Chapter 9 - How to make a Deal

Negotiation Strategies to Make a Deal

Several years ago, I made a trip to Singapore. My perception of the city was that it was a giant shopping mall. The retailers there are hard working and diligent. They start a little later in the day than western retailers, as most shops don’t open till 10ish. They have an interesting superstition that they must make a sale to the first customer into their shop. That sets the pattern of good fortune for the day.

The most interesting thing about bargaining there was how they dealt with customers. They would always greet you and show you whatever you needed to see. Then they moved you expeditiously into the negotiation stage of how much of what at what price. They would haggle and when you made an offer, they would go to their calculator to see if the bottom line on the deal was a positive one and if it was positive enough to close the deal. By positive I mean that they made sure that they made a profit. Then they would come back with a yes or a counter offer that allowed them enough profit to make their efforts worthwhile.

In Mexico making a deal is a social thing and the haggling process is lengthy and punctuated with teasing, joking and heated discussion. In Italy and other Mediterranean countries, the making of a deal can start out in the morning and continue all day. You will break off your discussions and pick them up the next day. The western way would be to pick up the negotiations where you left off and move forward from there. Mediterranean negotiations restart from the very beginning and you do not necessarily get as far the second day as you did the first.

I liked Singapore because I found the retailers cut to the chase very quickly. If you were skilful they were willing to back off of their first price quite quickly. However, once they got to the point where their calculations told them that there was not enough profit and you did not seem like you were going to move your offer, they would just walk away to another part of their store and ignore you by fixing a display or filling shelves. They stayed within earshot so that if you reconsidered and offered them a deal that was worthwhile, they could respond to you immediately. If there were other customers in their store, they would quickly abandon you and move onto serving one of them. The attitude was quickly apparent that if you would not let them make money from their business interaction with you, why talk to you? After all, they are in business to make money. If the other prospective customer in their store would make a deal that was profitable why would he waste any more time on you, the one who wouldn’t allow him to make profit? Even if the store was otherwise empty, any retailer knows that a store can go from quiet to buzzing with customers in less than a minute. Shoppers can be like drunks passing a party. They just have to see some action and they are drawn to it. With this strategy, the Singapore retailer is ready when that happens and not tied up with a customer that has no intention of letting him make a profitable sale.

Research and Analysis

When making a deal, if you do not do your homework you are going to get your butt kicked. By getting your butt kicked I mean you are going to give away a lot of that 2-cent take home pay. If you are buying small items you may give away a few cents or a few dollars per item. The piggy bank example back in “Savings” shows that this adds up over a lifetime. When you are buying big-ticket items like your car or your house, you can get your pocket picked for thousands and thousands of dollars. You can end up working extra years to pay for your house and car(s).

There is some research to do every time you go shopping because every time you go shopping you are making a trade…A DEAL!! If you are buying, check for sales in the paper. Check the flyers. Check on line for better prices and sometimes better service. See if you can find better value in a used product. Talk to your friends to see where they go to save money. See if there is a way to structure a deal so that you avoid taxes. Know how you are going to pay for the product. Know the fair market price for what you want to buy. If there may be a need for follow up service, know if you will get good follow up service or make sure that the price you pay reflects that you will need to get follow up service elsewhere. The list can go on but you get the point. Know as much as you can so you will know what a reasonable price is for what you are buying.

Impulse buying should be taboo…that means do not engage in impulse buying. It means that you have not done any homework. If you see something that is on sale for a less than reasonable price, you must have done some homework to know that it is a less than reasonable price. At that point you must question why the item is on for a less than reasonable price and get a satisfactory answer. This is why you have short-term savings. This is one of the times that you use them. You will have not only done your homework to pay less for an item you really want but you then have the means to pay for it so that you capture all of the savings and don’t give any of those savings to a credit card company unless you have really factored in the financing cost as acceptable. Impulse buying is buying using emotion. Money works best when it is managed rationally. You will always pay a price for impulse buying.

If you are selling, you need to be like the Singaporean shopkeeper. You need to know all of your costs. You need to know all of your costs on a per item basis. You need to know if you are offering a cost saving convenience or service to your customers by the location of your store. You must know what the buyers’ other options are. Is your price in line with market price? For example, in the case of a used car you want to sell, what are your options to sell it and what are the costs and then what is the bottom line to each? How much time do you have to sell the item? After all you must get paid for your efforts. In the case of your house where so much money is at stake, you need to know market value of your house, who is a reliable agent if you are going to hire one, what the prime selling time of year is and where will you go afterwards.

In all cases you need to be aware of market conditions, banking conditions, economic decisions, weather conditions and political developments that may affect what you are doing. When you spend your food budget, the weather conditions thousands of miles away can affect what you pay for certain items. Produce items are cheaper in ripening season than they are in the off-season. For bigger ticket items, the first four conditions can greatly affect whether your deal turns out to be an okay deal, a good deal or a really good deal over time. The more you learn about how markets, banking, economics and politics work, the more you learn how they affect your decisions over time.

Goals

Different deals have different goals. Most deals are trading your money for goods and services or vice versa. There are investment deals. You make deals in other aspects of your life other than your finances but they affect your finances. People often get tangled into situations that are not very pleasant. It can be the purchase of a big ticket item that one cannot afford the monthly cash output on, or it can be in the form of an investment gone sour or on a more personal level, it can be a divorce. In all these cases you are forced to deal with a bad situation. If your cash output exceeds the income input, you are headed for bankruptcy unless you make deals to correct the situation. If you make a bad investment, do you wait for your investment fortunes to turn around or do you cut your losses? In the case of divorce, all you can do is minimize both the financial and the personal damage.

For the case of the big-ticket item, buying too much car is a great example. It is a path a lot of people go down. You buy a nice shiny new car. They gave you a nice deal and allowed you to fudge your finances to get the car loan. At the very least you are at the maximum amount you could have borrowed. Then something happens and your income decreases or your monthly costs increase. So you figure just sell the car and the equity in the car will help set things straight. However, you find that the car has been depreciating as fast as you have been paying it off. You find it is hard to sell and the dealer that sold it to you will not even give you what it is worth. Not only that, you are putting the monthly payment on one of those nice credit cards that were offered pre-approved. Holy Shit!!! You feel yourself being pulled into the spiral of death. What do you do now?

The saying goes, “The first loss is the best loss”. In this case the goal is to sell your car as quickly as possible. The goal is to stop the financial haemorrhage that it is causing. If you have some one who will buy it at a reasonable price, sell it. If not find someone who will buy it even if you lose some money. If you lose $1500 on the deal and your payment is $500 per month, you are even in 3 months without considering insurance and operating costs. Your monthly budget will be viable and you can start over again in 3 months.

In the case of an investment that is losing its value, the goal may be to recover as much value as you can while there is still some there. With the money that is left you can invest in a business or project that will increase the value of your investment instead of losing it.

In a bear stock market, the idea is to sell a stock while the price is high. People who win in this market are usually very knowledgeable and have analyzed that a particular stock is overvalued and its price must come down. When it does come down, they then buy the stock again. That way they own a higher percentage of the company with the same amount of money invested or they own the same percentage of the company with less money invested.

In the case of family disputes, people always have so much emotion on the line that money seems irrelevant. At this point it is really hard to appreciate that the assets left in an estate or that are accumulated in a marriage are not just a reflection of the positive achievements of a lifetime, but they were accumulated to help those involved cope with the future. To dwindle these assets through bad behaviour and litigation is an insult to your parents, your partner and your self.

You can expand this discussion to include anytime you have to get legal counsel involved, the goal is to minimize the damage. The person who built the assets has left this world or the love that joined two people together has left, or the business that had so much hope is unworkable. No one can move forward until a deal is made. The deals made in circumstances such as these may seem unfair when they are made. These situations eat cash flow, assets, your time and your emotions. If you are involved in such a situation, the time you spend is lost in 2 ways. You are almost always chasing a dwindling percentage of some assets you already had. If you engage in this exercise for too long, there will be no assets left. Secondly, you are not engaging in doing anything positive with that time so you lose whatever income or pleasure you may have created with that time. To just get such a negative situation behind you is worth giving up a lot in the short term.

To move on is like getting rid of the car loan that is destroying your budget resources. All that money, time and emotion can be returned to pursuing the enjoyment of what you have of your life and rising from the ashes of a bad experience. To illustrate what I mean, I feel that an example will paint the picture that is worth a thousand more words.

A man went to a lawyer because his partner was engaging in self-destructive behaviour that was taking down the business. He had offered to buy his partner out for 50 cents on the dollar, which he thought, was a more than fair offer. His partner countered with an offer to buy him out for 25 cents on the dollar. He was insulted and asked the lawyer what his legal options were. The lawyer counselled him that he could sue his partner and probably win 50 cents on the dollar but that it would take a few years. By that time his partner would probably have the business destroyed so he would get half of nothing. The lawyer counselled the man to take his partner’s offer and with his skill, good sense and hard work he would probably make more money in a positive milieu than thrashing through the courts recovering the crumbs of what he had had before. He followed his lawyer’s advice and settled. A few years later, the man had worked diligently and owned many successful businesses including the one that he had been bought out of. The old partner had destroyed the business and he picked it up for pennies on the dollar.

Skill and Talent

If you’re Dad is the owner of the local car dealership for example, you grow up always hearing about deals and how they were made. For some parents, it is what they know and what they do with their friends. Their friends are all dealmakers. It is natural that if that were the case for you, you would grow up learning, honing and perfecting the skill of deal making. So much of it is how you say things. Good deal makers know which face to put on for whom. The know when to be bold and tough. They know when to give that little bit to close the deal or when to hold out and let the other party give in to close the deal. Mentoring is very helpful, and opportunities to practice making deals are important.

Some people just seem to have a knack. There are naturals in deal making. These people are amazing to watch. They have a posture. They look people straight in the eye and make an offer that you think will be viewed as utterly outrageous but the person who the offer is directed at takes it. Some have a sixth sense as to where the absolute lowest price that a vendor will accept is. If you ask them how they knew that was it, they cannot tell you. They sensed it.

The one characteristic that I have noticed is common to all good dealmakers is that they are decisive. Like the Singaporean shop owner, they know where their bottom line is. They act on it if you make a good offer that accomplishes their goal. They walk away and wait for the next one if they do not get an offer that accomplishes their goal.

Experience

However, every one including you the reader of this book has to make deals. You have to everyday and you can’t bail out and say I am just no good at it. You have to get good at it or plan to work harder than you need to for the rest of you life. Remember, any time you are making a deal it is with your 2-cent take home income. Any time you cut a deal that saves you $1500; you are saving $3000 of your gross income. That can be half a month to a month’s pay.

Chuck Yeager was once asked, “What makes a good pilot?” His reply was “Experience.” The same is true about making deals fly. You can have talent and training but you must have and exercise the capacity to learn from experience to get really good at it. Life will give you ample opportunities. You need to do your homework. When you start negotiating you will find that you are more confident because you know when you are being treated fairly and are being offered a fair deal. This will lead to you being decisive because you know the deal you are making is good for you. You build your self-esteem by respecting yourself and properly spending your take home income. By making good deals you leave more of your take home income available for you to make even more good deals.

Summary…to make good deals you need to cultivate the skills. You can have the natural ability but you still need to do homework and then you need to practice by making good deals every day in all aspects of your life.