Art of Negotiating
Some retailers negotiate,
others don't. If you've decided to negotiate, here's what you need to know. There's more to this art than just dropping the price.
Have you ever noticed that “price negotiating” is rarely talked about in sales books? For some reason, a lot of retail sales trainers seem to think that haggling over prices is impure; or that it sullies the sales process, it's too messy, or that it really is not part of the sales process. Even John F. Lawhon stated in his book, “Selling Retail”, if you do your retail sales job correctly, then closing is just a matter of “writing it up.” In other words, if you built value, you shouldn’t have to drop the price. Don’t you wish it was always that easy?
Well, after you’ve worked a few months, or years, on the retail showroom floor, sooner or later, you may figure out that you will make more sales if you are willing, or able, or skilled enough to successfully negotiate a discounted sales price with a willing customer. Of course, I know there are great stores today that maintain a “one price only” policy and succeed very nicely with that philosophy. But, I also know that many customers will not buy at a retail store that is not willing to compromise on their listed prices. They want a “deal.”
Why do I say this? Two things come to mind. First, twenty years of selling retail has taught me a lot, and two, I am one of those retail customers who likes to get a better than expected deal when I shop for something.
Before continuing, allow me to amend the term “price negotiation.” There is more to deal negotiation than dropping the price. There are a lot of other tangible items (and a few intangibles) that fall into the overall negotiation basket. Among these are delivery, carry-off, add-ons, financing, customer service and relations, etc.
Let’s Start With The Customer
A lot of buyers these days, with the benefit of using the world-wide-web, THINK they are prepared when they walk into a retail store looking for a pricey durable goods product, such as furniture or a mattress. For the RSA, this can be a good thing; or a bad thing, depending on how the RSA handles it.
In addition, there are hundreds of websites that offer negotiating advice to customers. We’ll go over some of this advice, but I would suggest that readers of this article, Google “Negotiating prices” and see what pops up. Being prepared for the “prepared buyer” will come in handy if you must negotiate a sales price.
Here are some important points I have gleaned from reviewing these “how to negotiate” sites. The retail buyer is advised to do some or all of the following:
“One of the best
qualifying questions I know, when approaching the negotiation part of the close is this:
'Have you shopped
anywhere else?' If
they have shopped elsewhere, ask the question, 'What was the best deal you have seen, so far??”
- Come to the store prepared. Know what you want and how much you will pay. Know how much the store’s competition will sell the item for. (Of course, we know from experience that the buyer is often willing to invent the competition’s prices).
- Have a willingness to be unreasonable with the RSA. Go LOW on your counter offer. This attempts to transfer power to the buyer and the ball into the seller’s side of the court.
- Limit any show of excitement or enthusiasm for the product. Excited buying signals from the buyer strengthen the RSA’s hand.
- Don’t talk too much. Ask questions that show skepticism for the product or the store. When you do ask questions, ask for add-ons at no extra charge.
- And finally, most importantly, be willing to Walk Away. Nothing frustrates an RSA more than a potential buyer “walking the deal.” I have found this to be especially effective when shopping for a new car.
I should also point out that some buyers actively seek out stores who are willing to negotiate the price. Here’s an example. I opened a new store many years ago, and the very first customer who walked in was a man (by himself) who looked like he meant business. The first words out of his mouth were, literally (and I mean literally), “I’m looking for Monty Hall.” I knew exactly what he was talking about. With a friendly grin on my face, I replied, “You just found him.” A few minutes later, he paid me $1000 and walked out with a new premium mattress set. He was happy and so was I. We call that a win-win. (For the now confused reader, Monty Hall was the former host of the TV show “Let’s Make a Deal”).
One other point about the customer before we continue; when the customer wants to negotiate, that is a buying signal. In the episode detailed in the last paragraph, I knew immediately, from his opening greeting, that I had a buyer on my hands.
Well, I hope this little discussion has given you some idea of what the “up” may be thinking when they walk in.
“Does your store have a negotiation process, policy or methodology? For example, what is the minimum profit margin that store management will accept on a deal?”
The Retail Sales Associate
Before we get into actual techniques of negotiation, let us not forget to follow the advice of Mr. John F. Lawhon, and perform our job correctly. If the RSA thoroughly executes the sales process (Meet and Greet, Qualify and Educate, Select and Present the preferred product, and Close), then there is a much higher likelihood of “writing it up” with minimal negotiation.
How much does it cost? Closing most retail sales deals usually boils down to “the price.” No matter how well you greet, qualify, select, present; as one of my former colleagues once exclaimed in frustration, “It always comes down to price!”
It doesn’t always come down to price, but it does a lot; in fact, much of the time. But, on the other hand, as Peter Marino correctly observed in his book, “The Golden Rules of Selling Bedding”, “If all you have going for you is price, there is somebody out there who will beat it.” So, price is only part of the formula for sales success.
Your Store’s Policy
If your store does not employ a “Tagged Price Only” policy, then it is fair to suggest that the store might be willing to be flexible on price and terms. If so, does your store have a negotiation process, policy or methodology? For example, what is the minimum profit margin that store management will accept on a deal? Will your store make exceptions and approve a deal that falls below a certain profit margin, if other favorable considerations are present in the transaction? Does your store have any price policy at all? Does the sales manager or RSA just “wing it” on every sale?
I once worked for a mattress chain that had a very clearly defined, printed price ladder for every SKU and the corresponding commission that would be earned at each rung (price) on the ladder. The RSA knew exactly how much he could drop the price and how much commission he would earn (or lose) with each price drop.
Whatever policy your store uses, the RSA must have a clear understanding of how and when he uses it.
“The biggest problem
with the policy of price flexibility is the tendency of RSAs and sales
managers too, for that matter, to drop the price too quickly.”
The Art of Negotiating
Some stores make an art (of sorts) of negotiating the price or sale. A good example was represented by the chain of stores mentioned above with the price/commission schedule. This chain also trained all its personnel in the effective usage of their system. I will incorporate some (but not all) of their techniques in the following discourse. Of course, that was years ago. I’ve observed a great many other tools and techniques in the ensuing years.
So, where do we start? How do we set a tagged retail price to begin with? Most retail stores have a formula for establishing prices on their products. The formula usually goes like this. Cost of the product (from the manufacturer or distributor) plus any cost of shipping; multiplied by two equals the retail price on the sales tag attached to the product. [(Cost + Shipping) X 2 = The Price]. Readers with long experience in our business will recognize this as the “keystone” price. There is no law that mandates where a store sets its prices, but keystone is the usual practice. I have observed, however, retail stores that actively pursue “Monty Hall practices” will often set their “tagged” price several points higher than keystone. Why do they do this and how do they get away with it? First, they tag their merchandise higher so that they have more room to drop the price and still maintain their desired profit margins. Secondly, how do they get away with it? The simple fact is that the wholesale cost of many mattress sets is very hard to figure out, even for a buying professional. As a professional buyer for over 15 years, even I frequently have a hard time guessing within 10 to 15 percent, the wholesale price of a new product introduction. There are so many various comfort levels, fabrics, coil units, padding types and thicknesses, etc., that can be built into a product. These materials can be manipulated for marketing purposes; so perceived value is even higher. All these variables in each product make determining actual value a mystery that is not easily discerned even by professional buyers. So, if you think it’s hard for old pros, think how hard it is for occasional retail buyers.
First, Build Value
“You will be on much
firmer ground in your negotiations if you know what the customer has already seen before
seeing you, either online
or at another store.”
Even though this is an essay on negotiating, which usually means dropping the price, it is important to remember that you and your store still want to get the highest price and the best margin you possibly can. To do this, you must first build value in your product. Always remember, your product is a “good value for the money” even at the tagged price. Building value in your product occurs primarily in the Presentation step, and as we remember from past articles in this series, we don’t execute the Presentation step until the customer is “landed on the bed". Landed means the customer has selected one particular model that s/he likes the best.)That means we don’t present or negotiate every bed on the floor; just the one the customer likes the best. The RSA should always try to sell at the tagged price, and you do this by building value in the product.
Price Drops by Another Name
It is usually more economical to give away incentive items than part of your price. These incentive items include; (1) free pillow/s (2) free mattress protector (3) free delivery, or discounted delivery (4) free disposal of old mattress (5) free bed frame, and so on. These incentive items have a greater perceived value than their actual cost. This is why it is a good idea, when making your presentation, to also present the value of the items that you may be giving away as part of your total package deal. For example, a $79 mattress protector might have an actual cost of only $29, so you have added $79 of value to your deal, and it only cost you $29. It is a fairly simple idea, I’ll admit, but used consistently, it will increase sales and profit margins at the same time.
In other words, don’t rush to drop the price. The longer you wait to give away your money, the better it will look to the customer. I have observed that the biggest problem with the policy of price flexibility is the tendency of RSAs and sales managers too, for that matter, to drop the price too quickly. They know they can, so they will, to save time, trouble and probably sacrifice some commission, as well. Many RSAs also come to believe that if they can sell a bed for $899 that is tagged at $999, then the bed must be worth only $899. They often will go straight to that price without explaining why they dropped. Please, don’t make that mistake.
have a greater perceived value than their actual cost.
This is why it is a good idea to present the value of the items
that you may be giving away as part of your total package deal.”
Sell the Drop!
When the sales associate, or sales manager, finally has to drop the price to make the sale, it is vitally important to give a good, believable reason for the price drop. Don’t be like the guy in the last paragraph who thinks the tagged $999 bed is only worth $899. The store determines the price and the value they expect to receive. That is why they go to the expense of printing up those laminated tags with the price engraved. If you are allowed the luxury of offering a better price to secure the sale, consider it a privilege that should only be invoked when absolutely necessary.
Also, don’t waste a price drop until you think it has a reasonable chance of succeeding. I like to see the offer of a price drop preceded by (1) the reason for the drop, and (2) the statement, “If I could get you a better price (based on the drop reason), would you go ahead with this right now?” Here is an example:
RSA; “Ma’am, we had a fabric change on this particular bed (that you really like) a few weeks ago, and I think we may still have a couple of those models in stock and still in their original bags. If I could give you a better price on one of these beds, which are exactly the same except for the fabric change, would you go ahead with this right now?”
Customer: “What price are you talking about?”
At this point, the RSA should already know what it takes to close the deal, and speak accordingly.
You may be thinking, “What if we don’t have any fabric changes?” At this point, let me answer that it may not matter. While I don’t endorse any of the following practices, I do not denounce them either. Many skilled practitioners of the art of negotiating will use imaginary drop reasons as an excuse to drop the price. The point is to sell the drop. The REAL reason for the drop, as we all know, is that you and the store want to close the sale. But, not every RSA wants to present the price drop that way. Many prefer to find a reason that makes sense to the customer but protects the integrity of the store’s price structure. “We can’t sell all our $999 beds for $899, but we can in this case because of (the fabric change), and you just happened to get lucky today because of this particular (fabric change).”
There are a lot of drop reasons that sound very reasonable to customers. And, they may actually be true, in a lot of cases. Not just fabric changes; but also:
- Spec changes.
- Mismatched set.
- Floor model.
- Closeout model.
- Overstock clearance.
- Special unadvertised sale.
- Insignificant, almost undetectable flaw in the product.
There are many, many more.
Know Your Competition
“The REAL reason for the drop, as we all know, is that you and the store want to close the sale. But, not every RSA wants to present the price drop that way. Many prefer to find a reason that makes sense to the customer.”
You will be on much firmer ground in your negotiations if you know what the customer has already seen before seeing you, either on-line or at another store. One of the best qualifying questions I know, when approaching the negotiation part of the close is this: “Have you shopped anywhere else?” If they have shopped elsewhere, ask the question, “What was the best deal you have seen, so far?” “How does it compare with what I am showing you right now?” You really should know the answer to these questions before starting any kind of negotiation on price or terms. Who knows what your customer is thinking? Are you comparing apples to apples? A lot of these questions should have been asked and answered in the qualifying step of the sale. Interestingly, I have found that most customers, if the RSA has a good rapport, will answer these questions honestly. If the customer gives you that information, you should not lose the deal.
Keep a Positive Attitude
Negotiating with a customer, particularly an obstinate one, can become quite annoying to a sales associate. Bear in mind the customer is just doing what you are trying to do; which is to obtain the best deal for himself of herself.
Show respect to the customer’s desire to get the best deal. If the customer perceives to be the winner in the negotiation game, he or she will leave your store as a happy customer that is likely to recommend your store as a good place to get a good deal. Everybody wins in a fair, successful, completed sales process.
And, one more thing, looking back over my twenty plus years of selling retail, some of my happiest customers, and best repeat customers were people who left the store believing that they had just scored a great deal. To me, that means that customers can find satisfaction not only in ownership of their beautiful and comfortable new furniture and mattresses, but also emotional satisfaction in knowing that they really did get their money’s worth.
David Benbow, a twenty-three year veteran of the mattress and bedding industry, is owner of Mattress Retail Training Company. Dave’s company offers mattress retailers a full array of retail guidance; from small store management to training retail sales associates (RSAs.) Dave’s many years of hands-on experience as retail sales associate, store manager, sales manager/trainer and store owner of multiple stores in six different American metropolitan areas uniquely qualifies him as an expert in selling bedding at the retail level.
David is the author of the recently published book, “How to Win the Battle for Mattress Sales, the Bed Seller’s Manual”. This book is the first book to systematically present a complete, organized, but easily read and understood text book for mattress and bedding retail sales associates, beginner and experienced professional alike. It is a complete training course in one 292 page book. The book can be purchased on-line at http://www.bedsellersmanual.com.
He also offers hands-on training classes for retailers on a variety of subjects and issues as well as on-line classes that can be downloaded from the websites mentioned above.
David can be contacted via e-mail at firstname.lastname@example.org or in person at 361-648-3775.