What Price is Right?

I was surprised to see this story on the front page of the Sunday New York Times:

At Megastores, Hagglers Find Prices are Flexible

It seems that “haggling” over prices has made its way from the street corner into Aisle 3 at Best Buy and Home Depot.

“Savvy consumers, empowered by the Internet and encouraged by a slowing economy, are finding that they can dicker on prices, not just on clearance items or big-ticket products like televisions but also on lower-cost goods like cameras, audio speakers, couches, rugs and even clothing.

The change is not particularly overt, and most store policies on bargaining are informal. Some major retailers, however, are quietly telling their salespeople that negotiating is acceptable.”

So now, the big-box stores that are already offering aggressively priced merchandise, clearance racks and “door buster” sales have added yet another weapon in the pricing war.

Good news for the consumer? Yes!

If you drive your car to a shopping mall or a big-box store your willingness to spend is already compromised due to the high price of gasoline. You are looking for any extra incentive before you make a purchase. You have scoured the ads and already know what is on sale. And now, you can practice your bartering skills to drive home an even bigger bargain. This is now socially acceptable – the New York Times says so – right on today’s front page!

Bad news for profits? Perhaps.

When a business sells a product or service they either realize a profit or a loss. How big a profit? How deep the loss? That depends upon the price at which the goods were purchased or manufactured and the price for which they were sold. If you own a store, do you know your “break-even” point? Does your staff? Are you sure? Have you trained them on this?

Products that remain on the shelf (or in inventory) for too long lose value. So, unless you sell precious metals or vintage wines that appreciate in value over time, it is better for you to “move the goods” off the shelf and sell them – even if you do not get your desired price.

Bad new for independent retailers? No as bad as you would think.

Let’s forgo the word “Haggling” – it has a negative connotation – and talk instead about price negotiation.

There can be little doubt that our sluggish economy is forcing most consumers to think twice before making many purchases. We see this most dramatically in the area of “discretionary” spending – electronics, entertainment, fashion, etc. Consumer purchases in these areas has noticeably slowed down.

What’s a retailer to do? Advertise even lower prices? No! Definitely not! This only encourages shoppers to price compare and to use your advertised pricing to get a better price – at your competitor’s store.

Price negotiation is not a bad thing. It is a misunderstood concept. And it can work out to benefit both parties -the seller and the buyer. Successful negotiations lead to a “win-win” situation. One in which the buyer gets some or all of what they want (a lower price, an upgrade, no charge for shipping, etc.) and the seller gets some or all of what they wanted (sell a product that has been sitting around, sell more items – a quantity purchase, sell accessories at a full mark-up, etc.)

Negotiation requires training and information. Most big-box stores suffer high employee turn-over rates. The staff does not stay put long enough for good training  to become effective. An independent store that invests in staff development can turn this to their advantage.

Because of the free flow of information on the Internet, potential customers come prepared to “haggle” /negotiate. If you are selling automobiles, they already know your invoice cost and the prices that your competitors are selling the car for. For many retailers, their sales staff is simply at a disadvantage. They have not invested the same amount of energy into preparing to negotiate. Information is power and if the customer has more (usable) information than the sales person has … That is not a happy situation for the retailer.

Here is an excerpt from the NY Times article:

“You can negotiate, but you have to do your research,” said Mr. Achee, who works for the Port Authority of New York and New Jersey. “When I’m bargaining, I’m bargaining with information.”

Information from the Internet helped Amber Kendall, 24, and her husband, Matt, when they shopped for a camera last October. The couple, who live in Boston, found the Canon camera they wanted online for $350, then used the Internet price to bargain with Ritz Camera, where the price was $400. Then they used the Ritz Camera offer to get the same price at Microcenter, where they preferred the warranty offer.

The technological influences are not just on the consumer side. Retail industry analysts said corporate retailers have begun using computer systems that let them do real-time pricing and profit analysis. Such systems tell a company what price it can set and still make money, and they illuminate the trade-off between lowering prices and raising sales volumes, said Andy Hargreaves, a retail industry analyst with Pacific Crest Securities.

Successful negotiations require establishing a relationship between wants and needs. As a retailer, you can give up some of what you want (e.g. to get full price or at least the sticker price) provided you retain what you need (e.g. to realize a profit of at least X% on the sale.) Likewise, if you can gather enough information about your potential customer’s wants and needs, you can negotiate a “win-win” outcome.

I’ll be writing more on the topic of pricing and negotiations in future posts.Meanwhile, please add your comments or a personal experience below. What are some of your “haggling” war stories? Please share them with our readers!