Confronting our Agoraphobia, Part II: the Bad Guys are Winning
This is part II of a series that started with Confronting Agoraphobia, Part I: Carefully Taught.
My folks have a good friend - we'll call him Doug - who's learned a thing or two about saving money. A wunderkind who made an early fortune in the evolution of microloans, he knows that small amounts add up. He's also learned that to most businesses any sale is better than no sale. Doug haggles for everything. He will walk to the counter at Wal-mart with a $25 pack of t-shirts, toss it on the belt, and tell the clerk "I'll give you $15." He renovates kitchens for a living. He will go to furniture stores and open with a bid at 50% of list price.
You'd be amazed at how often he gets the discounts he requests.
Did you think you couldn't haggle at Wal-mart? Have you ever tried? If you haven't, you're probably not alone, and you aren't entirely to blame. It sounds like a fairy tale because you've been on the receiving end of a lengthy, multifaceted agenda to make you think bargaining is scary, difficult, time consuming and futile. Let's take a look at how outside forces, both intentionally and accidentally, have contributed to the decline of negotiation in commerce.
A Simple Conversation
Originally, shopping required haggling. Before the advent of standard symbols for value (like money), shopping meant trade and bartering. My two sheep for your cow, my bolts of fabric for your bread, use of my land for your defense thereof. As I explained on Monday, even up until the 1840s shopping still involved some amount of conversation, even though money had come into the picture centuries earlier.
The shopper would browse and note prices of presented items. They would discuss the comparative merits of the items they wished to buy with the seller. The buyer's goal was to minimize their cost, while the seller's goal was to maximize their profit. The time spent on the negotiation was decently balanced. No drastic research was needed on the part of the buyer to hold their own. Products had not yet become so diversified as to require specialized knowledge in an open air market.
Products in the pre-industrial era were rarely mass-produced. Each item was unique, even if ready-made, so a thorough review was required for any purchase. There was no guarantee that your apron would be the same quality as that of your neighbor, even if they were purchased from the same vendor. The presence of the vendor in these conversations was critical, and their reputation as a maker was part of the whole deal.
The overall result was that for the most part, each person developed skill in both buying and selling, and in determining the value of an item via compromise.
Gutting the Buyer's Arsenal
The buyer could historically depend on a handful of customs.
- The seller and the maker of a product were separated by only a few degrees, if any at all.
- The item in question had value to the seller.
- The seller expected negotiation.
- Additional options would be available for comparison.
- They would have sufficient time to contemplate their purchase.
- They would have the ability to customize the product to their liking.
Let's review how sellers have systematically removed each one of these fallbacks.
Distributors and retailers
As more people separate you and the maker of a product, cost goes up and distance increases between you and those who can sell for a simple break-even point. Certain legislation now prohibits consumers from purchasing at wholesale prices - this is more due to tax law but one must question the interests of those who created the tax laws in the first place.
When a seller goes to sell their home, they will probably consult with multiple agents. In most cases we can all sing and dance as much as we want, but the listing will go to the agent who claims to be able to obtain the highest price. Likewise, when a manufacturer looks to sell a product, he or she will trust those intermediaries who counsel them towards the greatest profit margins.
Distance makes it far more difficult for the buyer to judge the quality of the merchandise, and therefore more difficult to strike a bargain that has any teeth. It also means that the lower limit achievable by negotiations creeps higher with every middleman involved.
When Coca Cola introduced coupons to the market in 1887, they upped the game for both sides. Firstly, they made it possible for a buyer to complete the bargaining phase before they even entered the store. Instead of having to research anything or haggle, they could simply present their chit for a free soda. The opt-in nature of coupons let the buyer still feel like they'd won something. However, the terms of the bargain were placed entirely in the hands of Coke. After all, the fine print on the bottom of every coupon is a binding contract and a statement of value. It's a legitimate bargain that is accepted by every consumer who clips and redeems a coupon.
Meanwhile, Coke changed the game on the other side by becoming a buyer and putting "new customers" on their shopping list. They sent free syrup to the drugstore owners who agreed to cooperate with their new coupon gimmick. That free syrup bought them new customers who were lured in to try Coke for the first time, and probably some new drugstores who were game to pair their fizzy water with free flavoring if it meant more bodies in the shop.
When a product has no value at all to the merchant in front of the customer, and the deal is struck before the customer enters the store, there is no opportunity to bargain over the matter.
Catalogs, supermarkets and the Internet Department
Coupons may have moved the bargaining to outside of the shops, but just a year later the great march began to remove conversation from shopping altogether. It started in 1888 with the Sears Roebuck catalog. While merchants had been placing caravan orders internationally for years, it had mostly been on a business-to-business level. With widespread consumer-level mail order available, the need and ability for buyer and seller to speak at all were nullified.
Once Sears made such a wide range of products available regardless of location and with increasingly consistent quality, there were very few reasons for a shopper to even venture into a local business. Only bespoke items like custom-made suits and custom portions of food were worth the outing.
Supermarkets came along in 1916 to start nipping at what was left of the buyer's active participation in shopping. No longer were you required to go to the counter and demand a particular size & cut of meat. You chose from a selection of pre-packaged, pre-wrapped portions assembled to suit the vast majority of the shoppers in the market that day. Negotiation was no longer expected. The ability of the buyer to discern a good cut from a bad one became less critical as all slices were ostensibly the same.
With food and perishables out of the game only big-ticket items remained for haggling, and many of them still are considered worth rolling up your sleeves and negotiating over. Houses, jewelry, high-end electronics, furs... "You can still haggle at Neiman-Marcus," says my mother, although you cannot do so at Macy's - they've released statements saying as much.
But even big-ticket items have recently seen new sales models which place the power to set a price entirely in the hands of the seller. The 1994 introduction of Saturn's no-haggle pricing over cars was undoubtedly a siren call for introverts everywhere, and it was certainly successful. Within five years nearly every major car dealership in America had created an "internet department" for online car sales with "no-haggle" pricing.
Art of the Deal, Art of War
By the end of the 1990's, opportunities to practice our negotiation skills as buyers had dwindled. The era of the internet with ample opportunities to regain our skills of research, inquiry and direct interaction with sellers was at hand. However, something had started about 10 years prior that had a drastic chilling effect on the adoption of the new medium to its fullest. In 1987, Donald Trump published NY Times Bestseller "Trump: the Art of the Deal," and suddenly negotiation was redefined as a tool exclusively for the very smart.
Suddenly negotiation self-help books were springing up faster than the public could possibly read them. The expert negotiator became equated with a strategic superhero who could talk you out of your merchandise and get you to throw in your own tie to boot before they were done. Executives started folding in Sun Tsu's "The Art of War" and studying chess to up their bargaining game.
All of this, of course, was an enormous psych-out played out on the American public. It doesn't take a genius to try and intimidate an opponent out of the battle before it starts. With his book, Trump neatly pulled this act on the entire world simultaneously. Unfortunately he also pushed a population that was already out of practice in negotiation to simply throw up their hands and cede any potential power they might have had to the upper class.
The saddest part of this whole scenario: as you earn more per hour and your time becomes more valuable, the time spent in haggling starts to rapidly outweigh the amount that you save in dollars spent. Rich folk like Trump may save millions on deals every day through their assorted strategies, but it's far more important for the average $50k per year worker to save even a couple of hundred bucks. By making the common person think that negotiation required special skills & training, experts like Trump moved us further away from simple conversations and further consolidated power in the hands of the sellers. This is a propaganda war that continues today.
Apple, Ebay & Woot: Buy this now before it's gone/obsolete.
By 1997 we'd pretty much lost all of our opportunities for bargaining directly with a seller, and we'd borne up valiantly under a ten-year onslaught of self-proclaimed experts telling us that bargaining was something better left to the grownups. But the average shopper still had a few remaining cards. Comparison shopping, of course, was a major one. The ability to walk between stores in a 1980's mall allowed the buyer to still strike a bargain by using their feet. But with the return of Steve Jobs to Apple, even comparison shopping was about to get 86'ed.
One of Jobs' first moves was to remove Apple products from all of the big box stores and start selling them only in two places: Apple stores and Apple.com. This removed pretty much any and all ability for a buyer to comparison-shop within the store. From that point forward Apple has also followed a pretty strict policy of no sales, no discounts, and no rebates. You can't comparison shop for Apple products between stores either, unless you're willing to dip into refurbished hardware or eBay.
Speaking of eBay, let's dwell on them for a moment. Originally eBay was hailed as the "Perfect Store," where buyers could directly dictate the price by their level of interest. It was a fully democratic system. However, in 2000 eBay introduced the Buy It Now option, and all of that changed. Buy It Now gained popularity almost instantly, growing to 31% of eBay's sales by 2004 and over 80% of its sales by 2011. The democratic system hadn't played out so well. Turns out buyers were more willing to have their products immediately for a bit of an extra fee than to play the game of bidding and bargaining. Of course, Buy It Now also introduced a new deadline to the eBay process. You couldn't take a moment to go comparison shop for better prices on other websites. It was only available for a restricted portion of the auction timeframe, meaning you had to decide to "Buy it Now," well... Now.
Finally Woot.com came along in 2004 to whip both of these factors - limited selection and limited time - into one big frothy mixture of buyer disenfranchisement. Woot offered one item per day until they ran out. The items were usually refurbished and frequently bordering on obsolete, but the business model was astonishingly successful.
Upgrade packages & UEFI: Controlling customization
I couldn't tell you who was the first person to invent trim packages, the four-door model and other similar variants, but I'm pretty sure they were a genius. After all, customization was the last remnant of the buyer's arsenal. If they couldn't find exactly what they wanted, they could buy something close and adapt it at home. Don't like the color? Paint it. Not enough storage? Add drawers. Does your daughter's doll not resemble her closely enough? Sew some new clothes and dye the hair until it matches.
Designated upgrade packages brought even customization into the exclusive control of the sellers. Of course you can have it in purple, but you also need to purchase the pinstriping, the chrome cabin trim and the larger hood ornament, none of which you really wanted. Of course we can add a few more drawers, and with that you get all new hinge and knob hardware. Of course we can make a Barbie doll that looks just like your daughter, complete with pony and Dream Kitchen (TM).
Microsoft has recently announced another step in the direction of limiting customization with their "SecureBoot" implementation of UEFI. Basically, computer hardware running SecureBoot will only boot up the digital security signature on the software matches the security signature on the hardware. This is theoretically to prevent people from installing pirated copies of Windows, but it will also prevent them from installing other operating systems like OSX (which I run quite fine on my home PC), Linux distributions, or Mozilla's nascent Firefox OS. The PC's last claim to fame has been its flexibility when it comes to choosing an operating system - our options are getting progressively more limited as time goes by.
What have we lost?
We've come very far from our simple conversation between a buyer and seller in an 18th century market. The buyer has been systematically neutralized and discouraged from attempting to regain any of the old-style clout. Power to dictate pricing has consolidated in the hands of the sellers only. As new business models evolve, we must consider if they do anything to encourage active participation from the buyer in this business of shopping.
About half of the population has a natural inclination towards negotiation, and the rest need some encouragement. It requires some extroversion although I do not want to see introverts using that as an excuse! Additionally, according to a 2009 Salon.com article, "Women initiate negotiations about a fourth as often as men do, and will frequently pay a great deal of money to avoid it; that 20 percent of women refuse to negotiate at all, even when they know it is in their favor."
However, despite all of the propaganda, there was an interesting statistic I found in a puff piece about a self-help guru who calls himself a "Negotiating Black Belt." Apparently at his peak of requesting discounts on every purchase he was saving about $2500 per year. That's a pretty decent incentive for returning negotation to a more prominent place in our skill set. This guy is an extremist but even $1500 extra per year would be pretty sweet, wouldn't you agree? Besides, with the power to set pricing comes the power to collect those prices. If we want to see a readjustment in the 1%/99% division of wealth, consumers must make a point to start actively participating in their shopping on a far more frequent basis.
Next Monday we'll be looking at ways to reconstruct our negotiation skills, increase our instances of asking for discounts, and learn to tell the difference between a real opportunity for the buyer to participate and a seller-centered scam in the clothing of a bargain.