In many countries doing business is all about negotiating. If you live in Europe or North-America, you might not be used to haggling over the price of a box of cornflakes (although you can and should haggle if buying clothes at a boutique store or something like expensive camera equipment), but in other parts of the world this is part of daily life. At the moment of writing this, I’m travelling around Vietnam, which is another country where you should negotiate about pretty much anything you buy.
Haggling in Vietnam
The other day in Hoi An, a popular tourist destination, I saw a delicious looking banana pancake at a roadside stall. When I asked how much it was, the crafty merchant told me 10,000 dong (about $0.50). Knowing this for a touristy spot, I offered 4,000 dong instead. The merchant told me she would sell for 5,000, upon which I agreed. If I were Vietnamese, I could probably have gotten a better price, but 5,000 seemed fair enough, also taking into account that just a banana (which went into the pancake) costs about 2,000 dong.
The pancake was delicious. The next day I wanted to buy another one, and this time a different merchant asked me 15,000 dong (which was preposterous). I counter-offered 3,000, which the seller waved away. Since he didn’t make another offer, I walked away. I was by no means starving, and I knew there would be another stall around the corner willing to sell at 5,000. The merchant was left holding his pancake. Who knows, he might find some tourist willing to pay the $0.75 he was asking.
I have learned that this is one of the most important tactics in any negotiation process: the willingness to walk away. Just today I needed a ride on a motorbike taxi. The distance was about 5km, and it was cold and drizzling. At a street corner, a bike driver asked me if I needed a ride. When I told him where I wanted to go, he said the price would be 50,000 dong. Earlier I had taken a ride of about 3km for 15,000, so I knew this price was too high. But I was in a bind: the weather sucked, I was in no mood for walking, and it was quite far. Still, I refused and offered the driver 25,000 dong. He laughed at me and told me it was too far. 40,000 would be a good price. I said no… and walked away. He called after me: “30,000! Really cheap!”. At this point I would have gladly taken the ride, since I didn’t care much about the 5,000 price difference ($0.25)… but I refused. I knew that 25,000 was a reasonable price (although, again, a Vietnamese local could probably have gotten it for less). I started walking, zipping up my rain coat, already cursing my stubbornness. After about a block I heard a motorbike slowing down behind me… it was the same driver. “25,000 o.k.”, he told me. I quickly hopped on, and eight minutes later I was at my destination.
This principle holds true not just at the micro-scale of buying food on the market, but also–or perhaps even more so–at the level of bigger business. If you’re buying a car, and you want to negotiate over the price, be willing to walk away. Even if you really like the colour and you know that you really want this particular car. Sometimes you might be disappointed and will have to search for another one, but much more often you’ll get a better deal. If you’re trying to make a deal for purchasing supplies for your business, be willing to walk away. If your supplier realizes that he’s likely to lose you to a competitor, he will be more inclined to meet your needs.
Negotiation favours the well-informed
Of course, part of being able to walk away is knowing when you are offered a good price. This requires doing some research. Before negotiating a price for a motorbike ride, I was aware of a few key figures. I estimated that a small Vietnamese motorbike would get about 40-50km out of a litre of petrol. That litre of petrol costs about 30,000 dong at the station. So a 5km ride would burn no more than 4,000 dong worth of fuel, and then maybe 50% on top of that so that the driver could find a new strategic spot to pick up another passenger. Add another 50% for maintenance, parking fees, fines and other costs of being a motorbike driver, and you arrive at 8,000 dong as a base cost. The average Vietnamese person makes about $1,300 per year. That comes down to about $0.50 an hour, or 10,000 dong. Taking into account that a motorbike taxi driver has considerable ‘downtime’, I figured that an 8 minute ride should earn him about half an hour’s pay. So this works out to 13,000 dong as a bottom price for which the driver could offer his services.
That price is called a ‘resistance price’. Below that level it’s simply not worth the effort for the seller to make a sale. At any level above the resistance price it is technically in the seller’s interest to make a sale. But there are other factors in play. how likely is the seller to find another, more profitable customer? In case of the banana pancake merchant asking 15,000 dong, he probably figured his chances quite good. Also, how credible is your ‘walking away’? In the case of the motorbike driver I had to walk for a block before he was convinced that I would rather walk through the rain than pay his extra 5,000. And finally: how much do you like each other, and how much advantage are you willing to offer your counterparty. Being a (relatively) wealthy Westerner, I have no desire to negotiate down to the resistance price when I’m in a third world country. And if you’re putting on your angry face, a seller might simply deny you his services out of spite.
So when you’re doing business, big or small, make sure to do your research beforehand. Make your best estimate of the seller’s resistance price. Then put some work into establishing a positive relationship. At the market this might require as little as smiling and saying hello in their native tongue, but in big business deals you might want to take a few days to get to know your potential business partner. Next, determine a good price that you are happy to pay, and at which you think your counterparty is still satisfied to sell. Finally, negotiate about the price. If the seller won’t meet the price that you’ve set… be willing to walk away.