(Based on a trueish story)
Imagine the scene.
You decide to get your whole house repainted.
You invite four local firms to come to your home and give you a quote. After they have looked around you sit each of them in a separate room and ask them for their best price.
Each of them has the same brief and need to cover materials as well as labor. They all have two weeks to complete the job.
You ask them to write the price down, and you go to each room to collect their submission.
Having done so, you chose the lowest price, and then go into each room and ask each firm to match a price 10% below that number. If they can’t, you thank them and ask them to leave.
Two of the firms tell you no. One of them in a very fruity way. (Shame really because one of the losers had worked on a neighbor's house and had done a great job, cleaning up each night, and coming back to touch up a scratch caused when their son moved his pool table into the hall, for free).
Two are left.
Each say they can hit the price.
You say to the remaining two. Now you need to give me a better price, sharpen your pencil, and give me another offer.
One asks will that win the business. You honestly say 'maybe' and walk out.
Both come up with a price. One sticks at the 10% reduction. The other gives you another 5% off that price.
You award the business to the lowest price.
During the work, the firm that you selected suggest the materials you requested in the quote, would not be viable in the bathrooms and kitchen. They offer to include the new paint at a higher price, and with new labor rates to cover the complexity and number of coats needed to apply.
They then tell you on the Friday night that they had not quoted for clearing up at the weekend. So, they would leave all the stuff out, unless of course you paid overtime.
You reluctantly agree, you don’t fancy stepping round paint tins all weekend, or having to redo the kitchen next year.
Four weeks after they have finished, you notice that the lounge is already looking shabby. You call the decorator; they say the paper you selected needed to be lined which they didn’t do in order to hit the price and deadline you imposed. They offer to get one of their competitors to give you a call to get it redone. Ironically it was one of the firms that walked out after the first round of price pressure in the four rooms.
Is there a moral to this tale?
Many to be honest. The first is that be careful what you wish for. If you are genuinely using price to select who you work with, be careful that you do not destroy any potential relationship, or find yourself working with people who do whatever they can to get you back, and make money in other creative ways. Purely transactional relationships are pretty rare really.
If you are tempted to enter these “auction” style scenarios, make sure you do not give everything away in the first, second or maybe third round. Perhaps the other side will still want another bite at the cherry.
Moreover, recognize, that maybe you should walk away early to fight another day. You will not be able to win every opportunity that comes your way. Unless you have a strategic reason for the volume, profit and margin should be the barometer. Topline for vanity, profit for sanity.
By the way, none of the above is a negotiation. It is a series of positional plays.
Negotiation requires us to create value, not just argue over who takes it all.
The best negotiations leave all parties prepared to put the deal into practice. Otherwise, one of you might take a pasting.
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