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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   August 2005

The Importance of Price-Shopping

Certain tactics will help you get the best price when searching for loans

There’s a common saying that anyone who has to ask about price can’t afford it. This misconception seems to influence a lot of people. Whether buying property or high-dollar retail or dealing with contractors or volume commodities, the only things that change are the prices asked and the uniforms worn.

Getting a good deal is so respectable, it’s downright trendy. But asking about price is often considered déclassé. Let’s work on that. Get aggressive about price. Once you get past letting someone play you, price-shopping can even be fun.

A problem many people have is asking a question they think makes them look cheap. This may depend on whether you consider the smile you get when you agree with the sales staff more important than the genuine chuckle your naiveté gets behind your back. Salespeople anticipate resistance; they train for it. When they don’t get it, it’s like a free ride. Have you been giving unnecessary free rides?

Well then, get over trying to literally buy the smarmy smiles of trained sales staff, and arm yourself with a few tools of your own. The first of these should be skin thicker than the membrane that separates the yolk in an egg. Learn to be friendly but tough. To get there, it’s important to understand some techniques the opposition uses and develop effective countertactics.

There are basically two types of vendors: those that give you an all-inclusive price that hides everything and those that bury you in detail so deep you’re clueless anyway. Neither will give an inch unless you ask for it, and most will require a “good reason.” Here’s some “ammo” for either situation.

The all-inclusive price

To start, whenever someone gives you an all-inclusive price, ask for a breakdown of costs so you can see what is related to what and whether the costs are reasonable. People who prefer to give an aggregate bid usually have a substantial amount of “fat” built in for contingencies and possible negotiation. Whatever their strategy, yours is to get as close as you can to the basis of the bid. Once you know the component parts of the bid, you can price-shop to see if you are being ripped off. However, price is not always everything; service, reliability, speed and convenience are implied parts of your purchase. I don’t quibble about paying a bit more if I can have it here and now.

The best targets for brutal pricing are those who: 1) don’t have to check their bank balance for almost anything; or 2) are ignorant about what is being purchased. These targets are “fresh meat” for any competent salesperson. Most such customers are led by the threat of implied disapproval to spend more than they planned and to never — on pain of class disdain — ask for discounts.

Most high-end shops I sometimes deal with try to explain that “price- shoppers” are not their market, as if asking for a token 30-percent discount on services that are already several times retail is like haggling over a “blue-light special.” At these types of places, salespeople may usher you into a quiet lounge to discuss your purchase or project and invite you to quaff your thirst with any of several beverages and partake of snacks that on a good day might cost you $5 at the corner store, but will now be used to leverage you into spending thousands of dollars more than you should.

Recently, I was negotiating for a client who needed some custom work and had already secured a bid. Upon reviewing the bid, I found about 50 percent fat. When I initially asked for a discount, the salesman smiled patronizingly, lifted his head back and, with a little sniff and slow blink of his eyes, very carefully explained (as if to a child) that these prices were customary and reflected the value of the product and the service. I smiled, too, told him where the fat was and said if he couldn’t trim the invoice by at least 30 percent, I’d have no choice but to get the work done elsewhere. After blustering for a bit, he smiled again. But this time, like a boy caught with his hand in the cookie jar, he said he respected me for asking and that of course he would “sharpen his pencil” and find ways of reducing the tab. He did, almost to the penny. (Should I have asked for 40 percent?)

It won’t work efficiently on small purchases (items purchased off the shelf usually aren’t negotiable), and it won’t work in every shop (some are so good at “cherry picking” that they don’t need to discount business). However, if you do it every time, you will get as good at your shtick as they are at theirs. Your objective is to get good and get tough, and that takes practice.

Breakdown of costs

Another tactic vendors use is to give you an extremely detailed breakdown of every single item — pages of code, pictures and stock numbers. Also known as bundle-breaking — the practice of breaking the job, commodity or bundle into smaller parts — this technique looks so cut and dried  (and it is). You hardly know where to begin, and that is the point.

Each line-item cost seems too small and defensible to argue about and so well-documented that sticker shock is less of a problem. Even though the aggregate is big enough to choke a horse, you are so daunted by the volume that you quit struggling and helplessly let them put a pen in your hand. It’s a wonderful technique — for them.

But watch their smiles fade when you take a breath and say, “Well, there is a lot of stuff here … I’ll have to take it home with me so I can understand it.” Smile, shake hands and leave. Do not sign a thing.

Take the invoice and, line-by-line, understand it and price-shop by phone or on the Internet to see if the prices are out of line with the competition. Take lots of notes. When you are ready, call the vendor and say you want to go over the purchase agreement, bid or invoice. Initially, they will make concessions — the amounts will seem so small — but their confidence will wane as you begin whittling away at each line by 10 percent, 20 percent, 30 percent or more.

Once you have demonstrated that their fees and costs are inflated, you might want to suggest cutting to the bottom line and negotiate the aggregate figure on the last page. Now you know where they are padding, and they know you know. Offer 10 percent less than the average “pad,” and let them save face (if you feel generous) by accepting a 10-percent compromise over your offer.

If they don’t accept it, thank them for their time and walk. Unless it is the only vendor that has what you want, you do not have to buy from them. You have gained experience and knowledge that will put you more firmly in the driver’s seat with the next vendor.

Don’t burn bridges

There are a couple of reasons why you shouldn’t “gut” vendors with a negotiated figure that is barely profitable for them. The first is obvious — you want them to show up and do good work (the less the profit, the less the enthusiasm). The second is that if they do a good job, you may want to use them again. If they don’t make money on the contract, they will never do business with you again.

If the contract is big enough and they are small enough, they may go out of business entirely — even before they finish the job. Keep enough meat on the bone so that they work hard to please you, and you have leverage in the future. “Meat on the bone,” however, is not a condo in the Bahamas, unless the deal being negotiated is a $200 million high-rise.

Shopping for the right price starts with asking for a reasonable discount when the facts warrant it. As the foregoing examples illustrate, there is no reliable substitute for knowing what you are talking about. It’s possible to walk in “blind” and ask for discounts, but without knowing comparative values, it becomes a poker game — it’s far better to take a look at your opponent’s cards before you lay your money down. 


 


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