Season 3 - Episode 3: Price Negotiations and Why You Should Love Them
Plug your nose; we’re talking about negotiating on price and the popular stigma around it. Turns out, haggling on price and negotiating on price are very different things. In Episode 3 of Season 3 and our Negotiation Elevation series, we tackle why talking about price is awkward and how we can shift to a constructive negotiation from a hostile price haggle.
Background Story
Dave here. My wife has a visceral hatred of haggling, or otherwise understood as negotiating on price. It’s her least favourite thing - right up there with hangnails and canker sores. And she’s not alone - in western societies talking about price is often met with fear, anxiety, and in some cases open hostility.
We’re here to tell you that you don’t need to shy away from price negotiations. They’re good things - the customer is interested and now it’s on you to make it happen. But don’t take the bait - price discussions shouldn’t be a zero-sum game; they ought to be part of a complex give-and-take negotiation.
Outline
Price Haggling Vs. Negotiations
Why Talking About Price is Awkward
Shifting to Negotiation
Busted Myths
Myth: You need a shower after price negotiations
Myth: You can only win on price by crushing the other side
Learnings
Price Haggling VS. Negotiations
Darren A. Smith in a Forbes Piece “Understanding Haggling Vs. Negotiating In Business” lays this out pretty well. Haggling is a form of negotiation where there’s only 1 item in play: price. By contrast, a “true” negotiation is a multi-variable trade - price is one of many factors.In effect you’re working on a complicated set of items in which you have the flexibility to give and take.
Recall that we always have a ZOPA. In haggling, there’s only one avenue. Let’s imagine it as a game of tug of war - there only one rope and you stand to gain or lose based on how hard your team pulls.
Negotiations are more complicated but invite more opportunity for compromise. They’re a game of Connect Four.
Why Talking about Price is Awkward
Western social norms - we don’t talk about money, you can only haggle in certain situations (cars, for example). People hate the game of it. If you haggle poorly, you’ll feel dumb and that you didn’t get the best value.
Effectively, we get frustrated in price haggling because it’s a zero sum game - for you to win more, they have to lose more (or vice versa). In effect this means that haggling can move your ZOPA, which is scary. There is a real fear of being had and perceived injustice is an enormous motivator.
Most of the time, we don’t haggle. In our everyday behaviour we value consistency - when there is price inconsistent (that is, it doesn’t cost what it’s supposed to) that by nature aggravates us.
There’s the perceived and real feeling of information asymmetry - the seller knows what it actually costs, which is their bottom price, and you know what you’re willing to pay. You’ll take a guess as to their costs, but you’re probably off, and even if you agree on a price with them you’ll probably feel like you’ve been taken for a ride.
Shifting to a Price Negotiation
First off, it’s about conditioning and expectation setting. Even if you’re haggling, setting the table with a budget, timing constraints, available resources, or other resources provides insight to the other side and sets expectations, making for a smoother negotiation. Fortunately in business, we’re rarely negotiating over just one item, even price.
Regardless, have no fear. Price negotiations are great opportunities to either secure a great price or lock in other benefits. It’s as close to a no-lose scenario as you’re going to get.
If they are pushing on paying less you should probably do one of two things:
Hold your ground. It’s worth what it’s worth. Ties back to episode 1 and the 5 whys - the price is a necessity. You’re not a charity. It’s also respect - price is the number one indicator of quality. IF you hold your ground, give them an out - “well, we can’t reduce the price, but we’ll throw in this module.” Additive
Give them a price concession for something else. Ok, concede on price, but get a multi-year deal or something else actually valuable to you. They’ll respect you for it.
Buyer’s have a saying: Trade don’t Cave. This is your guiding principle as well.
A note on competitors: If they come back to you and say “well, vendor B is charging X amount less” you have two options here:
Price match, because you’re a keener. Do this in the early days.
Hold your ground. Your product is worth what it’s worth and is different from your competition. It’s actually a test. It’s a signal. Yours is better and demands the price and know you want it.
Sometimes this is more a test of character than an actual concern on price. How seriously do you take them? Both answers above are context-specific. How important is this customer? Is having them on your platform worth more than the money?
Summary
Haggling is a tug of war. Negotiations is Connect Four
Talking about price is taboo. We value consistency. Know your weaknesses in these situations
Move to a negotiation by introducing more variables.
Trade don’t Cave.
Data And References
Understanding Haggling Vs. Negotiating In Business
Darren A. Smith, Oct 6, 2021
https://www.forbes.com/sites/forbesbusinesscouncil/2021/10/06/understanding-haggling-vs-negotiating-in-business/?sh=2dc253cb46ee