The likelihood of any price getting accepted is:
Can you see where this is going?
This is exactly how major retailers deal with their customers!
Because they know that the easier it appears to change a price, the more likely it becomes that people want to try it.
We are all so susceptible to this kind of mind control that when a sign hangs high, or is laminated with a bar code, we automatically assume the numbers are beyond our power.
Why try and make a fool of ourselves? There is nothing that scares us more, not even overpaying.
The ladder of business proposals
The same rules apply for business proposals: the likelihood that we will accept a proposal is, from low to high:
1 Oral offers.
2 Written by hand.
3 Typed.
4 Printed.
5 Printed with calculations to prove basis.
6 Written in stone, but more practical is – laminated. The information becomes untouchable. Add a bar code, now the logic behind the price is unreadable too.
7 Printed with valuations from a “neutral” source, with signatures and explanations.
8 All of the above plus a Story2Tell others. So you can explain how you could make such a great deal.
We are likely to discard a proposal, regardless of the content:
Not surprisingly, this applies during negotiations. You adjust your price based on your hunch on how much the other party is willing to settle for.
Remember Negonomics earlier in this chapter? Seemingly random numbers send the subliminal message that your calculation stands on solid ground while fabricated prices should be seen as an open invitation to a game of bartering. So “smart” pricing may be unwise when dealing with the ones who have a high EQ.
Example
Say you calculate a price of 341,300. Most people will make it 349,500 in a soft market and maybe 10,000 more in a stronger one. Now imagine the smart buyer’s thoughts. The first 341,300 number appears to have a basis in fact. Their attention goes to the inflated price of 349,500. The 49, especially when followed by a 500 or 950 or 995, leads them to conclude that the number 349,500 is a fabricated one. Now I will ask you questions to establish the range of possible buffers because I am positive they are added.
Estimations without calculations
If there is only one specific item like some unique real estate or work of art, this means you also only need just one buyer to be willing to pay it. When there is no comparison that changes everything because now the range of margins will be much wider.
FOCUS: Negonomics in pricing
Do the prices we mention give away what we are really thinking?
ELABORATE: Everything we say and do reveals what’s on our mind. This is certainly information we don’t want to share, least of all with the other party. Regardless of our position we want them to think that we are strong when we are weak. And if we don’t think carefully about it, our numbers really make our position transparent.
First we must separate two objectives, because there is a huge difference between making an opening bid and a firm offer.
Opening bid: the amount must be well considered, because otherwise it might give the wrong message. A “wrong” number can give the impression that you are not really interested or, maybe worse, that you are willing to pay more than is your intention.
Firm offer: This must be carefully chosen or the answer you get will be “no” instead of something setting the wheels in motion for any step-by-step haggling if that was what you had in mind. This does not mean that firm offers are really final. They may or may not be...
Again the way you read the meaning of numbers must depend on the market situation and what is customary in the industry. It speaks for itself that when buying in a low market, you may deduct more than in a hot seller’s market and in some lines of business margins are larger than others.
SOLUTION: The following examples are just indications.
Price 109,500
Price 219,500
Price 529,500
The 9,500-29,500 figure seems added to the price as a negotiation buffer, and can be discarded by you before the negotiation even starts. That is how you deal with obvious buffers; just ignore them in your mind.
Only the remaining amount will be considered. It does not mean that you have to pay it. You will come up with your own valuation anyway, but it is helpful to consider their train of thoughts so you can relate your arguments accordingly.
Price 49,950
Price 79,995
Price 99,975
This is a whole different ball game because there is nothing visibly added. The nines indicate that the seller feels the rounded number may scare you off and initially you should read weakness in such cases. The fact remains that they are really asking for 50,000, 80,000 and 100,000. These prices may be dealt with as random numbers, without