The Negotiation Guru

Tim Ferris wrote a blog entry on negotiations. He quoted a portion from filmmaker, Bob Compton. This is an interesting observation of how negotiations are being conducted in India.

This is not to say that every Indian negotiates like this.

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In India, every transaction — EVERY transaction — is negotiated. Merchandise, cab fare, restaurant bills, wedding doweries — the list is endless.As our guide Vishnu explained, “In India, we bargain to the level of the individual vegetable purchase.”

While awkward and uncomfortable to most Americans, that level of negotiating can be quite valuable.Hotmail founder Sabeer Bhatia, a CA transplant from Bangalore, credited the bargaining skills he learned in vegetable markets at home for getting Microsoft to push its acquisition price for his company from $160 million to $400 million. Bill Gates’ eye teeth were floating in tea with that deal.

Here are a few rules for bargaining on the buy-side when in India:

Rule #1 - The true price of any item is what you pay — There are no suggested retail prices in India. Nothing is labeled, so it pays to talk with several vendors before making a significant purchase.

Rule # 2 - Try for 70% off — Don’t accept less than 30%

Rule # 3 - Make them show lots of merchandise — If it is a rug merchant, you want the demo guys sweating profusely before you make your first offer. Get the vendor to “invest” in the transaction — emotion, time and energy.

Rule # 4 - Offer on one item at a time – If you plan to buy a couple things DON’T let on at the outset. Act like you intend to buy only one item, if that much. Get the seller to give you prices on each item; play one item off another to show you are looking for the lower price point.

Rule # 5 - Wait for the pad of paper — Every Indian sales person has a pad of paper and a pencil that they pull out when the bargaining gets a bit more serious. Though they write down the price for an item, this is only the starting point - remember rule #2.

Rule # 6 - Say “TOO HIGH”, a lot – Don’t even start negotiating until the salesman has scratched through the initial price and lowered it at least twice. I found that simply staring in silence at the pad of paper for a long time would result in the vendor cutting the price.

Rule # 7 - Imply a bundled purchase — OK, now that the price has been cut 25-30%, ask the salesman what deal he would give you if you buy two items. Expect 5% off. Ask for three items; get another 5%. Then add a very expensive 4th item — one which you do not intend to buy. This will excite the vendor and he will do a bunch of calculations which you will be unable to follow. The price will come down for the expensive item as well as for the other items you intend to buy. Lock those prices and drop the expensive item.

At this point, you should have been able to shave close to 50% off the initial price. Most Americans generally are satisfied at this point and close the deal.

One final point - no matter what price you pay — if the sales guy is smiling when you leave — guess who won…

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Jens: Well, this is really a stereotype.

I am writing an article on the rules of Chinese negotiators. Feel free to email me your experience.

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Jens Thang
Negotiation Skills for Everyone

Email: jens@thenegotiationguru.com

Having an agenda ready before you step into the negotiation room is essential. You need to know what you hope to achieve after the negotiation. I have negotiated with sales people who absolutely have no idea what they want to achieve from the deal. Sitting on the other side of the table, I felt that the party is either not interested in the deal or totally insincere. Either way, this is not a good thing for a relationship-based deal.

To go into negotiation with an agenda, you need to prepare beforehand. You have to consider your objectives, needs, wants, bargaining points and walk-away value (BATNA). This require due diligence on your part but it always pay off. You will save both parties a lot of time if you know what you want. No one likes to have a long dreary negotiation.

Do not enter the negotiation hall without knowing what you want.

As I was driving this morning, I discovered something about human psychology. Or rather, I was under the effects of human psychology. I was driving and decided that I should take the right lane as it had faster traffic. As I drove on the right lane for 5 mins, it became really slow. Cars were moving very slowly, and the cars on the left lane were zooming past me. Subconsciously I was telling myself, “The right lane will be faster, I am pretty sure about that”. I stuck to my original decision for a good whole 10mins.

Suddenly, I realized that I was not making a rational choice. I should have switched to the left. So why didn’t I do that?I had invested too much into right lane. To prove that I was right, I stuck to my own decision despite it was not a rational thing to do. This is common to investors who invest in the stock market. They always sell the stocks that are earning and keep the stocks that are losing money. And this is because they want to prove that their initial judgment is right.In negotiation, we often get too committed to a deal. We invest our time and effort into preparing a deal and negotiating it. As time passes, we grew more committed to closing the deal. People say yes to a bad deal because they have invested too much and feel that they will lose more if they have no deal.Avoid getting hooked into such a situation. Always have a bottom-line and never compromise on your goals. Sometimes, no deal is better and a bad deal.