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How to bargain effectively?

in Business, Marketing / 6 Comments

Bargaining-Effectively

Bargaining or negotiating a deal is an art. All of us have gone through this process in various stages of life, what matters is we got successful or not?

Why should I bargain?

There are many people who thinks bargaining is a cheap tactic, so they pay what ever the retailer says or an MRP, without uttering a word asking discount. In contrast to this there are many others who bargain as if to get a product for peanuts, who bargains again and again. Now if it’s me I will always ask for a discount in a friendly manner, sometimes I will bargain to get a fair deal (a win-win for both) and there are instances I have bargained like a fool and ended up unsuccessful in making that deal. Bargaining aims to save money from our pockets. If you are purchasing an item of MRP 1000 rupees and if you can bargain to get the same for 900, you save 100 rupees, enough cash for a nice dine out. If you are not bargaining you are going to loose this 100 bucks for nothing.

How to bargain and get a fair deal ?

This is a competitive world and there’s fierce competition out in every sector. Purchasing/Shopping is also an art like bargaining. First thing is knowing where to purchase an item at the most reasonable price. Lets go through an example, I want to buy a Sony Vaio notebook, CR 36. Lets say its MRP is Rs.54,370. Now if you have plenty of cash and dont want a bargain, just buy it and remember this article is not for you. Okay! so I want a discount and first thing is understanding how much reduction you want. This is a difficult task as we would like to get anything for peanuts! If we know what’s the profit margin of the reatiler we can assume a possible figure. Profit margin of the merchant depends on various factors like competition,fast moving or not, wholesaler or retailer,his sales volume etc.

How to know profit margin?

As I said it varies with products. For example: A furniture retailer may be selling his item at 30 to 40 percent margin(becuase of low sales volume, slow moving,high demand and less supply of quality items etc), where as an electronics goods retailer may be selling his products for 10 to 20 percent margin. In any case a basic profit margin is 10 percent. No retailer is going to sell an item for a margin less than 10% unless he is a wholesaler or a supplier who depends on large sales volume and lesser profit margins. An average or a common purchaser is unlikely to purchase from wholesalers. This makes it clear that if you are buying from a retailer you can be sure that he gets a minimum percentage of 10 as profit. Now there are exceptions for branded items, fast moving items etc etc. Lets just take this as a general rule.

Note: You can search over the web to get a good idea of the product, its price ranges, wholesale price, where to get maximum discount, fair deal etc.

Now I am going to buy a Sony Vaio and as per our guess my retailer say shop X makes a profit of 5437 rupees. Now this may not be his actual profit, he may need to deduce operating expenses,transportation costs etc from Rs.5437. Lets not think about that, but we are clear that we cant ask for a reduction more than Rs.5437. No retailer/businees person will ever make deal in loss. He may sometimes sell a deadstock at his cost price but never sell  any thing for loss. Now we got an idea and lets make a fair deal.

Fair deal !

Now we cant ask for a Rs.5437 discount, well we can ask but it may not work out! As a fair deal lets ask for Rs.2370 as a discout and lets pay Rs.52,000 for the product. Chances are that you will make this deal if talked in a nice manner to a reasonable sales manager, applying a little pressure tactics. Rs.2370 is about 4.35% of MRP which means the reatiler still gets around 5%, deducting other expenses. In this way if you have an idea of the market rates you can easily get nice deals.

What if the retailer is not willing?

Here comes the real game! – The Art of Bargaining! We offered him a deal and he’s not willing for that, now what? Like Godfather says “Lets make him an offer that he can’t refuse“. Bargaining will not be that effective and produce desired output unless applied pressure on the reatiler. How to apply this? It depends on the purchaser, his attitude, knowledge of market rates, his communication skills etc.

  • First Round: If you are confident of the market rates and profit margin – first thing you can do is to make him aware of that. A good way for doing this is, if you know name of a wholesaler who supplies the same or know the shops which are best in the market offering best deals, say your retailer “I know where to get this for the said price. I can get this from shop Y and Z, but I would like to do business with you since you are near to me and I have heard feedbacks that you offer better customer service. Many of my friends have purchased from your shop before,so if you can accept my offer lets do business now”
  • Second Round: If hes still not willing, lets make another offer. “If you can get me this for my price I shall purchase one more item from you, say a bluetooth headset” or something like “If you can get me this deal, I shall refer you another business. One of my friend is awaiting to buy a notebook so you will get 2 customers “
  • Third Round: You are likely to close the deal in second round, if not lets try this. Lets reduce that discount price a bit say Rs.500 and add a product as free instead, say a pen drive worth Rs.350. If not for this, 90% we can close the deal for reducing the discount price by Rs.1000 and add a prodct as free worth Rs.700 or 800. Idea behind this is a reatiler always benefits by giving free products rather than cash discounts.
  • Fourth Round: Even after three rounds if we failed to make a deal, we need to rethink. If we are confident of the discount price we asked and if we are sure its a fair deal, a win-win, we dont need to step back any further. Lets try saying “Well if that’s the case, I am quiting your shop. I know I can get this deal from shop Y, I have talked with their sales manager. Only reason I came here is because of a referance, no big deal.I think shop Y is lucky, they are gonna get 2 people. I also have plans to buy a home theatre system, which I hope, shop Y will get me a nice  deal.”  Now with this, if he want to sell his product he will make deal else forget him, he is not a reasonable sales manager.

Bargaining power ?

Its something that we achieve by making good realationships with a retailer. Our bargaining power is the least when we are making our first purchase(a single product) from a shop. Bargaining ability increases when we become a repeated customer of the shop. If we are buying 2 or 3 products at a time from a single shop we can apply more pressure on the sales manager, than if we purchase a single item. Similarly we get more negotiating power when we refer more business to the same shop and in addition we get a respect and qaulity service from him. He will prioritize us and offer us his best deals. So to get a good enough negotiating power we need to follow a simple method – for a particlular set of products deal with a single shop/retailer(select one from reference and experience – who offers nice deal – a reasonable shop)  and establish a longterm relationship. Always make win-win offers and get the deal.

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Discussion 6 Comments

  1. abhi patel

    it is minblowing tips which make me more rational than before. Thanks

  2. vakulabharanam kalyan

    Good article, should have priovided some more information on how to know profit margin?

  3. Los Angeles Girl

    I love it and appreciate it when people share their knowledge with others. I agree with the most part although you do push it a little by insinuating that one can get a discount in any retailer which probably won’t be the case. One thing I couldn’t agree more with you is that it doesn’t hurt to try!! Overall great advice though! Thanks :)

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