Seemingly everyday and mundane things sometimes end up being a good business lesson. I am back in India after some travel. Yesterday I had to get some kids photos printed in order to give our friends who are moving to Singapore. It was late in the evening when I stopped by one of the small photo printing outlets that is inconspicuously located at the back of a general store. Below is my conversation with the “PhotoGuy” which took place in Hindi and which I narrated to the family once I got home. It may seem like I am negotiating a very small amount (less than $1), which my wife pointed out to me, but it is not about the amount as hopefully will be clear from the dialog.
Me: I need to get two photos from this USB printed.
PhotoGuy: Ok, it will cost Rs. 50 for each, so Rs. 100 total. (take Rs. 50 = 1 USD)
Me: Really? That sounds very high.
PhotoGuy: Well, normally it would be Rs. 60 per photo, but I am discounting it to Rs. 50 for you.
Me: Why is it so high?
PhotoGuy: If you can wait until tomorrow, it will only cost you Rs. 10 per photo.
Me: Then why so high right now? You are charging me 5x the price of tomorrow.
PhotoGuy: I have to charge you for the paper and the ink.
Me: But the paper and ink will cost the same tomorrow isn’t it?
PhotoGuy: No. Right now, I will print on a local photo printer which has a costlier paper and cartridge. Tomorrow I will print on a bigger printer, for which I get the paper and ink in bulk, so my cost to print is much less tomorrow. (He is in business so he knows his variable costs).
Me: Ok understood. And you can’t start that machine right now for this small job.
Me: Ok, so I understand that I will need to pay more than Rs. 10, but Rs. 50 is too much for one photo. Tell me something more reasonable.
PhotoGuy: You tell me what you think is reasonable.
Me: I think Rs. 50 for both photos is reasonable. It is more than twice the price of tomorrow.
PhotoGuy: Can’t do it.
Me: So how much? Ok lets split it, say Rs. 75 for both.
PhotoGuy: Rs. 80
Me: Ok do it.
At this point, I still thought I was paying more but I needed to get those photos printed so I didn’t have much choice. Once he printed the photos, I gave him Rs. 100 and he gave me the change back.
Me: Wait a minute, you gave me Rs. 30 back instead of Rs. 20.
PhotoGuy: I know, its ok 😉
So I ended up paying Rs. 35 per photo, 250% more than the next day’s price instead of 400%. Perhaps I still overpaid, but I thought it was a worthwhile premium to pay for the value I perceived from his services at that specific time. As I walked back home, I reflected on what just happened:
1. What worked for me to some extent is that I tried to understand the reasons for his position. There is always a reason. I understood his situation of higher costs to print then vs the next day and was willing to pay a premium for that.
2. This seemingly innocuous transaction ended up being a negotiation because our general conversation ended up being some level of relationship building, such that he gave me a further discount at the end even though he didn’t have to.
I came home and narrated this to the family.
Wife: So we spend about Rs. 1000 in one evening ordering pizza and negotiate for 10 rupees?
Me: No. It’s not a matter of negotiating for an amount, you have to negotiate against a premium if possible, no matter what the amount, and especially when it is a ridiculous premium compared to the value.
We don’t always have a way to quantify the value we perceive from the goods and services we purchase, because often times a lot of value tends to be subjective in nature. I had to have the photos printed at that time. But somewhere our defense mechanism props up when we are quoted a ridiculous price and the tradeoff between value perception and price happens in a very subconscious manner. We may not be in a position to negotiate the price of pizza with the delivery boy, and I didn’t think I would be able to negotiate with the photo guy either or even decide that I was going to negotiate with him, but the conversation ended up going there. It was a good lesson.