Chris Voss was a top FBI hostage negotiator, specifically he was the top international kidnapping negotiator... Is there more on the line than having to negotiate with kidnappers for the lives of children around the world?
Chris wrote the book Never Split The Difference which is based on his experiences and success in these high pressure situations and he is now paid big money to teach people how to negotiate. He taught me a very important pricing and negotiation strategy that I've been using for years that helped me win deals and earn more money for my clients and business.
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Chris tells the story…
Back in Haiti, over 18 months the FBI was getting notified about two or three kidnappings a week, from experience they knew market prices were $15,000 - $75,000 per victim. He writes, because I was a hard ass I made it my goal to get in under $5,000 in every kidnapping I ran.
In one particular circumstance he was working a kidnapper down to smaller concessions. Finally, he said, I dropped a weird number that closed the deal, and I'll never forget the head of the Miami FBI office calling the next day and saying, "Voss got this guy out for $4,751? How does $1 make a difference? He wrote about how they laughed at him. But it works.
In an experiment conducted by University of Chicago and MIT they used women's clothing and priced the same item at $34, $39, and $44. The researchers found, to their surprise, that overtime the items that generated the most amount of money were the $39 option. Basically they found there was no difference in quantity sold between the $34 and $39 option. $34 and $39 are the same in the minds of the customer. $44 however, now that’s too much. It went up into the 40s… The left or tens digit changed.
A 2005 study by Thomas and Morwitz conducted research on what they called left-digit effect in price cognition. They concluded that prices are perceived as lower if even one cent difference if it lowers the left digit. This is why see prices at $2.99. rather than $3.00. If you can get more sales at 9.99 cents, 19.99, or $99 then why would you price accordingly?
This is pricing psychology, and let me tell you how it makes me a better negotiator and helps me close more deals...
I work in the homes business. I am negotiating with other agents or providing estimates and invoices to customers on a daily basis. Basically my job is to negotiate prices and close deals...
When I offer prices I never offer a whole number. whole numbers look lazy and unprofessional and make you look unprepared. If I give a customer a quote for $100,000 right on the dot, that basically tells the other party my prices aren't exact, I round (definitely up) in their mind, and I didn't do the math. Frankly put, offering whole numbers you can argue is dishonest!
No.
First, if I'm close to left digit, I'll find away it I can to get down to a lower one by tens if possible. So if I'm just over $100,000 I'm trying get that down to $99,992.53. If I'm just over $50,000 then I'm coming down to $49,981.73. I never give a whole number, like Chris Voss, I give a weird number, and I try to make end in an odd number 1,3,5,7,9. If in my estimating I get a whole number I change it to an irregular one. All of my proposals are $154,695.31 or $48,783.49.
If I'm negotiating with other agents on my clients behalf, whether it be for a sales price, concession amount, or a credit it's the same process. After some back and forth it's like, key I just talked to my client and we crunched the numbers, they appreciate your clients willingness to negotiate (get some empathy), then lay out some justifying data... looking at the camps, prizing the potential repairs, the house needs improve, etc. The best my clients can do here $797,000 with a seller credit of $8,345. We ran the numbers with the lender and this stretches them.
You see what I'm doing? You see the pricing psychology? Especially when you can back it up with data and justifying reasons it can be super powerful.
Never split the Difference by Chris Voss. Read it, implement it. Any questions just have me a comment.
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