101 Pricing and Negotiation

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.

PhotoGuy: Correct.

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.

6 thoughts on “101 Pricing and Negotiation

  1. Nice narration and a valuable lesson…Customers value perception can be altered based on the need. Agree that the photo print guy skimmed you, but he had options for you to wait until the next day to get it at a price point that made value sense to you. Ultimately, he did try to delight with a larger discount (30% versus 25% that you originally negotiated with him).

    Is it fair enough to say that the value bar gets dramatically alters based on the need (not just based on the perceived value) from a buyers perspective?

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  2. Hi Karthik, thanks for your comment. Yes it certainly does. Perceived value comes from how well the offering satisfies needs. If I had gone the next day, my primary need would be ensuring the photos printed were of high quality, but the previous night, that need was replaced by a higher need of getting the photos printed that same day. So taking that further, the next day there could have been a choice of selecting the printer paper which might have affected the price of the photos, and I might have been willing to pay a premium for that. So how much value I associate with the fulfillment of that need becomes a determining factor in how much I am willing to pay from a buyer’s perspective. Hope this makes sense.

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  3. I am amazed with the clarity of the debrief, the application of pricing concepts while dealing with a practical situation in life, and the comment on higher need vs primary need. Very insightful. Great share.

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  4. I am amazed at the clarity of the debrief, the application of pricing concepts to a practical situation in life, and the comment on primary need vs higher need. Very insightful. Great post.

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  5. That was a smart thing to do n also by sharing. Now v r aware n will try to negotiate less or at least that much.
    What makes it interesting is that v get a satisfaction of paying less price for the same value… of good negotiation…!!

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