Haggling Makes a Comeback
By Tom Ryan
With consumers gaining leverage in a ruthless economy, haggling is on the rise
in the U.S. And at the risk of losing sales, some smaller stores are developing
strategies to capitalize on the practice.
According to America’s Research Group survey, 72.2 percent of consumers haggled
for lower prices over the past holiday season, and of that group, 80 percent
reported being successful. Two years ago, 61 percent tried to negotiate, and
only 50 percent of them succeeded.
“People have had markdowns thrown in their face so often they expect them,” Martin
Lindstrom, author of Buyology – Truth and Lies About Why We Buy, told Crain’s
New York. “Consumers have just gone through a one-year training session. At the
end of the day, it’s not the price per se, it’s the concept. It’s an addiction.”
Mr. Lindstrom said that if managed wisely, savvy haggling can save a sale from
walking out the door. Also, since big-box retailers aren’t set up for on-the-spot
pricing, it can be a differentiator.
“It gives the little guy a leg up on the big boys,” said Mr. Lindstrom. “It’s
absolutely a strength of the smaller, independent retailer.”
The challenge is that unlike many other parts of the world, sales associates
in the U.S. aren’t used to haggling. According to the Crain’s article, the goal
for sales associates is to make shoppers feel like they received a bargain while
the store still gains an adequate margin. Prices may need to be raised or markdowns
reduced throughout the store to provide associates with the leeway to reduce
prices.
The overall haggling strategy varies by customer, and stores should be prepared
to let a haggler walk.
“You always have your rock-bottom price,” Joe Sundlie, an owner of an upscale
vintage clothing store in Manhattan’s Flatiron District, told Crain’s. “Price
the tag so you can allow yourself to drop it twice. They wait for the trump card,
and that’s your second price.”
Bob Grayson, former CEO of Limited Stores and now a retail consultant, believes
all stores in all likelihood make less money by haggling versus set pricing.
“If you would normally have come back with a lower price and your profit allows
it, go ahead,” said Mr. Grayson. “But to make spot decisions is not a good idea.”
Discussion
Questions: Is haggling a good option for stores?
In what situations do you think it’s appropriate? Do you agree that haggling
could be a differentiator for small stores against big box chains?
It is the consumer’s God-given right to ask for a deal. It is also the right of the retailer to say no. But there are lots of ways to give the consumer more deals without ending up in a haggling session. Bundling products, coupons, and rebates are all ways that retailers can add deals “on the fly.”
Let’s just change the word from Haggling to negotiating; I wonder how many buyers and store owners do this every day. So if you as an owner or a buyer do it, why would you not expect your customers to do it?
Quick example: how many operators have gone back to their landlords asking for lower rents? Those that have not are missing a great opportunity. Worst answer you can get is NO.
Haggling may be instinctive and fun but it reminds me of the incremental pricing practices that did in the fluid milk industry. We are slowly converting the marketplace into a bazaar where nothing has the value that is prescribed. Will that lead us to retailing in tents?
If you’ve traveled in other parts of the world where haggling is routine, you will know how uneasy it can make American shoppers. If your price is accepted, you think you could have asked for a lower price. I believe it sets the stage for an adversarial relationship between the seller and buyer. Having said that I also believe in this economy the phrase “Is that the best you can do?” is a necessary part of the conversation when buying anything.
Priceline, eBay and other auction websites are helping to educate buyers as to how they can save money on products and big ticket travel services with a minimum of risk. Consequently haggling is becoming the norm.
For small businesses this practice can create the image of a “good deal.” But it does put a lot of stress on the sales person who has to learn limitations. In short there’s a learning curve for the store owners and the sales staff.
Is haggling here to stay? I’m guessing that once our society has experienced negotiating prices across many categories it will be an expected way of doing business. I’ll just have to get over my discomfort.
So every price is movable? The lowliest employee can “save the sale” by discounting. What a bunch of misguided thinking. Haggling is getting a lot of attention because reporters love to mention how they do it and their friends do it. It’s not new or news.
Hapless retailers join in the fray at their own peril. I’ve written extensively about it on my blog and how to train employees to deal with it.
As more stories continue to pop up by writers identifying with people looking for discounts you have to arm yourself to stop it, or face becoming one of those haggling helpless retailers grateful for any sale; losers in every sense of the word.
In times like these no one wants to walk a potential sale. However, a policy of negotiating has many downsides. Foremost, once you start negotiating, you never stop. Then there’s lower margins, an increase in associate time/payroll in negotiating, the risk of walking an unhappy customer anyway because she couldn’t get the price she wanted, etc, etc. Bottom line, more expense, less margin, questionable increase in customer satisfaction.
This approach is already common in places like car dealerships and fine jewelry, which are characterized by low unit/high value/high margin transactions. If your business falls into a category like this, it’s probably worth considering. For most retailers, the average unit sale is around $14-16. In that kind of an environment, this approach wouldn’t make much sense.
My vote is to make sure your prices are competitive and stick to them.
No matter how much the customer asks, it’s tough for a big chain (say, JCP or Best Buy) to allow its sales associates to negotiate pricing. It opens a Pandora’s box of margin issues that a highly structured public company can’t afford. More importantly, it undermines the credibility of advertised sale prices, even if the consumer is able to leverage credit, coupons, etc, on top of those prices.
None of this should prevent a small, independent retailer from being willing and able to strike a bargain with a customer who asks. For example, a local jewelry store might well make a sale (or not) by offering an additional 10% off of sale prices, but only as long as the store’s margin and expense structure can support it. Who among us has offered to pay list price–or even the posted sale price–for a car recently?
Haggling over price and other attributes will be a common place residual of this recession. The key is for retailers to understand this phenomenon and develop appropriate pricing and training procedures to haggle profitably. Keep in mind if your only differentiation is price, customers will beat you up. The goal of marketing is never to give the customer two equal choices and have price become the differentiator.
That being said, my research indicates that some products and services are more negotiable than others. These include the following: big ticket items (appliances, furniture, home-improvement products, etc.), electronics, hotel rooms, insurance, rent, subscriptions, repairs/replacements, catalogs, bulk purchases (cases of wine, gallons of paint, etc.), anything damaged, anything already marked down, bank fees, and health care.
However, customers are now prepared to negotiate with their local supermarket as well as traditional retailers like Barnes & Noble, Wal-Mart, Macy’s, Old Navy, Best Buy, and Home Depot.
Developing a “haggling” strategy is no longer an option, but a necessity in today’s world.
Joan Treistman made some very good points, particularly in that we Americans are typically less comfortable with asking for a lower price than many citizens of other countries. When in India, I was chastised by a local colleague who said I should have negotiated the price of a pair of socks that were in a store just like Sears.
Bottom line, it is cultural more than anything. With a son who used to sell cars, I was surprised to learn how many people don’t even negotiate the price of cars.
As for small retailers, it can be a competitive advantage, not only for pricing, but for loyalty and the fact that haggling can take on a personal aspect and keep the customers coming back, versus a national chain.
The term sends shivers down my spine! Haggling. Isn’t that what you do when buying a car, major appliance or furniture? My perception was typically the higher the price or perceived value, the more open the business is to haggling.
But more simple items like socks or clothing at least for me don’t merit the time or the effort to negotiate the price.
I have some friends who do this on a regular basis. But I think this is a practice more aligned with specific cultures. As for business owners, if they are accepting or about to accept “haggling” over a price, they must do their homework and really understand what they are doing.
Consumers talk and like to brag over what they were able to accomplish in a negotiation over high ticket items. If they spread the word about a certain retailer being receptive to haggling, then the retailer needs to understand others will expect the same “good deals.”
Depending upon the retailer, local norms and the type of goods sold, this could be a good thing or a total disaster.
I haggle for everything, even free milk at McDonald’s, well maybe not that. I believe there is the store price, the price they would like to get for the product and the price that you can get the product for. Like every other situation in life, it is simple supply and demand and in this environment especially the power that one feels from the “perceived” discount versus whatever the actual discount is can be significant, yet this will vary from individual to individual. I know I recently purchased a refrigerator that was $2,600, on sale for $2,100; I got them down to $1800 and then bought the 5 year warranty for $200, but told them I only wanted to pay $150 for the warranty and they dropped the refrigerator to $1750. So they must still be making some profit and it was approved by the manager, so it makes one question how much profit is in each item? It also seems to make the value of haggling that much greater.
I love it. Why not? BUT…the biggest concern I would have as a retailer would be along the lines of slowing customer service–imagine the guy in front of you in line battling back and forth with a sales associate while you wait behind him–not good, not coming back. I think it works better for smaller shops but in any case, the sales staff has to be cognizant of all the customer’s needs. We’ve a long way to go operationally before we can figure out how to make “haggling” a part of every-day retail in the U.S.
I think negotiating on the sales floor is a dangerous business practice. Who within your store has the rights to make a price concession to a customer?
Reminds me of buying a new automobile when your salesperson has to check with the sales manager if a price concession is in order. I think most customers have a strong dislike of this business practice and experience of buying automobiles, to suggest we would do this with jeans is beyond comprehension.
If the retailer gets negative feedback on the prices from a number of customers it is time to take a markdown to the benefit of all customers.
I do not think the modern retailer is in a position to deal with pricing issues on a one-to-one basis. It will grind the customer service process to a standstill to the benefit to no one.
The issue may really be pricing credibility that cause customers to ask for better deals.
The biggest challenge that retailers face right now is not rebuilding unit sales. It’s finding a way to re-establish sustainable price points and margins. Unit sales will begin to come back as the recovery takes hold, but the consumer shows no signs of being prepared to pay full retails for just about anything right now.
Haggling plays right into this consumer mindset. It should be something retailers approach very reluctantly. Their focus should be on building and demonstrating true value in their merchandise as well as in the customer’s overall shopping experience.
Those conversant with the development of retail in this country (at least the conventional history of it) will recall that the adoption of fixed prices–and with it, the abolition of haggling, negotiating and other such forms of exchange–is cited as a major step forward…I would think its return would be a step backward: let the Old World have its vicious peddlers, filthy alleys, and haze-filled bazaars (at least those that haven’t banned indoor smoking).
I am not a fan of haggling. I can see in some cultures it works but not in others. Frankly, I can see ways that it can hurt sales.
This has got to be a non-starter.
Imagine a customer entering a Starbucks, ordering a latte, then saying he’ll pay 75% of the price for it. The confused barista won’t know what to say, and the people behind that guy in line will think he’s smoking illegal substances. Haggling at independent stores may work, but it’s a no-go at chain stores.
Haggling need not mean you lose margin. Whether it is proper behavior for your company depends upon many factors. There is no one right answer as customers come in all sizes, inventory may be dated, damaged, perishable, seasonable and/or going out of style. There’s also that pesky issue of cash. In a recession, it’s best to favor cash over inventory.
It is imperative for retailers to implement a value pricing strategy, a written policy/process/tactics for those who want to haggle. A good example of value pricing is Sears’ appliance department. Visit your local Ford dealer for the proper processes and tactics of haggling.
While I appreciate human nature of haggling, by-and-large it’s a win-lose situation. Building a brand requires discipline. As the saying goes “You can please all the people some of the time, and some of the people all the time, but you cannot please all the people all the time.” Stay the course; haggling is not a win-win.
Imagine a world of haggling at retail….