As a teenager, I remember accompanying mum to a local market on several occasions, mostly for clothing or food shopping. She would go from one shop/vendor to the other, bargaining to get a fair price and also asking questions about new products. To me then, it was unnecessary, time-wasting and tedious. And on few occasions, we got insulted and chased away. But unknown to me, this was a skilled bargainer at work; surveying the market, getting necessary information, and often time than not, we got a lower price for most items.
Bargaining power is simply the capacity of one party to dominate or sway the other, due to its influence, knowledge, power, size, or status, or through a combination of different persuasion tactics. Have you ever stood staring at a price tag and wondered, Could I possibly get a discount? The answer is yes. You just need to know how — and whom — to ask. The ability to negotiate a fair or favourable deal could determine how beneficial a trade agreement, proposal, purchase of goods and services, wage/salary discussion, bills settlement, court settlement etc. can turn out to be.
Porter’s Five Forces Analysis
Porter’s Five Forces of buyer bargaining power refers to the pressure consumers can exert on businesses to get them to provide higher quality products, better customer service, and lower prices. Strong buyers can pressure sellers to lower prices, improve product quality, and offer more and better services. A strong buyer can make an industry more competitive and decrease profit potential for the seller. On the other hand, a weak buyer, one who is at the mercy of the seller in terms of quality and price, makes an industry less competitive and increases profit potential for the seller. By extension, history has shown that informed and courageous people that demand good governance and accountability from their leaders often get their agitations met. The concept of buyer power Porter created has had a lasting effect on market theory.
Porter’s Buyer Power – Determining Factors
Several factors determine Porter’s Five Forces buyer bargaining power:
- Buyers are concentrated compared to sellers – if there are few buyers and many sellers, buyer power is high.
- Switching costs – If the cost of switching from one seller’s product to another seller’s product is low, the bargaining power of buyers is high.
- If buyers can easily backward integrate – or begin to produce the seller’s product themselves – the bargaining power of customers will be high.
- In the case the consumer is price-sensitive and well-educated regarding the product, buyer power is high.
- If the customer purchases large volumes of standardized products from the seller, buyer bargaining power is high.
- When substitute products are available on the market, buyer power is high.
And of course, if the opposite is true for any of these factors, buyer bargaining power is low. For example, low buyer concentration, high switching costs, no threat of backward integration, less price sensitivity, uneducated consumers, consumers that purchase specialized products, and the absence of substitute products all indicate that buyer power is low.
The Art of Bargaining
Savvy negotiators know that politeness, friendliness, and a smile are harder to resist than tough talk. “A my-way-or-the-highway approach limits you because if you then reduce your demands, you run the risk of losing face,” says Steven Cohen, president of Massachusetts-based Negotiation Skills. Spend a few minutes chatting up the salesperson before you attempt to open negotiations. She/he will be more inclined to make a deal if she has already invested time in you.
“Can you do any better on the price?”
Posing this simple straight forward question often prompt the seller to make the first offer. “If you, the buyer, state a price at the outset, you hurt your bargaining power because the amount can only go up from there,” says Michael Soon Lee, coauthor of Black Belt Negotiating: Become a Master Negotiator Using Powerful Lessons from the Martial Arts (Amacom). “If she won’t shift grounds and you have to say a number, start really low so you can still go back and forth before settling on a figure.”
Never give a salesperson the impression that you’ve fallen in love with the merchandise — even if you’re head over heels.
This knowledge makes him more likely to insist he can’t go any lower on the marked price because he knows you won’t want to leave without it, according to Max Edison, author of How to Haggle: Professional Tricks for Saving Money on Just About Anything (Paladin Press). So play it cool, check through other shelves, and look at lots of different products while you wait for an employee to approach you. When he does, politely mention a feature that you don’t like about the item, then ask for a discount. If you see a dress with a smudge or an electronic device with a dent, point it out.
It’s easier to negotiate with independent stores than with bigger ones because the seller can’t return flawed products to their maker for credit. Even manufacturers dispose of their flawed but usable products at highly reduced prices. If an item is scratched, dented, or missing its original packaging, you have a chance. Speak to a manager.
Be prepared to walk away if the seller won’t come down in price.
Most of the time he will stop you and agree to a lesser amount. “I’ve seen this elsewhere for less.”
Research the cost of any product before buying, and use it to determine what you’re willing to pay. Print out or take screenshots of website pages. Call the store to confirm if it will match the lowest price you’ve found. If you can’t get a discount, for overseas purchases-ask about free shipping, delivery, or installation. Many retailers will beat a competitor’s price if you show them a local newspaper ad or printout from an online store. Be prepared for the salesperson to explain that her merchandise is of a higher quality or her store offers better customer service. Respond by pointing out that you’d like to buy here and now but only if you can get the absolute best price.
Enquire whether any markdowns or special promotions are coming up in the nearest future. The salesperson may be willing to deal at that price now, rather than risk that you won’t come back.
“What would you take if I paid cash?”
Paying cash can have a hypnotic effect, especially at independently-owned stores. “Processing a card costs retailers about 3 per cent of the transaction,” says Edison. Cheques take time to clear.
If a salesperson insists he’s not authorized to negotiate, ask who is. “Never accept ‘no’ from someone who can’t say ‘yes,'” says Lee. In other words, speak to the right person.
Secrets of E-Negotiating
Similarly, to what we discussed earlier, even though you never interact face-to-face, you can negotiate and deal with e-commerce stores. To cyber-haggle like westerners say, Google around for the lowest price on an item you want, then e-mail a different online store, providing a link to the price and asking that seller to go lower. If a customer service rep says she can’t give you a discount, ask if she has free shipping or promo info you can use. Request a supervisor if the answer is still no. Generally, small- to medium-size online stores are more receptive to haggling than large discount sites.
Overcome the Fear of Price Haggling
A lot of people find the thought of negotiating unpleasant. People sometimes see haggling as pushy or aggressive, says the founder of ShoppingQueen.com, Fatima Mehdikarimi. “Men don’t seem to care much about those perceptions, but women do,” she says. If you’re bothered about coming across as brash and unfeminine, keep these key points in mind:
Buyers ask sellers ask for discounts all the time — it’s a normal, everyday part of doing business. Remember, the worst thing a salesperson can say is no. Then he’ll move on to the next customer without a second thought and forget all about you.
Haggling is a win-win for both parties. Most retailers would rather sell something today at a discount than have it sit around for a month or longer.
Asking for a markdown doesn’t make you look cheap; it shows that you’re savvy about how you spend your money. “If it helps, remind yourself that rich people are generally frugal and rarely just go ahead and pay the asking price”. This is what negotiating expert, Michael Soon Lee says.
Don’t be intimidated by a title. Many people are reluctant to confront doctors or lawyers. But John Santa, M.D., director of the Consumer Reports Health Ratings Center, says that almost everyone in health care—whether physicians, hospitals, labs, or imaging departments—will eventually accept less if you dispute an out-of-pocket charge. That said, he adds, they’ll try to wait you out, make you feel responsible. They will bombard you with technical jargon and lots of information. Don’t let up so easily, hopefully, you will get that reduction you seek. Also, it may be easier to negotiate with your physician who owns a practice. It may be easier than with someone who is an employee of a large health care system.
Related reading: Tips on Personal Budgeting