Comment by CamperBob2 | Hacker News Reader

Comment by CamperBob2 | Hacker News Reader

I'm dealing with a rather strange pricing dilemma now, actually. My startup sells a somewhat-arcane electronic test instrument which is generally used by larger corporations, government agencies and defense contractors, and universities/national laboratories. It's advertised for sale at $4995.00 in 1-4 unit quantities, which is an insane bargain compared to what these users are accustomed to paying for similar equipment.

I sold one to a particular Fortune 500 company a few months ago. Recently someone else from the same company -- a fairly highly-placed manager, going by his LinkedIn profile -- emailed to ask for a quote on a second unit. Except he insists that his budget is in the $4800 range, and he needs the quote to come in under $4995 in order to make the purchase.

I can't begin to guess how to interpret this, or how to answer it. Lowball offers are nothing new, and generally easy to turn down since demand for this piece of gear is in line with projections. And there's plenty of room for negotiation on purchases of >4 units. But a lowball offer for one unit, from a company with a $15B market cap, asking for a discount that's negligible to the point of wasting both parties' time? WTF?

I'd like to maintain a good relationship with this company and do further business with them, but I don't understand the signals they're sending with regard to price tolerance. Obviously if I were asking $5995.00 instead of $4995.00, they would have tried to drill down to $5895.00. I have to believe that the same would be true if the advertised price were $3995.00. Could I have avoided this bizarre negotiation by picking a price of $X495.00 instead of $X995.00?

The game theory for large corporations asking for discounts: If we don't ask for a discount, we don't get a discount. If we ask for a discount, sometimes we get a discount. Thus, we write in our Big Book of Purchasing Rules to always ask for a discount. (Or you just ran into one guy who likes the psychic charge out of winning a concession.)

P.S. You're only an insane bargain for one sale. After that, your price is the reference price.

this P.S. is brilliant. If it's a bargain then you may think about increasing your prices?

and it applies to every market, particularly labor.

Adding to what Patrick said:

Your counterparty is usually evaluated on the delta he can generate from your published list prices, and virtually nothing else.

So, if you want to, you can game the system by extracting other concessions. For instance, you can create a SKU with a reduced price but for which support or updates are expensive; your counterparty gets to record achieving a discount, but you ultimately make more money out of the deal. Another common concession to wring out of these deals is commitments to future purchases.

You would only do this if you want to; that is, if you think the opportunity to come out ahead financially is real enough to play the game. If you just want to make the sale, say "no, in low volumes, our price is $4995; sorry". They'll buy.

Maintaining a good relationship means a relationship that is good for both of you, and succumbing to tactics like that is signalling to the customer that you are willing to be taken advantage of. As a customer there is no downside to asking for a discount.

this is a perfect opportunity to upsell. let the customer know that you're unable to negotiate on small purchases, but for high-volume orders you can absolutely work down to a $4800 unit cost. If the company has already ordered one unit and is coming back for more, you know they are happy with the performance of your product. You hold all the cards here.

Early in my career (mid 20s) I was the type to try to beat down prices no matter what. I worked for a small company and the dollars certainly meant more to us than to a $15B market cap corp. But, in reality, I was just looking for something to do and trying to distinguish myself however I could. When it came time to talk about a salary increase, the thousands I had saved the company was one of the things I could talk about.

This is a weird situation. My guess is that the guy just gets a small thrill out of it or feels like he wouldn't be doing his job if he didn't at least try. So, if the price is $4,800 for 1, what's it going to be for 5 or 10? Personally, I'd just politely tell him that you're already undercutting the competition. It's a fair price and best you can do for 1 unit.

Perhaps, agree to their price if they commit to buying several units?

sometimes there are prices that are set by the bosses for what can be bought without putting in for budget approval.

For instance they have a credit card that they are authorised for charges up to $4800, but anything over $4800 has to go through budget approval, that could take up to a year to get.

Ask questions why they need it and then you can negotiate. If this is the case then ask them if you can charge them $4800 for the device and invoice them $300 separately for delivery or something like that.

Exactly this. Go sign up for patio11's mailing list [1]. He just sent out an article to all his subscribers that talks about selling into Fortune 500 companies.

In all likelihood the manager doesn't want to have to go through corporate purchasing (or sole source). He wants to use his p-card, and that's his limit.

[1] http://www.kalzumeus.com/2012/05/31/can-i-get-your-email/

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