The idea of negotiating can be intimidating. As consumers, we have been trained to pay the price marked on goods or services without question. If we feel the price is too high, we abandon the sale and look for cheaper options.
It’s an option that seems to work for us. But it could work better. We don’t always realize we have the option to negotiate a lower price. To get the lowest price out of a transaction, you need to follow some rules that aren’t always easy.
Rules of Successful Negotiation
1. Do Your Homework
You need to know some important things about the service or product you want to buy before you begin negotiations:
- How Much Do Competitors Charge? If you can tell the seller you know the item is available for a lower price, it puts a lot of pressure on them to lower their offer. Furthermore, it lets you know that you don’t have to accept the seller’s offer. You can walk away from negotiations and still get what you want. I recently did this with our cable company. I called to negotiate a reduced rate and told them I could get all the channels I needed from Sling TV for just $40 per month. The end result was my Comcast cable bill being cut nearly in half. Cell phone plans are another area where you have leverage. With companies like Mint Mobile offering service for as low as $15, you now have negotiating power over big carriers.
- What Is the Cost to Your Seller? It’s useful to know the margin between the seller’s costs and asking price, especially when buying a new car. Research the invoice price that new car dealers pay the manufacturer – then you know the absolute lowest that they can go and still turn a profit. FYI this can be done on Edmunds.com.
- Is the Seller Facing a Deadline? If a seller has to get rid of a product before a deadline, they are more motivated to sell at a lower price. Making money on the deal may not be the most important goal when a deadline is involved, as the consequences of waiting too long could be costly. Home sellers often have a deadline, as they may need to sell their property by a deadline so they can purchase another for which they are under contract.
- Why Is Your Seller Selling? You don’t always buy from a business – sometimes you negotiate with sellers who aren’t even most concerned about making money. For example, someone who is moving may be willing to accept a very low offer for a large piece of furniture, just to be rid of it. Knowing why an item is for sale can give you an idea of how much money you need to pay.
2. Make the Other Side Name a Price First
By allowing the other side to name its price first, you may get a chance to counter with a number that is lower than what you would have offered initially – even if you do relinquish the opportunity to set the “price anchor,” which is the starting price point from which it can be hard to move. Of course, the initial price named by the seller may anchor you at a higher price, and this is where doing your homework can help. By knowing the competing prices, you may be able to significantly lower your anchor before negotiations start.
Michael Soon Lee, president of EthnoConnect and author of “Black Belt Negotiating,” is adamant about this point. He says naming a price first limits how low you can go in negotiations – even if you’re trying to establish a low anchor. After that, every counteroffer will be higher.
Lee states that you shouldn’t ever name a price. Once you do, the seller could agree to it and end negotiations – and it’s possible that the seller would have been willing to go lower.
3. Don’t Be Reasonable
The classic model of negotiation is that two parties offer different prices, eventually settling somewhere in the middle. Lee rejects that because the middle is too high of a price.
If you are going to make the first offer or name a price in a counteroffer, make it ridiculously low. Not only does it set the price anchor very low, but it puts the seller on the defensive. If they have a negotiating plan, it’s unlikely they will follow it after a ridiculous offer. They instead focus on getting a price higher than what you offer, and not what they want. The end result is a much lower price than what is considered reasonable.
This can be difficult advice to follow, as you may be afraid of being considered a jerk. Many sellers know that ridiculous offers are part of the negotiating process and are very unlikely to refuse to make the sale. Instead, they’re going to counter.
Furthermore, studies show that when faced with a ridiculous offer or counteroffer, a negotiator gains satisfaction from getting concessions from the other party. Therefore, if you offer $1,000 for that high-mileage used car in need of a brake job, the seller will feel like they won something by convincing you to buy it for $1,200 – even if it was worth more money than that.
It’s up to you to decide what is more important. Do you want to be liked, or do you want to save a lot of money? Remember, the two options aren’t necessarily mutually exclusive. You may not be judged as harshly as you think, and paying a reasonable price doesn’t really make you more likeable.
4. Know the Limit
You need to gauge what is important to the seller. If they need to make a certain amount of money, they’re not going to budge. While you’re not trying to be reasonable, you need to let the seller walk away feeling they got something out of the deal.
As mentioned before, knowing a car dealer’s invoice price is powerful information. You know the truth when a dealer counters your offer with “I can’t go any lower.” Of course, while offering an extremely low price may work as an anchoring tactic, be prepared to settle for a price that allows the seller to make money.
5. Be Quiet
Silence between two people can be uncomfortable, and you can use that to your advantage after someone names a price. Instead of responding, look thoughtful without saying anything. This makes the seller fill the silence, and often, he or she will try to justify the offer. Let them keep talking and feel insecure. If you need to fill the silence, express hesitation about paying their price.
6. Ask for Extras
This is an important tactic to employ when you feel like you’re not getting anywhere. Maybe you can get accessories included with the purchase, or perhaps the seller will be willing to include some other low-cost items to make a sale on a large-margin item. For instance, cell phone providers make their money on long-term contracts. To motivate you, they may be willing to supply extras, such as phone cases or car chargers.
When the seller agrees to your target price, as it may be the lowest they can go, it’s time for you to see what else you can get for that price.
7. Walk Away
This is perhaps the most powerful tactic you have. In this economy, very few businesses can afford to lose a sale, and are afraid to let someone walk away without making a purchase. Above all, this gives you the upper hand in the negotiations.
Sometimes, just heading for the door or verbally ending negotiations is enough to motivate a lower offer. Even if you walk out the door, the seller may bring you back in or call you if you leave contact information. It’s an extreme tactic, but it can work.
However, the problem is that once you walk away, it is very difficult to go back. If the seller has a unique product and you have no other options, you can’t go to someone else. If you return after walking away, the power shifts to the seller. They will know you’re motivated to buy from them, and they don’t need to make any major concessions. Therefore, only utilize this tactic if you are willing to simply not make the purchase.
Remember, it’s important to avoid trying to negotiate when you are faced with a deadline, as deadlines can motivate you to make concessions on price. So don’t wait until the last minute to start searching for a new car, a house, or any other negotiable item you need in the foreseeable future. A tight deadline can eliminate your opportunity to negotiate the lowest price, so give yourself plenty of time to shop around and play hardball with the seller.
Would you prefer to have others do the negotiating for you? In addition to looking for expenses you no longer need, Trim will help you negotiate lower rates on some of your recurring bills like cable, internet, and cell phone.
Are you comfortable making aggressive offers when negotiating?