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Negotiating Lesson from the Streets of Shanghai
Posted By Jim On 09/18/2012 @ 7:15 am In Personal Finance | 9 Comments
A few weeks ago, I spent two+ weeks in Shanghai, China visiting family. When you go shopping anywhere outside the United States, especially in any type of open air market, capitalism is as strong there as any place in the United States. The government may be “Communist” but the markets are as free as can be.
Whenever we visit, we like to get tailor made shirts because they fit great and cost around $15 a piece. It’s a
great fantastic deal for a fitted shirt. The problem is that in order to get the $15 price, you need to negotiate a good deal. This isn’t haggling a few dollars off a purchase off some knick knack, this is capitalist hand to hand combat. The vendor won’t open a price with something reasonable, like $20, it’s usually $80 or some other absurd number ($80 is not that unreasonable for a tailor made shirt in the U.S.). To get a good price, you have to know how to play the game and play it well.
How do you know it’s negotiation war? There are no prices. Prices are almost never written down anywhere. You have to ask the owner and he (or she) tells you a number, you counter, and then you dance around a little until you arrive at what is generally accepted as a good price. If you’re educated, you get there quickly. If you’re not, you overpay.
Here are some lessons we learned from our recent trip:
This is easily the hardest thing to know because it’s not a tactic, it’s straight knowledge. Do you know how much a tailored shirt should cost in China? I only knew because we did this exercise five years ago. It cost us 100RMB five years ago and we negotiated it to 100RMB this year, though due to currency exchange rates the dollar price was higher today. We had insider knowledge because of my uncle, who was living in Shanghai, and he knew how much things should cost because he did this a lot for visiting friends and relatives. Prime example: you can get an iPhone charger (cord and detachable outlet plug) for around $2-3, though you’ll see people open a price at $10-15.
(as an aside, and this is kind of obvious, but know your conversion rates!)
Since no one writes down a price, since they’ll give higher prices to people they think are less knowledgeable and willing to pay higher prices, you need to constantly be asking. Even if you don’t plan on buying one right now, it’s good to know how much people are charging.
When you walk by a shop and see something you might want to buy, ask the owner for a price. They’ll give you the inflated one, you say it’s too much, they ask you how much you want to pay, and you say something you feel is absurdly low. They counter (maybe), you say no thanks. Next time you see that product, do the same thing. Eventually you find out an iPhone charger will cost you $2-3.
It sounds crazy but always counter with around 10% of whatever the seller says is the price. $100? Say $10. Unless the seller thinks you’re a sucker, the price is probably around 30% of what they said. This is just a very general rule of thumb and you’ll have to use your knowledge of the market price to guide you. If you aren’t sure, just ask a lot of sellers (so many people sell the same thing) until you get enough “final prices” (which you’ll know because you walk away) to discover the market price.
Negotiations don’t always end in a sale and walking away is the most powerful tool you have in your kit. When you walk away, 95% of the time they will chase after you to try to get the sale. The only times they don’t do this is when your offer is too far from what they’d take. If they say $500 and you say $5, with the true price around $150… they’ll let you walk. Then you know you were too low. You can always go back.
What works for Costco will work for any seller. They’ll take a smaller profit margin per item if you buy more. It let’s them go through inventory, keeps them busy, and makes them a higher total amount. If you arrive at a price for one, see how much lower they’ll go for two. I had five shirts made, my lovely wife had three shirts made, and my future brother in law had ten shirts made (this was in addition to six suits). We did volume and the guy cut us a good deal. (If you really want to go to the next level, negotiate the price for two items and then drop back down to one)
One of the hardest parts about negotiating is just getting over the social stigma of having to negotiate. When you walk into the Gap, you pay the retail price. You don’t haggle with the employee working the register (and they have limited means to help you) and so many people just aren’t used to it. If you can get over it, you can save yourself some money. If you can’t, well consider it a premium.
Another funny tidbit about Shanghai, and the rest of China, is that they joking call it a free country because you can basically do whatever you want. Driving is insane. The cities grew so quickly that cars outpaced the infrastructure and people drive like they’re insane. Being cut off is common. Running red lights is expected. If you go through an intersection with a green light, you need to slow down because someone on a moped (or in a bus) could be running that red light. That’s crazy.
Do you have any negotiating tips one can use in the chaos of street markets? (or anywhere else)
(Photo: kayone73 , of Shilin Night Market in Taiwan, we went there too but negotiation wasn’t as aggressive in Taiwan)
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