Tuesday, June 21, 2011

Negotiation Lessons from American Pickers

One of my guilty pleasures is American Pickers, a show where two guys (Mike Wolf and Frank Fritz) drive around the country "picking" through people's barns and basements for junk that is actually valuable.  It's arguably "just another reality show" and is sometimes over-scripted, but it's a lot of fun.  Mike, Frank and Danielle Colby (their gal Friday) are an engaging team, the people they encounter are by turns eccentric and charming and you get to play along in the hunt without long hours on the road or climbing through junk-filled barns in ninety degree heat.

Of course, what I really like about it is that it's a show about negotiation.

The core of each episode is Mike and Frank buying things they hope to sell later at a profit.  Oil cans, old advertising signs, saddles, samurai swords, pinball machines, vintage clothing, furniture, bicycles, cars...as the opening credits say, they'll buy "anything we think we can make a buck on."  I don't think either guy is a big theory geek but unsurprisingly they are good at negotiating and a lot of good rules for negotiators are illustrated by the show.  I'm going to break these down into three categories: setup & preparation, process and tactics.

Setup and Preparation

One of the biggest mistakes many people make is assuming that negotiation is what you do when you're at the table.  Most negotiations are won (or lost) before the parties even sit down; a successful negotiator always seeks to prepare and to create an advantageous setup.  Let's look at what Mike and Frank have as a result of their setup and preparation:


  • No competition.  Getting a good price is often a lot harder in an auction than in a negotiation.  By coming to people's houses and driving off when the pick is over, Mike and Frank avoid facing a seller who says, "Thanks for pointing out all the things I have that may be worth something.  I'll get them appraised (or send photos of them to other potential buyers) and get back to you."
  • Superior knowledge.  The pickers have impressive knowledge about a wide range of items, including their history and, most importantly, their market value.  This means that they typically know what they're willing to pay, which enables them to make more effective offers and to close deals quickly.
  • Strategic buyer advantage.  It's quite common for the pickers to know exactly who they're going to sell an item to, or at least to have a rolodex of potential buyers.  If someone is willing to sell an old sign for $200 there's a big difference between knowing you can sell it for $400 that day and being pretty sure you can sell it for over $250 eventually.
  • Knowing the seller.  When Danielle phones in a tip, Mike and Frank want to know everything about the seller, not just what he or she has.  Why are they selling?  How did they build their collection?

Process

Process, or how you go about a negotiation, is another key to success.  Process is often the key determinant of how happy your counterparts are as well as how able you are to turn your preparation and tactics into successful outcomes.

  • Positive relationship.  First contact is often from Danielle, who is as charming as she is quirky.  Mike and Frank then take the time to get to know the people they're buying from and demonstrate a clear interest in and appreciation for their story.  "Two guys in a van want to buy stuff so they can sell it for a profit" could so easily turn into an adversarial battle; Mike and Frank turn it into a fun experience that everyone feels good about.  After a pick, the sellers share their experience and it is almost always positive.  Moreover, avid collectors often express satisfaction that Mike and Frank will find a new home for their prized items with someone who will enjoy it as much as they have.  That's not the sort of thing people usually say about middle-men!
  • Questions.  The guys ask a ton of questions -- about the sellers, about the items they're looking at, etc.  This strengthens the rapport, helps them conform or correct their expectations and helps identify good items to buy.
  • Action.  The guys don't get bogged down on any item.  They see something, negotiate a purchase (or fail to) and move on.  Sometimes they come back, but they don't spend more than a few minutes negotiating on most items.  In particular, they don't haggle over every offer -- about half the time they accept the price the seller asks and their own opening offers are high enough that sellers often accept them.  They also prioritize "breaking the ice" early by buying something.  This keeps the tone of the pick transactional; the assumption is that new items will be purchased (rather than held on to by the seller for sentimental reasons) and that deals will be struck quickly.


Tactics

  • Mix of first offers.  Mike and Frank vary whether they make an opening offer or ask the seller for one.  There's a lot of research and a variety of opinions on whether to make the first offer or wait for one, but (recognizing that I can't read minds even in person, let alone over the TV) I think Mike and Frank are following some good principles.  They are most likely to ask for a price when the item's value is unclear (especially if it's unclear to the seller!) and more likely to offer one when they suspect that the seller's initial offer will be high.
  • Ready counter-offer.  When a seller does make an initial offer, the guys will either accept it or make a counter-offer pretty quickly.
  • Reasonable offers.  The guys rarely fish with offers that are way below their willingness to pay.  If they offer $40 on something it's likely that their walkaway isn't North of $60 and sometimes it's $45.  Sometimes an aggressive opening offer is correct, but in the context of a pick it could be costly.  Suppose the owner happens to know that they'd offered $40 on something with a retail value of $500.  Not only would they not get that item (which they might have gotten at a wholesale price if they'd offered) but the seller might call off the rest of the pick.
  • Bundling.  Frank, in particular, loves to bundle -- that is, to make an offer for more than one item at a time.  He does this quite often when he and the seller aren't able to come together on price, and it's amazingly effective.  A typical example might have him willing to pay at most $200 for an item where the seller is firm at $250.  Mike then takes another item that the seller has asked $75 for and offers $250 for both -- and the seller frequently agrees!  We'll talk more about this later.
  • Cash on hand.  A lot of the sellers on American Pickers aren't highly motivated to sell, and the guys rarely know whether a pick is going to be full of $40 purchases or have a $7,000 car.  Mike and Frank make sure they have plenty of cash with them, both so they can present an unsure seller with a real offer and so they don't miss out on opportunities due to lack of resources.

Not all of these tools are appropriate to every negotiation, of course.  The main point is that Frank and Mike have a set of tools that work very effectively for them.  They create an advantageous context for their negotiations, follow a very healthy process and have a set of useful tactics to close deals at a good price and with both parties satisfied.

More on Bundling

I think Frank's bundling tactic is a special case solution to an emotional block.  Let's look back at our example, where Mike is at $200 on an item and the seller is firm at $250.  There is another item that the seller has asked $75 for.  It's possible that Mike could bargain the second item down to $50, but by no means guaranteed.  The seller might easily insist on $60.  Somehow, however, Mike is able to get both items for $250 by combining them.  What is happening?

People don't like to lose in negotiations and they particularly don't like to be pushed around.  If someone makes an opening offer of $300 it can be emotionally difficult to come down to $200 even if their BATNA is $180.  They may be afraid of being a sucker (e.g. if the buyer's BATNA is really $320) or they may be embarrassed about asking for $300 if they were actually willing to sell for $200.  It may be as simple as seeing their final offer of $250 as winning and anything else as losing...even as they think, "I'd really hate to lose this sale."

By bundling, Frank gives them an out.  They're getting their price (I think he always has the bundle come out at or slightly above the price they wanted for the larger item) in exchange for throwing in a little extra.  That feels like a shared win, even if from the numbers alone Frank is getting his price.

This general idea has lots of applications.  If the seller of an asset needs to get a particular price it may be better to let them have their price but get financing terms that reduce the net present value to what you're willing to pay.  If a company has strict rules about salary it may be better to negotiate for other items of value, such as a bonus, budget for training or an extra week of vacation.  The key point is that if the other party has locked in to a particular "headline" number you may be able to sell them victory on that number in exchange for things you value more.

1 comment:

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