Posts Tagged ‘pricing’

How To Negotiate To Buy A Car in 2010

Friday, February 26th, 2010

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

Image Credit
The Global Recession May Make Buying A Car Easier This Year

The Global Recession May Make Buying A Car Easier This Year

Despite the fact that the world is emerging from a global recession, sometimes the need to buy a car shows up just when you least expect it. If that time has arrived for you, then maybe we should spend some time talking about what you need to do in order to successfully negotiate the purchase of your next car in 2010…

Three Phrases You Need To Know

Michael Royce has spent a lot of time researching how best to buy a car and he believes that you need to understand the difference between three different car buying terms before you first step foot inside of a car dealership:

  1. Sticker Price: this is a fake value – if the car dealership could sell the car to you for this price, then they’d be happy because this value represents a nice big profit margin for them. For you, all this value means is that you should be able to buy the car for much less than this value.
  2. Invoice Price: this is how much the car dealer paid the car manufacture for the new car. In theory, this value does not include any car dealership profit in it and so the car dealer will need to sell the car to you for more than this value. However, if the car manufacturer is offering rebates and other special offers, the car dealer may actually be buying the car for less than the invoice price.
  3. Wholesale price: for a used car, this is the price that the car dealer paid for it. If you look in used car pricing books, they will list both the wholesale price (what the dealer pays for the used car) and the retail price (what the dealer will try to sell the used car for).

Remember: It’s A Game

In order to get yourself into a proper mental state to negotiate to buy a car, you need to sit yourself down and remind yourself that you are getting ready to play a game – it’s a game with very high stakes, but it’s a game none the less.

The biggest challenge that you will face is the simple fact that in this game the other side of the table may be much better at it than you are. The car salesperson does this several times a day, every day. You might think that this gives them an insurmountable advantage over you; however, it doesn’t – most car salespersons are not that good at what they do.

Since many of them only know how to sell a car by following a script that the car dealership has provided them with, you have a fighting chance – if you change the way that the game is played, then you will have gained the upper hand in the negotiations.

Your Strongest Tactic: I Don’t Need This Deal

In sales negotiating one of the most powerful tools that we have is the ability to walk away from the deal. All too often when we are negotiating to buy a car, we forget that we have this option. We’ve spent a couple of hours at the car dealership, we’ve gotten to know the salesperson and maybe even their manager, we’ve filled out some paperwork, its really started to feel like we’re committed to doing a deal with these guys. However, that’s not the case.

The great thing about being a car buyer is that there are a lot of different places that you can buy your car from. You don’t need to complete the deal that you are working on – you can walk away at any time. The other side of the table knows this too and they will do almost anything to prevent you from leaving.

You need to clearly state that you don’t want to talk about monthly payments (that’s like dealing in “funny money”), instead you want to talk about the selling price of the car. Don’t be in a hurry or give the appearance of being desperate (even if you are!).

Make sure that you’ve done your research and know what a fair selling price for the car that you want is. For new cars it’s probably a couple of hundred dollars over the invoice price and for used cars it’s probably $400-$500 dollars over the wholesale price. Start your negotiations there and be prepared to leave if things don’t go the way you want them to.

What All Of This Means For You

Royce makes the good point that even if you do walk out of a negotiating session, leave on good terms. There’s no need to burn bridges – this is just a business deal after all, not a personal attack.

The next day call the dealership back up and see if they still want to deal. It can be amazing how seeing you walk out the door can motivate them to find ways to get closer to the price that you want to pay.

Always remember that buying a car is very much a game that you play every few years. You’ll never do it as many times as the other side of the table has done it, but if you use these suggestions, then you can make the deal work out in your favor…

What’s the one thing that you think that you must do before walking into a car dealership to negotiate to buy a car?

Click here to get automatic updates when The Accidental Negotiator Blog is updated.

What We’ll Be Talking About Next Time

Remember when every business used to view themselves as an island? This made life pretty simple for anyone doing sales negotiations – it was always us vs. them. Well, it sure looks like someone farther up the corporate ladder has been reading those business self-help books and they’ve decided that there is a better way to go about doing things: partnering…

Tags: , , , , , , , , , , , , , , , , , , , ,
Posted in car buying | No Comments »

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.

Tags: , , , , , , , , , , , , , , ,
Posted in car buying | 6 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.

Tags: , , , , , , , , , , , , , , , ,
Posted in negotiation tactics | No Comments »

Negotiation Firestarter: The Take It Or Leave It Tactic

Thursday, January 8th, 2009
Take It Or Leave It Is A Negotiating Tactic That Can Cause Hostility

Take It Or Leave It Is A Negotiating Tactic That Can Cause Hostility

If you really want to set off the other side of the table during a negotiation, one great way to do this is to tell them that they can “take it or leave it.” This is pretty much the verbal equivalent of throwing gas on a fire – you are guaranteed to generate hostility on the other side of the table when you use this phrase.

We react in exactly the same way if the other side tries this tactic on us during a negotiation. This is understandable; however, if we take just a moment to think about it, we should probably be used to dealing with this negotiating tactic.

The deals that are presented to you in the course of an average day are almost all of the “take it or leave” it nature. You see these types of deals in the insurance bills that you get, the groceries that you buy, and the parking ticket that you pay. Although they might not say it explicitly, these are all subtle forms of the “take it or leave it” tactic.

Before you decide to burst into flames the next time that someone uses this tactic on you, take a moment and give some thought to why the other side might be using this tactic. They have decided to only offer a fixed price and here are some of the reasons that they might be doing this:

  • They don’t want every one of their employees to have to have good negotiating skills or to take the time that a negotiation requires in order to successfully complete a deal.
  • They might be willing to negotiate with you on this deal; however, they don’t want to have to negotiate with you in the future.
  • If they negotiated with you and ended up lowering their price, then they would have to lower their price for all of their customers.
  • They know that you cannot afford to “leave it”.
  • They have already dealt with many other customers who had no problem paying their fixed price.
  • They can’t afford to lower their price any more because they are already selling at their rock bottom price.

When you look at it this way, you’ll realize that most business is normally done using the “take it or leave it” tactic no matter what we choose to call it. We need to realize that many prices are set because of existing laws or regulations.

If you find yourself in the position of having to use the “take it or leave it” tactic during a negotiation, then you need to search for ways to reduce the natural hostility that this is going to cause in the other side.

Here are the best methods for reducing hostility when you decide to offer only a “fixed price” to the other side:

  1. Show the laws / regulations that are causing you to have to offer the product at the stated price.
  2. Show the company policy that requires the product to be offered at the given price.
  3. Publish a price list.
  4. Publish a standard list of discounts.
  5. Display the price of your product / service where everyone can see it.
  6. Provide proof that shows all potential customers that the price that you are using is the same price that is being offered to everyone.
  7. Simply make sure that you provide a good justification for the price that you are using.

As always in any negotiation situation, the more discussions that can be held face-to-face the better the negotiations will go. Listen to what the other side has to say and make sure that everyone has a chance to save face and come out ahead.

Have you ever been confronted with a “take it or leave it” deal during a negotiation? How did you react to this? Have you ever had to present a “take it or leave it” proposal to the other side? How did they handle it? Leave me a comment and let me know what you are thinking.

Tags: , , , , , , , , , ,
Posted in art of negotiation | 4 Comments »

How Do You Deal With The Rest Of The Iceberg During A Negotiation?

Tuesday, January 6th, 2009
When Negotiating, It's Important To Deal With Unstated Issues In Order To Be Successful

When Negotiating, It's Important To Deal With Unstated Issues In Order To Be Successful

As the captain of the Titanic, Edward John Smith, did a fairly good job of looking out for the parts of icebergs that were above water. What got him in the end is when the Titanic hit a part of an iceberg that he couldn’t see because it was below water. In negotiating, all too often we can fool ourselves into thinking that we know all of the issues that are being negotiated. How wrong we are…

When we negotiate with the other side of the table, the issues that are really being negotiated are often a lot more subtle than those issues that were listed on the agenda at the start of the negotiations. In fact, the issues that originally appeared to be big issues, more often than not turn out to not be all that big of a deal after all.

The things that we often spend the most time talking about, services, goods being sold, and price are of course important. However, the clever negotiator realizes that these are only the tip of the proverbial iceberg.

As a negotiator you need to realize that there will be a large collection of issues that need to be addressed but which will never get written into the final contract. What are these issues you ask? Simple – they are personal issues that the other side holds dear. Neither side can make these personal demands out loud during the negotiation; however, if you don’t address and resolve them, then you won’t be reaching an agreement.

If these personal negotiating issues are so important, then what are they so that we can start to look for them? They take many different forms during each negotiation and you are going to have to do some digging to find the ones that relate to your current talks, but here are some examples for you to keep your eyes open for:

  • Personal Schedules: “I need to get this negotiation completed by tomorrow because my wife wants to go visit her mother this week.” Both sides of the table have schedules that they need to meet and this can influence the negotiations.
  • Internal Organizational Issues: “My boss has been fired and I now work for someone who has a different agenda.” The world is a dynamic place and even as a negotiation goes on, things change. These changes can impact the direction that the negotiation is heading in.
  • Physical Health: “I’ve got a pounding headache.” We need to be constantly reminding ourselves that negotiating has a physical side to it. How either side is currently feeling can have a significant impact on how the negotiations progress.
  • Social Status: “I need this negotiation to be successful so that I can show my boss that I’m valuable to the company.” A negotiation does not occur in a bubble – it has visibility and has impacts. Both sides of the table want to be seen in a favorable light when the negotiations are over.
  • Workload: “I am already swamped and I need to be careful to not take on any more work.” This is the curse of the modern workplace – too much to do and never enough time to do it. You need to watch the other side to determine if they are dragging their feet because they fear an increase in their workload.

These types of personal issues are a critical part of every negotiation. If you can remain sensitive to these types of issues and are prepared to help the other side find a way to deal with them, then you will be that much closer to successfully concluding the negotiation.

Have you ever been involved in a negotiation in which a personal issue became a big deal? When did you first discover that there were non-agenda issues on the table? Did you have your own personal issues that needed to be addressed? How did this all turn out? Leave me a comment and let me know what you are thinking.

Tags: , , , , , , , , , , , , ,
Posted in issues | No Comments »