Negotiating Tactics from the streets of Hong Kong
Hong Kong has been a trading hub for hundreds of years.
I love walking along the street markets just off Nathan Road. In the street markets all across the Asian continent you can observe some key business principles at play in an open market place. There are two principles which stand out;
- There is no relationship between what someone is willing to pay for a product or service and what it costs to the seller.
Often many jump to the conclusion prices need to be cost plus a particular margin or mark up. However that conclusion is fundamentally not correct in an open market. What someone is will to pay for a product service has no relationship with the cost.
The price someone is willing to pay has more to do with the particular circumstances of the transaction. It’s about how a buyer views a product in that particular moment of time while negotiating that determines the price.
An example is when I arrived here in Hong Kong from America. I arrived early in the morning and was waiting for other people to arriving later in the day. I had a whole day to kill. I went to the local airport hotel and ask if I could have a dayroom where I could have shower and catch up on sleep.
The concierge wanted $400 dollars for a room. Before I left Australia a week earlier I looked at the prices on the internet, I saw that a price for a day room was about $100 dollars. But because I wasn’t sure about my travel plans, I didn’t book. The price offered on short notice was four times the price I was willing to pay. Clearly was not going to buy as I could work out the next best alternative.
However there are plenty of people out there who will pay the $400 dollars and the hotel knows that. The hotel knows people will arrive in a circumstance or situation where they have not planned and are willing to pay the premium for the comfort. Because of the scarcity of rooms available, the hotel is willing to hold back and wait for willing buyer at $400. Now the cost of delivering that service has nothing to do with the $400 price tag. Ultimately the hotel would have made a profit if they sold the room for $100, however the cost is irrelevant, the circumstance of the buyer determines the value.
- You must understand what you are buying, in particular do you have a reference point for making a decision.
We are in the open market place every day. Whether you are buying a new website, buying marketing assistance, a new employee (!), a new business, any service or product to meet your day-to-day needs. It is universal that you must understand what you are buying. Firstly you must have a grasp of how to judge what you are buying however importantly the key is to know what your next best alternative is. Having in your hand on the next best alternative provides reference point for negotiating.
In any buying situation if you don’t know what your next best alternative is, then you are at a high risk of paying over the market rate for a product or service. Alarm bells should be ringing in your head that you are in a poor negotiating position.
What an enterprise should have in hand before buying anything in an open marketplace is an understanding of the alternatives and a grasp of how to judge what is presented. If you have the two factors ticked, you are in a much stronger position to negotiate with the seller.
It may seem like an obvious statement but as Brendon Burchard would say “common sense is not common practice”. To give you an example, to my horror many people buy entire businesses without knowing the industry they are buying into, let alone how to value a business. The crazy part is many never seek advice in an area they have no experience in, then spend their life’s savings! It’s space cadet stuff but people do it.
Negotiating tactics summary
To summarise, the principle at play when you sell your goods or services in an open market is that you must understand the circumstance of your buyer. You must remember that in an open market there is no relationship between what someone is willing to pay for something and what the cost is to the seller.
As a buyer in the open market you must have a grasp of how to judge what you are buying and know what your next best alternative is. If you apply these principles in every selling and buying situation you are more likely to get ahead.
There you have it, the fundamental principles in play all across Asian street markets.
The skills that are taught and honed in night market over hundreds of years are still very relevant in the modern business world.
Remember darkness is the first enemy of mankind so surround yourself with people who enlighten your world.
From Hong Kong bye for now!