Why do we Bargain?

When you sell any product or service, is your asking price exactly what you are expecting to crack a deal at or you find yourself quoting a little higher anticipating bargain coming your way? I often do that when clients ask for a quote. When I am on the buying side, I assume that the seller would be doing the same, so I find myself bargaining. This is what most Indians do.

Once I did this to a potential client, my quote was not too high but a little higher than what I was expecting to get the sale for and the client agreed without any bargain. I wondered what happened! Was my price low and I was not aware of the market price or was the client generous enough? I could not go back on my words so we had a deal. later, I researched and spoke to other people in the industry only to realize that my asking price was neither on the higher side nor lower. It was an average in the industry. I was not well aware of the industry which is why I thought I was quoting higher. Luckily, I took a nice shot!

In another instance, I got a surprising response to my high quote. The client said, “that’s it? Nothing more?” And I knew I was perhaps low on my quote. The guy was expecting more and immediately agreed to my low price. Only later, I found out that I had taken the project at 25% lesser than an average content developer would do. When I was new in the industry, it happened quite often until I learned and now, I know what is the right price I should ask for any new project. Are you familiar with such experiences?

I don’t bargain anymore and not just because I know my price but also because I don’t like to bargain. Things like vegetables or small stuff - you will never find me bargaining; The reason why my mother spares me the horror of vegetable shopping.

The idea of the bargain made me wonder - why everyone wants to bargain? And how we still get surprises at times? Why do sellers suddenly offer a lower price when I don’t say a thing after they have quoted, especially when I was willing to pay the asked price? Why do they assume that the price could be one of the reasons why I am not buying something and that lower price would attract me? I found my answers in the world of social psychology.

As per the theories of social cognition, our mind has a way of delivering an automatic response to some situations because of specific schemas or mental frameworks already imprinted in our minds. For example, since childhood, we have seen our moms bargaining with almost every vendor and saying, “you are asking too much” and then there are negotiations. So, we assume that when we buy, we should bargain too. A schema is set which says, “sellers always quote a higher price” so, “Always bargain”. The framework later extends beyond the vegetable vendors and we start bargaining on everything, even on high ticket items. In the psychological world, this thinking is called automatic processing of mind.

The automatic processing of mind has a very strong effect on us and we act almost immediately without thinking. It takes least efforts and least time to decide. Within a second of an offer coming, we know that we have to negotiate. We often even have a price set in our mind for the level at which we will purchase, almost instantly.

What happens when we get a response which is unexpected? We start to think carefully and mostly logically. Remember the examples when the client immediately agreed on an asked price and the other one too pleased with the price. I thought and then I examined my actions, researched and found out that the schema set for selling content was somewhat faulty. My understanding of the market was not sound. So, I started adjusting my mind by adding the new information which modified my schema, which earlier had a specific bargain level but with the new insight, the level was changed. This, in psychological terms, is called controlled processing.

The situation of controlled processing emerges when the schema of a situation at hand is different in the minds of the people involved in an interaction or transaction. Schemas are nothing but the mental frameworks that enable us to organize information in our tiny heads. They can be very helpful in most cases but not in the case where we use them with only half the information available to us. For example, my asking price for the second project where a client found it low, was the case where I used my mental schema for a situation that demanded more logical thinking than an automatic response. In other words, I needed to use controlled processing and not automatic processing. However, the tendency of any human to react based on already set schemas is too strong, and we only learn to be careful when we mess things up, and then our schemas get modified. We continue to use automatic processing but with the modified schema so our mistakes reduce.

For a layman, a schema can be understood as a set of simple rules that help us in making decisions quickly. Selling – quote higher – bargain – agree on slightly lower; Buying – assume higher – bargain for lower price – agree midway. These rules can also be called heuristics that would be put together to create a strong schema in our heads, helping us in making decisions and reacting to different situations fast.

We are guided by our schemas (automatic processing) and thinking (controlled processing) in our actions. Different people, especially those coming from different cultures, would have different schemas, and as they interfere to realize this difference, schemas grow or new ones are added to prepare us to deal with similar situations in future.

So, why do we bargain? Because we are used to it, we have the required framework ready in our heads, and we don’t want to waste time thinking much. Ever seen a buyer who just started with a bargain and the shopkeeper pointing out at the board that said, “Fixed Price! No bargaining!”.