situation in which somebody has something that we want, we are able to negotiate to get it. But what about pirates?

The newspapers are all abuzz about the pirates who are operating out of Somalia. So far this year, there have been 96 pirate attacks this year. 40 of these attacks have resulted in pirates boarding a ship, taking over control, and then demanding a ransom for the ship and its crew. World wide there have been 83 reported pirate attacks in the 3rd quarter alone.

When pirates capture a ship, they then demand a ransom in order to release it. These ransom demands are generally in the range of $1 – $2 million dollars. However, in the case of a Saudi oil tanker the ransom may have been as high as $15 million dollars.

What is a ship owner to do if his ship is captured by pirates? Apparently a lot of them are calling Holman Fenwick Willan, a London maritime firm. HFW has 6 lawyers who are currently working on pirate cases. Ashby Jones wrote an article in the Wall Street Journal in which HFW stated that they are working on “over a dozen” of the 20 pirate hijackings that have occurred in the Somalia area.

So just how does one negotiate with pirates? At HFW, their first job after being notified of a pirate highjacking is to calm their customer’s fears – nobody seems to know how to react to this sort of thing.

The next step is straight out of the negotiators handbook – do some research. HFW then works to find out just where the hijacked ship was registered, oh, and where exactly the hijacking occurred. This will set boundaries around the negotiations and will determine what laws are in play and will determine who is liable.

The issue of paying a ransom is, of course, a big deal. One key question that the negotiator needs to resolve right off the bat is if it is even legal to pay a ransom. It turns out that under U.K. law, paying a ransom IS legal and that’s important because for some reason most marine insurers are located in England.

The actual negotiations with the pirates are, to put it mildly, stressful. The negotiations are conducted by negotiators that HFW obtains for their clients. Forget suits and ties, this special breed of negotiators generally come from the miltary special forces. Probably the right men (I think that I can be sexist here) for the job.

Once a deal has been struck and the ship has been returned to the crew, the negotiations are not over. Indeed, they are often just beginning. The boat owners will now start to negotiate with the firms who were shipping cargo on the boat in order to get them to reimburse them for part of the ransom that was paid. These negotiations can drag on for a very long time.

We are all privledged to live in the 21st Century; however, sometimes aspects of the 1800′s, such as pirates, intrude into our world. Thankfully the negotiation skills that have been developed over the centuries serve us just as well now as they did then.

If you were called on to negotiate with pirates, what research would you do? Do you think that they would have the power in the negotiation or would you? Would creating a solution with mutual satisfaction be important to you in this type of deal? Leave me a comment and let me know what you are thinking.

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Posted in art of negotiation | 2 Comments »

Every Negotiation Needs A Rap(port) Star!

Tuesday, December 16th, 2008
Establishing Rapport With The Other Side Is Music To Everyone's Ears

Establishing Rapport With The Other Side Is Music To Everyone

So here’s something that will blow your mind: studies have shown that car shopping customers are willing to pay between $200 and $300 MORE for a car if during the negotiation process they became convinced that the salesperson was committed to their satisfaction.

Wow – talk about a successful negotiation for the salesperson. But wait, isn’t the customer the customer getting something out of this also – satisfaction. Think back over all of those deals in which you have been the customer and in which you walked away afterwards feeling less than satisfied. Perhaps nobody is getting taken for a ride here (sorry for the pun).

It’s possible that the customer side in this type of deal can actually put a value on being made to feel satisfied: $200-$300. Hmm, if it’s true when people are buying cars, just imagine what feeling satisfied must be worth when you are working on a much larger deal!

All this comes down to one thing: part of the price that is being negotiated is friendship and goodwill. Angry, bitter, combative negotiators will get beaten down on price each and every time. In all business negotiations we must remember that we are negotiating not only things (goods and services), but also attitudes.

As the car buying study shows, part of the price of any deal that you negotiate will include:

  1. Trust: does the other side trust that you have been straight with them and that you will keep your word after the deal is signed?
  2. Friendship: yes, friendship does still exist in the 21st Century. Does the other side believe that they have developed a relationship with you that will continue to exist after the negotiations are completed?
  3. Integrity: would you do something that you knew was wrong? Would you sell a product or a service that you knew was flawed or wasn’t going to meet a customer’s needs?
  4. Goodwill: do you have that intangible asset that makes the other side believe that you will do them no harm?
  5. Credibility: does your track record support what you are saying?
  6. Authority: do you really have the ability to deliver all that you have promised?
  7. Status: are you the peer or the better of the other side – are you the right one for them to be negotiating with?

It’s important to note that there is a HUGE difference between establishing rapport (a connection) with the other side vs. just being cooperative. Experiments have shown that when the other side is exploitative, they can easily take advantage of cooperative negotiators.

So where does all of this lead to? It’s as simple as realizing that compatible attitudes between both sides of the negotiating table are needed in order to be able to reach solid, long-lasting agreements. In the end, there is no way that either side can trust what the other side has promised if the two sides can’t trust each other.

Although they may not be listed on the list of bargaining points that you drew up before the negotiations started, everything that we’ve discussed including recognition, friendship, and trust are always items that are up for negotiation. It’s well worth the extra time that it takes to make sure both sides walk way mutually satisfied.

Have you ever negotiated a deal and then left unsatisfied? How much would you have paid to have been satisfied? Have you ever formed a lasting friendship with the other side during a negotiation? How important is trust to you when you are negotiating with someone? Leave me a comment and let me know what you are thinking.

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Posted in satisfaction | 1 Comment »

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