Practice the Fundamentals of Price Negotiation

An item at a garage sale catches your eye and you were able to take it home for a bargain price. You didn’t notice it but your process of haggling had the foundation for price negotiating.

In a business class I took, we had an exercise that simulated a negotiation where groups represented either a buyer or a seller. The sale of a used truck was up for negotiation and we were to learn the basics of negotiating a price.

Each group had to fill out a worksheet with their initial offer, target price, resistance point, and best alternative to a negotiated agreement.

• initial offer: This is the starting price each party intends to lead off with at the beginning of the negotiation.
• target price: This is the amount that the buyer hopes to pay and the amount that the seller hopes to get, realistically.
• resistance point: This represents the highest price the buyer is willing to pay and the lowest price the seller is willing to accept.
• best alternative to a negotiated agreement (BATNA): This is the backup option that each party has as a last resort – should they not agree upon a price.

The Scenario

Buyers: The buyers needs a truck to run a business. They saw an ad by the sellers for their truck and hopes to negotiate for a price that is better than the truck in a nearby town for $5,000, which is immediately available.

Sellers: The sellers have a truck that they have to get rid of. They have put an ad up for the truck so that they don’t have to settle for the $500 that the scrap metal shop will pay for it.

The only information known to both parties is that the truck has faded paint, worn tires and engine sounds. Neither party knows the other party’s BATNA but the parties may disclose it if they choose to do so.

The whole exercise was quite fun and educational. For many people, situations requiring negotiations is rare because they tend to avoid the confrontation. Even this simulation breathed fire into the students as each side were quite aggressive to get the best deal for themselves.

The fundamental terms above prepares the negotiator with a goal so that he/she does not succumb to an unfair agreement. The real-life application of this exercise will prove to be practical and beneficial should they stick to the basics of price negotiating – know what you want and get it.

Some points seen while negotiating:

• Look aggressive. Negotiating is a process that is constantly a tug-of-war and the side that appears dominant will use it as an advantage. An assertive attitude is essential to avoid being cheated in a deal. During the exercise, students were jumping off their seats and their volume was up there.
• Deceive within reason. In this case, lying during a price negotiation was a useful tactic. Some of the buyers revealed their BATNA but lied about the price of the truck so that the sellers would sell their truck at a price lower than that. On the other hand, sellers lied about how they had another potential buyer.
• Be creative. Because of the possible defects that came with the truck, sellers “offered” warranties or repairs without a price tag on them. Although it was not specified in the assignment, the professor welcomed any creative ideas during the negotiations.

You can simulate this exercise with your family and friends. All that is needed are a mediator, buyer(s), and seller(s). It is great practice for the real world and it will be a fun learning experience.

(Photo credit: CarbonNYC)

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