In the midst of my midlife crisis, I decided I really needed a convertible sports car. After an hour of haggling in the showroom, I couldn’t get the sales manager to budge from his $40,000 sticker price. Yet, just three days later I got the same car from the same dealership for only $35,500.
Sign up for AARP's Money Newsletter.
When returning to the West Coast, I was upgraded from economy class to business class—a $1,200 value—without it costing a single penny or travel point.
Last month my lady friend and I wanted to stay at a small mountain resort we both enjoy. It’s a pretty “spendy” place (Northwest-speak for “expensive”) with rooms typically running more than $400 per night. However, I made a quick call and was able to book a room for $219 for that very evening.
How did I accomplish these feats of monetary magic? I’ll get to that after I answer a couple of universal questions:
How do you know if you’re getting a good deal?
I never pay much attention to the price tag. The sticker price represents what the business owner would like you to pay. It has nothing to do with how valuable the product or service is to you or what you might be willing to pay for it. For example, a liter bottle of water costs $2.29. If you’ve been in the desert for a week and are dying of thirst, it might be worth your life’s savings. On the other hand, if you only need a sip and there’s a water fountain nearby, you might not be interested in paying anything.
This is an extreme example, but it demonstrates an important principle: Real value is not determined by a price tag.
Of course, there are situations where the time needed to negotiate isn’t worth the potential savings. Few of us would try to get 10 cents a pound off the price of ground beef; the savings just wouldn’t be worth our time. On the other hand, saving $4,500 on the price of a new car is worth almost everybody’s effort.
Before you buy anything, you need to know its market value. Many things we know by heart: A cup of coffee runs between $1-2, a gallon of milk about $2-3, and a movie ticket is between $8-12. For other things, you may need to do a little research to be sure you’re not getting ripped off. Five minutes on the Internet can usually give you a ballpark value on almost anything.
Once you’ve established the market price, you need to figure out how much of a price reduction you might ask for. The discount depends on the type of product, its abundance, and when you need it.
When shopping for manufactured goods (for example, cars, electronics, or tools), 10 percent is a good discount, and 20 percent is great. With household goods (such as furniture, appliances, and carpet) you can try for an additional 10 percent. The deepest discounts come on services (hotels, broadband, and lawn care), where you can often get price reductions as high as 40 percent if you’re willing to pay cash, bundle services, and/or commit long term.
The more available a product is, and the more flexible you are, the more likely the opportunity to negotiate. For example, don’t shop for a black Toyota Prius with the sports package with leather seats. Decide which features are really most important. If it’s gas mileage rather than style, the color really doesn’t matter. (Besides, if you saved more than $1,000, you could paint it black and still be ahead.) Leather seats might be nice, but are they a deal-breaker?
I’m not saying that you should create a discount by buying less of a car. I am saying that all things being equal, if you broaden your scope, you will have many more vehicles to choose from and a better chance of getting a substantial discount on a car with the features that matter to you most.
Isn’t haggling rude?
In this country, many of us have an aversion to haggling. Some people even think it’s rude, while others consider themselves too shy or inexperienced. The truth about haggling is that it is not rude, nor is it difficult.
Successful price negotiation depends less on style than on understanding a few simple principles:
1. All prices are negotiable.
This doesn’t mean that you’ll always get the price you asked for. It does mean you are in control of any buying situation.
“Not true,” I often hear. “The big company sets the price and I can’t do anything about it.”
“Not true,” I say. “It may appear that the retailer has the product you want. In fact, you have the product he wants more: the money, the cash, your moolah.” You always get the final vote on whether the transaction takes place.
Keeping this in mind helped me to save five grand on my midlife trinket. When the car dealer told me he’d given me his best price, I said it wasn’t low enough and left. Once home, I went online and found two other dealers within a 100-mile radius with the identical vehicle. I called the nearest, told him what the first dealer had offered and asked if he could do better. I promised to be a quick sale with no trade-in and let him know I’d pay in cash. (While auto dealers do like to write their own financing, cash is still king.) The second sales manager quoted a price $2,000 lower than the first one.
The following day, I rang up the third dealer, gave him the name of the sales manager at dealer two, the price she had offered, and asked if he could do any better. Again, I promised a quick-and-easy sale. He replied that if I could make it in by that afternoon that he’d take another $1,500 off the deal, making my price just $36,500.
The next morning, armed with two names and two lower prices, I called the first dealer again. I told him that I’d be willing to buy the car from him for $34,500—$2,000 below the best deal I’d been offered so far. He said, “No way.” I thanked him for his time, and hung up the phone. My next pot of coffee hadn’t quite finished its drip cycle when he called back with a counter offer a $1,000 higher than what I’d asked for. It was still more than $5,000 off the sticker price, so I took the deal.
At no time in the negotiation did I have to strong-arm, plead, or threaten. I simply created a bidding war for the product I was selling: my money. Each dealer wanted my money more than I appeared to want their cars.
Was it worth my time? In three days I saved $4,500.
2. You don’t need to buy anything today.
In a recent seminar, one attendee declared that my negotiating “secret” wasn’t a secret at all, that I was just “shopping around.” Not quite. Think about those car dealers. If I’d just called and asked for their sticker prices, I would not have received much of a discount, because they were all within a few hundred dollars of each other. Instead, I ignored the asking prices, kept control of the negotiation, and nudged them to bid for my business.
The “secret” was that I took my time. As long as those car dealers believed that I was willing to walk away, I had the power. When you walk away, you release the time and geographic pressure. And if you don’t need or want an item at a specific time from a particular store, you can shop around and get a great deal.
I believe it’s unwise to spend more than $500 on a purchase without sleeping on it. Advertising and salespeople try to get us to believe that if we don’t buy right away, we’ll miss out on a deal: The car will be gone or the time-share will be sold. Don’t believe them! There will always be another car, couch, or oceanfront condo. Nothing other than food, water, or shelter is absolutely necessary for life. Walk out the door. Have faith; they will chase you.
But don’t we sometimes need to buy something right away? What happens if your car breaks down? You’ve got to buy one right away, right? Wrong. You can rent a car at $30 a day for an entire month and it will cost you less than $1,000. As I’ve demonstrated, if you give yourself a little breathing room and eliminate the emergency, you can knock down the price of a new car by at least a grand, likely more.
3. Companies need your money more than you need their product or service.
Most of the things we buy aren’t critical to our existence. But companies need our money in order to survive. As long as your money stays in your wallet, you are in control. Advertising and high-pressure sales techniques are designed to create the illusion of scarcity and need for immediacy. The company will act as if it has the power, but it’s really a dog on a chain. They can bark, but they can’t bite. As long as you keep your wallet shut, you lose nothing.
Remember that “spendy” hotel room I mentioned earlier? What I understood was this: If the hotel still had a room open for later that evening, the chances they’d book it in the next couple of hours were between slim and none. It may have listed for $439, but the value of that room for that night was sitting at zero if left un-booked.
The first thing I did was ask what the hotel’s best price was. The reservation agent chirped back with $329. That was a decent discount, but, I thought, maybe I can still do better. I said, “I’ll reserve it right now if you can give it to me for $219.”
There was a pause.
“Just a minute,” she said, and put me on hold. (You and I know I would have taken the $329—and she could have just said, “No.”) She returned to the line within 30 seconds and accepted my offer.
4. Give them a reason to be nice to you.
We don’t negotiate with companies. We negotiate with people. People are nice to people they like.
On my way back from New York, I was in my good suit and facing a seven-hour flight. I walked up to the gate agent and explained that I’d sat on the tarmac for three hours the day before and would greatly appreciate a business seat if one became available so that I could catch up on some sleep. I smiled, used her name, and was polite. I thanked her for doing “anything she could to help a weary traveler.”
You might say, “That’s too corny to work.”
Nope. First of all, it was the truth. Second, kind words, a smile, and a good story can often inspire the best in people. Five minutes before we boarded, the agent handed me a business-class ticket and said, “I really shouldn’t do this, but you were so nice about things.”
Do the math: It was a $1,200 smile.
Ron Burley is the author of Unscrewed: The Consumer's Guide to Getting What You Paid for.
You may also like: 10 shopping tips for yard sales, thrift stores. >>
Next ArticleRead This