A few years ago I had the best deal in the world; I got my phone and internet from Bell for $40 a month including everything. Whenever the topic would come up I would tell people about my deal and they would insist that phone + internet was around $80 from everyone and that there was no way I could be paying $40. I had no idea why exactly I got this deal but I figured I would just sit on it for as long as possible and never call Bell for any reason. After 3 years or so they called me up and in a very roundabout, political way told me that from now on I was going to have to actually pay for the services I received from them and that my new monthly bill would be roughly $80 instead of $40. Strangely my reaction to this was to just smile and say "fair enough." :) Gradually that bill went up but I generally just wrote it off to long distance bills or inflation or figured it wasn't enough to pay attention to. This month I got a bill for $130 for a basic phone and internet plan and decided it was time to go crack some heads.
I went online to Rogers' site and got a quote of $64 for phone + internet. I know there will be unlisted charges and taxes so I figure $90 is probably where I would end up with Rogers and I called up Bell to get them to either get the price to that neighborhood or cancel my subscription. The first time I called the automatic answering service talks to me for 4 minutes and then disconnects me for no reason. The second time I called I got sent to a French speaking guy in Quebec who promised in bad English to transfer me to the appropriate person. He sent me to another French speaking guy in Quebec who promised to transfer me to the appropriate person and then proceeded to disconnect the call.
So just to be clear, the phone company drops calls *to themselves* and sends calls to the wrong province when I gave them my area code so they could serve me better!
The third call got me through to exactly the right person however and after listening to what Rogers was offering he came back with an offer of much better phone and internet services than I am currently getting at a price of $95 including everything. I have no desire to swap providers so I say yes and he sets it up. So just to be clear, I doubled my download speed, multiplied my max downloads by 4 times, upgraded my 120 evening/weekend minutes to 500 anytime minutes and got bonus phone services and my bill dropped by $35 a month. This should not surprise me as I spent a lot of time negotiating crazy discounts at a company that ostensibly has set prices but sometimes the magnitude of what you can get by threatening to cancel still surprises me. I wonder if I could get an even better price if I went back and negotiated a little more...
This made me think back to a conversation I had awhile ago with Momma's Boy. He was simply disgusted at the unfairness of negotiation and took it as an article of faith that variable pricing and haggling was unethical. The idea that people would pay different prices for things or that he would have to look around was anathema; he insisted that stores should simply sell things for a reasonable price that everyone agreed was fair and everything would be fine. Some part of me wants to roll on the floor laughing at the naivete of such a viewpoint but he is really just the extreme edge of a commonly held misconception. There is no such thing as 'fair value' or the 'right price' for an item. Things are worth what you are willing to pay for them and there is no reason why persistence, moxie, charisma and haggling skill should be less valuable in determining the amount of stuff you get than your job salary. (Obviously persistence, moxie and charisma often have a big say in your salary too!) Momma's Boy would probably lose his lunch at hearing this story. While that is not exactly a pretty image I think I will have to go tell him anyway.
I'm glad I live in TBay still where prices are reasonable. $75 includes home phone + caller ID and $0.05 long distance any time, maximum upload and download speeds available and no download limit. Although having just started a new account it's only $50 per month for the first year.
ReplyDeleteI sort of see Momma's Boy's argument but this is reality and you pay what you feel it's worth or can afford. Haggling is always a good thing to do but most people just can't be bothered putting in the effort and thereby rate that extra effort isn't worth the cost savings. For phone/internet services I always haggle when the price goes up and threatening to leave is always a great option. Same when buying pricey items ex. electronics, furniture. Regardless effort in = lower price out so what's your time worth is the basic question.
I really sympathize with Momma's Boy's perspective. I think a lot of us like the concept of success through merit. Your salary at your job, for example, should - for some idea of should - be a reflection of how important the work you do is, how much education you need to do it, how good you are at it, and so on. It should not be, by contrast, a reflection of how good you were at negotiating your salary. It's like doing multiple choice analysis to get a good mark instead of actually knowing the subject material. This isn't really cheating but I can see how to it feels like cheating: it violates the spirit of what we are trying to accomplish.
ReplyDeleteNegotiation is a completely unproductive activity from the view of the world economy. If we all recognized that there is no objective benefit to getting something for ourselves when it could have gone to someone else who could put it to a just-as-good use then we could do a lot of things a lot better. It's a bit of a prisoner's dilemma thing. Obviously the ideal solution to the prisoner's dilemma is every cooperates all the time, but the realistic solution is often that we all politely agree to defect.
Anyway, I'm going to phone my internet provider and tell them to charge me less money.
Your are wrong in one very particular aspect Sthenno - we don't all agree to defect. Lots of people cooperate all the time because they don't know they *can* defect and they pay a lot more money than they strictly have to. Many people prefer to live that way even knowing that they don't have to for a variety of reasons and there are also lots of people who just don't understand how things work. The reason you can actually get a deal when you negotiate is that lots of people don't negotiate so there is room for it. If we all negotiated then vendors wouldn't have any incentive to spend extra time negotiating, but they do have that incentive because they can charge some people a ton more. Basically it is because some people negotiate and some don't that the marginal benefit of negotiating is so incredibly large.
ReplyDeleteIt is true that negotiation doesn't help us as a society, but so much of our resources go to pure competition anyway that I am not sure how much it changes anything. Think about the price of my condo... at least 70% of the cost is purely competitive and has nothing to do with the materials or construction at all, and those are also filled with competitive costs. We spend the vast, vast majority of our capital just competing with other people, even if you leave out negotiation.
I lost my cell phone awhile back, and called to cancel my service (which was pay-as-you-go... I spent exactly $11.20 on it each month). At first the rep tried to sell me a new phone (for over $100 first, then $70, then $50 for the most basic model). When I persisted he eventually told me that the company would send me a free phone (better than the basic model) if only I kept my service.
ReplyDeleteThe same day I called to cancel a Visa card, which I did not use because I had misplaced the card (in the house somewhere), and I had another with a lower interest rate. The rep tried very hard to convince me that it was a great idea to have a back-up card just in case... again I persisted and eventually he went so far as to offer to replace the card and put a $50 credit on it. So I accepted, spent the $50, and promptly canceled the card. Take that Visa!
So it was a pretty good day; a free cell phone (which is very handy at times, certainly worth $135 a year) and $50 in my pocket. Not bad for a bit of negotiation.
I'll grant you that lots of people choose not to negotiate simply because it doesn't occur to them that they can. On the other hand your point that if everyone negotiated then companies would have no incentive to do it isn't right at all. We have plenty of real world examples of cultures where everyone negotiates for everything all the time.
ReplyDeleteI also think your example of your condo price is way off. The price of a condo reflects a lot of things, including materials and labour to build it, but also including risk taken on my the developer and actual appreciation in value of land.
Risk, unlike negotiation, has real economic value. Taking a risk to work on a major project like a house or a condo building is bad for the person who is doing it and good for society. Society gets the condo, the person who does it gets the chance of being totally ruined. We have to compensate for that risk.
In 2010 dollars, the average house price in Toronto in 2009 was around $400k. In 1953 the average price was around $90k. That's only about a 2.6% increase in value per year. Even comparing a 1964 housing bust with a price of around $110k to a 1989 housing boom of around $420k, that would only be 5.2% return.
When homes are built in a neighborhood, it has a real impact on the value of the land in that neighborhood. More homes means more of a market for local businesses, which means more local businesses, which means better services for people living in the area.
While some of the price of a home in Toronto is just speculation, it's a long way off 70%. And houses are a very special case. When it comes to a lot of the things we buy competition is driving prices down, not up. We don't pay for competition, competition is the force we rely on to ensure that we *avoid* paying more than things are worth.
I based my 70% number on the purchase of a condo that my relative made in Thunder Bay a little while back. That place was drastically bigger than mine and much less than half the cost. At current market prices the Thunder Bay condo is now sitting at less than 30% of mine in cost per square foot (or square meter!)
ReplyDeleteThat cost isn't a function of risk I don't think because there is risk in building condos in both cities. I suspect the risk of building a condo at one of the most desirable locations in Toronto right next to a subway is exceedingly low, and I can't believe that it is somehow higher than the risk of building in a much smaller city with a much cooler real estate market. The cost is in land, and the cost of that land is large because of competition. I am not saying that 70% of the cost of a home is speculation, but that 70% of it is competition, which is very different.
The other sense of competition, where businesses have to compete with each other for customers obviously makes all kinds of things cheaper. Everyone desperately innovates and changes to try to sell for less or pack more features in and that is a huge force for improvement in technology. I don't dispute that at all, I just think we are using the word competition in different ways and ending up talking past each other.