Why do my customers always want to haggle?

When my eldest daughter turned three, she decided it was time to choose the clothes she wanted to wear each day. At that time, she loved skirts and short-sleeved shirts. Even on cold and rainy days, she always wanted to wear summer clothes. When we explained that it was cold and that she should wear pants, a long-sleeved shirt, and a sweater, she reacted with the typical tantrum of a child her age, yelling that she wanted to wear the skirt and short-sleeved shirt.

We then decided to try at home the concept recommended in pricing strategy for managing institutional clients and distribution channels: instead of trying to force her to wear clothing appropriate for cold and rainy days instead of her favorite skirt, we would take three clothing options from her closet—all appropriate for the weather—and ask her to choose the one she liked most. Amazingly, my daughter’s attention then focused on deciding which of the three outfits to wear, instead of crying because we wouldn’t let her wear summer clothes on a rainy day. But what does this story have to do with concepts used in pricing strategy? Actually, quite a lot.

The pain of payment
Whenever a buyer acquires a product or service, they experience two opposing feelings. On one hand, they feel the pleasure of acquiring something that holds value for them, whatever its nature. Simultaneously, they feel the pain of payment associated with the price demanded. Human nature always seeks to minimize this second feeling. The most immediate way a buyer finds to reduce this pain of payment is, at least in most Latin American cultures, to try to lower the price through haggling.

Is haggling, then, inevitable in commercial relationships? Is it possible to find an alternative way to reduce customers’ natural pain of payment without falling into the haggling dynamic? Fortunately, the answer is yes. The reason customers tend to haggle when presented with a commercial proposal containing only one option is because, literally, “they have no alternative.”

To minimize natural payment pain, they focus all their attention on lowering the price of the single option presented, which automatically translates into haggling. If, instead, the buyer is offered multiple options with different price and value levels, their attention will focus on understanding the pros and cons of each, so the natural tendency to haggle over a single price is automatically relegated to the background.

Two keys for it to work
For this “trick” to work, two basic conditions must be met. First, the different options presented must have a correct price-value relationship. The higher the perceived value of the product or service, the higher its price should be. It makes no sense to offer a series of options where one clearly has a better price-value relationship than the others. Clearly, this option would be the most attractive, and the effect of focusing the customer’s attention on identifying the best solution for their need would be lost.

Second, care must be taken when defining the number of options to offer: too many options can confuse the customer, while too few may fail to divert the customer’s attention from natural haggling. Generally, no fewer than three alternatives should be presented: one basic, one standard, and one superior. This set of offers at different value levels with their respective prices is known in pricing strategy as a price menu and, when used correctly, is the most effective tool for managing institutional clients and distribution channels.

In summary...
Thus, the design and use of a price menu is the most effective way to minimize the natural tendency to haggle, present in most commercial transactions in Latin American culture. However, it should be clear that using this tool does not completely eliminate the possibility that some customers will want to haggle.

​That is why, if a company truly wants to abandon this value-destroying practice, it must be committed to implementing the price menu. Every time a customer tries to haggle, insisting on a high-value, low-price option, it must translate either into a refusal or a structural modification of the commercial conditions, applicable to all customers meeting the same conditions.