Confronting our Agoraphobia, Part III: The Long Road Back

(This is part 3 of a series that started with Confronting Agoraphobia, Part I: Carefully Taught and Confronting our Agoraphobia Part II: The Bad Guys are Winning.)

Where We’ve Been

Over the past two entries in this series we’ve reviewed how bargaining has gone from common to rare, and how shopping in America has become a passive experience. We’ve discussed how the evolution of marketing and discounting have consolidated the power of pricing entirely in the hands of the manufacturers. We’ve discussed the potential gain from choosing to haggle – a peak negotiator saved $2500 in a year. That means an average negotiator could save about $1500. What we haven’t discussed is how to work our way back to an even distribution of power.

Let me expand on that number a bit. $1500 saved per person, per year. 206 million adults in the United States, give or take a hundred thousand or so.[1] Roughly 10% of them are incarcerated.[2] If the rest of them saved $1500 per year, that would total $278.2 Billion saved. Annually. (That’s about 2x the annual revenue of Wal-Mart as reported to the NYSE,[3] or, sadly, just 1.7% of the national debt at this moment.[4])

Let’s have one more quote to get things moving forward:

“A recent Consumer Reports survey showed only 28 percent of Americans haggle over prices. A separate report from market research firm BIGresearch found 45.1 percent of adults haggle for things other than cars and homes.

However, the Consumer Reports survey found that consumers who haggle succeed as often as 83 percent of the time in landing a better bargain.”

— Yuki Noguchi, “Haggling picks up steam during recession,” NPR.org, August 2009.

 

Why Push the River?

Despite the obvious financial savings, there are undoubtedly some who are wondering why we should push back against a 150-plus year trend. Four main arguments against it come to mind.

1. If more people ask for a discount, prices will rise.

There are some studies which have determined that haggling becomes less effective when there’s either a list price to cap the potential bargain limits.[5]  Demand affects supply. Sellers are not static creatures. They will respond to a shift in market zeitgeist. If a vendor learns that most of his customers want to haggle, she will certainly start setting her prices higher from the start.

Could discounts be this year’s must-have item? Don’t I just wish…

However, if we’re in a situation where only a quarter of the population asks for a discount we’ve got a ways to go before it becomes the norm. When we look at the gender imbalance of haggling – women do it at 1/4 of the frequency of men – it follows that certain sectors of the market stand to endure far more negotiation over price than they currently receive.[6] And really, if the reason for an uptick in sales prices was due to a sudden majority shift towards asking for discounts I would be pleased as punch. Customers who are actively participating in their purchases are far more likely to pay attention across the board. Things like carbon footprints, import costs, manufacturing quality and smaller competing vendors become more obvious. I’d say that if bargaining came back on a large scale we stand to gain more as a nation than we do from continued buyer apathy.

2. Bargaining may save money but it takes time.

This is undoubtedly true. As products have diversified and multiplied, it takes even more time than it used to for a consumer to learn the market and make an informed purchase.  The tradeoff on proper bargaining is money saved for time spent doing research. When you’re earning $200 per hour, you’re not saving anything by spending an hour of research to get a $50 discount.

However, I would argue that it’s the lowest earning workers who need to learn to haggle the most. The concerns of the $200 per hour folk are not my intended audience. They are more likely to be the ones who have been systematically removing all of the average shopper’s bargaining chips and dissuading them from reasserting themselves in the price department.

Active shopping, while it increases your participation level in your purchasing, does not mean that you haggle at every turn, although some will do so. It means that you think before you buy, do some research, and assert your equal role in the transaction. We will all have our thresholds. If we will lose more in time spent searching for the cheapest toilet paper than we will save in hard currency by using a coupon, then by all means use the coupon. But weigh the options first before you decide one way or the other, and be aware of who benefits more from the coupon usage – you, the store, or the manufacturer.

3. Bargaining hurts businesses, especially small businesses.

“First, Groupon will demand your deal be at least 50% off the regular price. Next, you have to pay Groupon 50% of the purchase price (unless your offer is less than $10 in which case Groupon keeps 100% of the revenue). So if you agree to sell a $100 Groupon for $50 after paying Groupon $25 you will have just $25 to pay wages, and overhead.”

–Seth Gardenswartz, Spaboom blog, “The Real Cost of Doing A Groupon“, September 24, 2010.

Discounts hurt profits. Yes. When dealing with a small business a discount could mean the difference between survival and layoffs, layoffs and closing for good. Part of learning to shop more actively is understanding when to ask for a discount and what the alternatives are. After all, this is negotiation – conversation – not robbery.

I did some data mining from Zoominfo, the Census bureau, the Small Business Association and the financial charts at Ycharts.com. A certain Chicago indie bookshop operates on a 4% profit margin and takes in about $33,333 per month. This means that their approximate profit per month is only $1333.33.

Meanwhile, Home Depot is currently showing a 5.81% profit margin and a monthly revenue of $17.81 billion. This means that it can stand to lose another billion dollars per month and still break even.

Approximate monthly profits of a few major corporations based on their published financial data. I’d say these guys can stand to lose a little to haggling. (Click for full size.)

Do both stores want your repeat business? Definitely. Will they go out of their way to keep you as a customer? Certainly. Should you let the bookshop slide on your negotiation? Absolutely not. Still think before you buy, and make sure your cost is equal to the value of the book. But use the awareness to mitigate your bargaining. Know that wholesalers sell to retail bookshops at 60% of cover price. If they’re running a Groupon, know what they’ve gotten into and ask for a gentler deal that doesn’t ravage their overhead quite so horribly. Be aware of why the owner would allow the discount – he wants the repeat business. Give it to him … and then do your part and tell all of your friends. There’s a local cafe that frequently lets me try out a freebie that they’re considering for the menu when I stop in. They’ve given me the student discount multiple times. You’d better believe I’ve 5-star Yelped the heck out of them.

Another tidbit to consider – the “no haggle” internet and fleet departments of car dealerships are frequently profit-leaders of their respective venues.[7] If the seller is setting the price without any challenge, of course they are going to do so in their favor.

Negotiation, if done with the goal of establishing the actual value of the product, and if practiced with compassion, harms no one. Seller-based pricing with no input from the consumer has the potential to waste a whole lot of cash.

4. Asking for a bargain is embarrassing.

There’s a certain level of pride in Americans due to their position as a global superpower. I think there is also a culture of generosity and ostentation that permeates our society. In a country where everyone has the potential (in theory) to become wealthy and entertainment is a primary export, keeping a facade of wealth carries a certain importance. Combine this yang with its yin of easy acquisition of goods at a relatively low price, and there’s very little incentive to haggle. There’s a shame that comes with asking for a discount, as if it implies that we are destitute or stingy. It sets us apart from our peers, removes our anonymity and probably annoys the clerks.

This is NOT my receipt. I repeat, NOT mine…

I would point out that there’s many other potentially embarrassing things we do in stores. I have had countless instances of hoping nobody in the checkout lane thinks I intend to use all of the items in my basket for one solitary, perverse purpose. We try on all different sizes of clothing in public to find one that fits. We present our media purchases to the clerks for their intense scrutiny of our tastes. I’d say that compared to some of these behaviors, engaging in an ages old ritual that empowers the shopper is no big deal. Especially since at least 1/4 of the population haggles anyhow – some of them for every single purchase. You are probably not the first person to ask for a discount. You will not be the last. And maybe that sales clerk is perfectly happy to stick it to their employer a little bit.

Oh, and for you retail workers who love your job, look at it this way: you are not always working. You buy things too. By listening and learning from your customers while on the clock, you may learn new techniques that you in turn can use when it’s your turn on the other side of the register. As for the business owners out there, learning a little negotiation might help you to avoid getting into a Groupon you can’t handle.

The Slow Route Back

As a culture we need more practice at negotiation. It started as a conversation between buyer and seller, and needs to get back to hose origins. In this era of anonymity, digital trading and centralized distribution it can be difficult to bring any of our old tools to bear. If we do not start trying now, though, the consolidation of wealth only stands to get more compacted. We must regain our voice as consumers even if we do so slowly. Where to begin, though?

Back in 2008 there was a flurry of articles about “Neo-Haggling.”[8][9] Breathless pundits heralded the success of online ventures like Priceline and the willingess of big box vendors to haggle over pricing as a new trend towards the buyer’s return as an equal partner in the commerce game. However, Google Insights indicates that “neo-haggling” never gained much impact as a term. Apple’s astronomical 30% net profit margins despite their refusal to haggle at all, combined with the success of “Buy it Now” on eBay indicate that the trend was short-lived despite the recession. I think consumers are too afraid to reveal that they’ve been hurt by the economic downturn. They pretend that everything is normal and buy big-ticket items while hemorrhaging cash. Alternately they stay home from stores altogether instead of challenging vendors on price.

… although my receipt from the farmers market might include organic cucumbers, extra virgin olive oil and a bottle of wine.

There are places we can practice negotiation, learn proactive shopping habits and maybe regain a little confidence. Farmer’s markets are one major opportunity. The outdoor market, long a staple of European commerce, never really caught on in the US until the past two decades. When the USDA started tracking and promoting American farmers markets in the early 1990s, there were fewer than 2000 markets in operation in the country. The numbers have now quadrupled, and along with them has come greater interest in the distance food travels, the quality of the food and increased concern for the American small family farm. Would America have become aware of pink slime and battery chicken farming without this direct access to the farmers who make their food? I can’t say that the greater knowledge is directly related to the increased access, but I’d not be surprised in the slightest if the graphs lined up.

The internet offers opportunities for even the shyest folk to practice their haggling. Look to Craigslist, Ebay, and Etsy – all sites that allow direct contact with the seller – with the assistance of Firefox/Chrome plugin Invisible Hand. Take the opportunity to have a dialogue with a seller with the nice anonymous veil of email to shield you from excessive scrutiny. You don’t have to buy from them, but it’s definitely worth taking some time to practice and have the dialogue before you spend a lot of cash elsewhere.

Asking for add-ons that improve a product’s usefulness is another way to slide into haggling. When I’m working on an apartment deal it’s sometimes easier to ask a landlord to put in the dishwasher or add a door to the bedroom closet than it is to find another apartment that satisfies all the criteria simultaneously, or to get a discount on the rent. One of my clients in a short term/furnished rental found the landlord’s standard furnishings too frumpy, so she took the unfurnished price and set up her own furniture rental deal with a more modern vendor.

Setting a goal or reason to save money can help you to remain dedicated to the task of bargaining. Talking about those goals can help to make us more human when trying to make a deal. “I am saving to start my own business.” “I have a very long commute to work and gas is expensive.” “I’m saving to buy a bigger house nearby before the baby arrives.” (All the better if it’s a goal that will eventually bring in more customers for a nice long time!) Be memorable, be kind to other shoppers and generally make the shopping experience more pleasant – a reputation for having cool clientele is part of what elevates a store from good to great, and vendors know it.

Even slowing the pace of our purchasing enough to think it through is a step in the right direction. Carry a calculator to help figure out unit prices if you’re confused by percentages. Don’t let the fear of obsolescence pressure you into buying more technology than you need. Consider the two-week Ipad test or figuring out your personal Starbucks before you make another passive purchase.

Wednesday I will wrap up the series with a new rulebook for shopping that may help us to regain some of our clout as consumers. I’d love to hear your thoughts as to what you think should be included. Let me know in the comments?

 

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  1. [1]Wolfram alpha: What is the adult population of North America, July 2012.
  2. [2]NY Times: Adam Liptak, “1 in 100 U.S. Adults Behind Bars, New Study Says,” Feb 2008.
  3. [3]Ycharts: Wal-Mart Stores Revenue (WMT) as of July, 2012
  4. [4]US National Debt Clock, July 2012
  5. [5]John Thanassolis, David Gill, “The Impact of Bargaining on Markets with Price Takers: Too Many Bargainers Spoil the Broth,” European Economic Review, Vol 53, Issue 6, August 2009, pp 658-674
  6. [6]Amy Reiter, Salon.com, “How I learned to haggle,” April 2009.
  7. [7]Hoopdi.com, “Car Dealer Secrets“, October 2010
  8. [8]Matt Richtel, “Even at Megastores, Hagglers Find No Price Is Set in Stone,” NY Times, March 2008.
  9. [9]Elana Centor, “Shopping Trends in the New Economy: Neo-Haggling and Layaway,” Blogher.com, October 2008.
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