For anyone not used to bargaining, there’s a keen anxiety that comes with shopping trips to the souks of Marrakech or Beijing’s Silk Market. With every purchase comes the nagging question: “Am I the sucker?” And though standard pricing common in the developed world might give disproportionate pricing power to retailers, at least there are no suckers since everyone pays the same price.
Not anymore. Increasingly, big-name retailers including Barnes & Noble, Nordstrom, Kohl’s, Lowe’s and Bloomingdale’s will knock down prices if customers ask, as the New York Times reports. A slew of retailers have started training their staff in bargaining technique, says the Times, such as how to know when a customer is prepared to walk away.
And “bargaining” doesn’t mean simply meeting lower prices advertised by competitors, which Best Buy advertises. Stores are now allowing managers to knock as much as 10% off a competitor’s price. Other retailers are allowing employees to kick in delivery, installation and extended warranty for free.
This is all happening in response to “showrooming,” when consumers visit examine products at bricks-and-mortar stores, but buy them via online retailers—notably, Amazon—that offer cheaper prices. That practice has long been notorious in electronics. The embrace of bargaining among retailers of everything from fashion to books signals how rampant “show-rooming” has become in other sectors too.
This is bad news for conflict-averse people who associate bargaining only with used cars and exotic souvenirs. Since hagglers squeeze a retailer’s margins, to preserve its profits, it must generally pass on those costs to non-hagglers.
Conflict-averse consumers who think they can avoid subsidizing hagglers by avoiding stores that engage bargainers might be in for a rude awakening, if research (pdf, p.26-7) into used car markets by Preyas S. Desai and Devavrat Purohit of Duke University is anything to go by.
As long as enough consumers are uncomfortable with haggling—68% in their model—markets will tend toward allowing bargaining. At that level, retailers can afford to subsidize their discounts for hagglers with full- or marked-up pricing for the non-haggling 68%.
The research suggests that while only a few-dozen leading retailers allow bargaining now, other brick-and-mortar stores will have to follow suit if they hope to compete.
Even though Desai and Purohit were looking at used cars, this makes sense. Allowing bargaining lets brick-and-mortar retailers win over hagglers, robbing the competition, both online and off, of potential sales. That could allow them to build loyalty among hagglers, boosting overall sales in the long term. And assuming that most of the customers who haven’t been showrooming are also averse to haggling, retailers could preserve their profit margins by raising sticker prices.
In Desai and Purohit’s model, it’s only when most customers want to haggle that it makes sense for retailers to revert to fixed prices. That means anyone worried about being a sucker had better start sharpening those negotiation skills.