12/22/2023 0 Comments Shop heroes guide to bargain![]() When I teach competitive advantage or more advanced strategy topics, executives often ask how sellers can accurately assess buyers’ WTP. Taking time to talk through the reasons why we were prepared to pay a particular price for a product helped us to avoid being trapped by an “anchor” of a much higher price and revealing our true WTP. After looking at the prices that Ahmed wrote for these items on our way back in the car, we decided to come back the next day and ask for a much bigger discount. What could I have done differently to get a lower Russian price? I should have done what my wife decided to do: after also trying 15 plus different models, she took pictures of the items she liked the most and said she would come back tomorrow. At 600, my WTP was exactly equal to the price and the market cleared. Had my WTP been 1,000 euros, but the price were 600 euros, I would have saved 400 euros. If the coat’s price had been fixed at 800 euros and my WTP were 600, then I would not have bought it. After all, when I entered the store, Ahmed didn’t know if I was a well-off Russian, a poor Russian, or a Frenchman. His reply was that bargaining was a part of Middle Eastern culture and it “helps us to communicate with a customer and to understand him better.” Which is just another way of saying: I want to understand the customer’s WTP. ![]() In other words, Ahmed’s negotiation strategy had forced me to reveal my French willingness to pay.Īfter concluding the deal I asked Ahmed why he preferred bargaining to having fixed prices. In fact, despite my efforts to conceal my French residence and ability to pay a higher price than an average Russian, I had ended up paying a similar price to what I would have paid in France when buying quality leather coats on a reasonable sale. But my brain had gotten anchored at a much higher list price (1,800), plus I had been willing to pay 800 euros for a different one, so 600 euros looked like a great deal compared to these two reference points. ![]() Someone told me that in such stores, Russian tourists could buy coats for 400 euros. On the way back home, I reflected on the experience. Since my willingness to pay for the coat was already anchored at 800 euros (the price I was willing to pay to look a bit like a Matrix hero), I wrote down 600 euros and we shook hands. I liked that coat too and we went back to the bargaining table. He showed me a coat with a list price of 1,800 euros. But then my sensible wife stepped in and told me that I should not be paying even 800 euros for the leather coat before it was actually shortened, as there was no guarantee that the tailor would do a good job.Īhmed countered that he had a similar coat that was already shortened. Then he wrote down 1,000, I wrote down 700, and then he wrote down 800, which turned out to be the price I was willing to pay. It was too long for my taste, but Ahmed said that his tailor could reduce the length of the coat and we started bargaining over the price.Īhmed wrote down 1,500 euros, I wrote 500. After trying 15 plus different models, I realized that I loved a black coat that looked like the one worn by the characters in the film The Matrix, at a list price of 2,700 euros. When I asked for the price of the first coat that I tried on, Ahmed quoted about 2,000 euros but he also said that he would give me a good discount. But I wanted to pay a price a Russian tourist would pay (not one from Moscow, though, which is known to be a rich city), which I expected would be less than the price a French tourist would end up paying. I was not being dishonest, I was born in Russia, we speak Russian at home, but now we live in France. He told me that his family had run shops for centuries.Ī fluent Russian speaker, he asked us where we were from, and I replied that we were from Russia, but not from Moscow. Ahmed, the seller, was a sturdy 50-year-old Turk with penetrating brown eyes. When on vacation, my wife and I came to a leather coats store and spent two hours trying different coats. My recent experience of shopping for a quality leather coat in a Middle Eastern mall shows one powerful way to discover a buyer’s WTP. The more accurate your estimate, the more likely you are to sell or the less money you’ll leave on the table for the customer. If you are selling something, you must often wonder how to determine your buyers’ willingness to pay (WTP), especially when you have many different kinds of customers.
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