An enlightening, even useful, economic lesson occurred while motorcycle shopping over the weekend, (Stay with me, I'm not kidding.)
My act of motorcycle shopping and the subsequent lesson I'll describe were hardly unique, but the process involved is enlightening to anyone negotiating a business transaction.
Here we go.
A motorcycle I had been eyeballing on a local dealer's website had been discounted a couple days earlier. It had been discounted meaningfully (to me) to the price previously advertised. My interest was piqued because the price had been discounted close to a price I would be willing to pay. I sensed a motivated seller, so I scurried along to the dealership.
My interest was piqued, but I remained ambivalent. Amoré begin best reserved for the organic, preferably of your particular species. I would buy the motorcycle at my price. This was no love affair. If the dealer offered a price close to what I was willing to pay, which was less than the newly discounted price, I would be all in.
Regardless of the outcome, no hard feelings, at least on my part. It's only business. The dealer has his price, I have mine. If they intermingle great, if not, then perhaps another day
I'll reiterate, I was ambivalent.
It's October, few motorcycles are sold during the autumn and winter months. I considered the dealer's business prospects. Demand would be low. He would occur additional carrying costs, which could last six months or longer for a motorcycle that already had little appeal for most riders. Japanese motorcycles made within the past 20 years depreciate at a Moore's Law rate. Another year would unlikely lead to a demand increase.
The dealer was motivated. He wanted the motorcycle out of his inventory; hence, the immediate discount.
The discounted price, though, still failed to motivate me to buy. I wanted a bit more discount. I was familiar with the brand and the model (a 2006 Kawasaki Concours with 17,000 miles). I liked the motorcycle .I trusted maker because of its history and reputation. I also knew that this model held little appeal for most motorcyclists. The model had existed in mostly pristine form, with little variance, since its mid-1980s introduction. If it were otherwise, there would be no need to discount.
My offer? Less than the discounted price. Remember, I was an unmotivated and ambivalent. I was willing to buy, but only at my adamatine price. The motorcycle was sure to depreciate at no less of a rate under my ownership than under the dealer's.
The dealer was less ambivalent than I was. He riled more than anything. He was offended. My offer was below his cost: It was below the price the dealer paid to acquire the motorcycle.
We had a conflict of values.
I was willing to pay less, he wanted to receive more. Nothing unusual here. Buyers want to pay less, sellers want to receive more.
Both sides are constrained by market circumstances. If the prospect for a higher price is reasonable (as evinced by comp sales). The seller should rationally wait for that someone. If no one will pay the seller's price, why not sell at the best offer available.
Of course, both sides are predicating their choice on an uncertain future. The market price could go higher or lower. And the perceived future is what matters.
I thought the future market price for the Kawasaki would be lower than the already discounted price. The dealer possibly thought the price would be higher, but he was diffident in his belief. The dealer wasn't vetting the market, he was vetting his cost, which has no bearing on the prevailing market price.
The dealer was focused on the past, his sunk cost, which he was more than willing to share. After all, what reasonable buyer wouldn't assist a seller in recouping his purchase price.
This buyer, for one.
I couldn't care less. Sunk costs are sunk. I cared only about the market value today, which I had deduced was above his asking price and his cost.
The insurmountable object confronted the immovable force. I was unwilling to pay more, based on my perceived future value. The dealer was unwilling to accept less, but his decision was based on his sunk cost. Unbeknownst to the dealer (or perhaps beknownst when time permits reflective thought), his sunk cost is irrelevant to intelligent buyers.
If the market were more favorable to sellers, perhaps he could have priced and sold the motorcycle twice what he had paid. I'm sure if the market were so favorable to the seller, the invoice would have remained filed away.
Market value -- subjectively derived -- is all that matters. The cost-theory of value is a nonstarter. Keep that in mind that next time you're negotiating a purchase or sale. When negotiating, always concentrate on the subjective market value and your opportunity cost -- what you give up -- to realize that value. That's what drives the bargain.
As for the motorcycle, I'll return in a couple of months on a gunmetal gray winter day. If it hasn't been sold, I'll try again. Why rush? I suspect the market will be even less accommodating to used motorcycle sales in December and January than it is in mid-October.
My act of motorcycle shopping and the subsequent lesson I'll describe were hardly unique, but the process involved is enlightening to anyone negotiating a business transaction.
Here we go.
A motorcycle I had been eyeballing on a local dealer's website had been discounted a couple days earlier. It had been discounted meaningfully (to me) to the price previously advertised. My interest was piqued because the price had been discounted close to a price I would be willing to pay. I sensed a motivated seller, so I scurried along to the dealership.
My interest was piqued, but I remained ambivalent. Amoré begin best reserved for the organic, preferably of your particular species. I would buy the motorcycle at my price. This was no love affair. If the dealer offered a price close to what I was willing to pay, which was less than the newly discounted price, I would be all in.
Regardless of the outcome, no hard feelings, at least on my part. It's only business. The dealer has his price, I have mine. If they intermingle great, if not, then perhaps another day
I'll reiterate, I was ambivalent.
It's October, few motorcycles are sold during the autumn and winter months. I considered the dealer's business prospects. Demand would be low. He would occur additional carrying costs, which could last six months or longer for a motorcycle that already had little appeal for most riders. Japanese motorcycles made within the past 20 years depreciate at a Moore's Law rate. Another year would unlikely lead to a demand increase.
The dealer was motivated. He wanted the motorcycle out of his inventory; hence, the immediate discount.
The discounted price, though, still failed to motivate me to buy. I wanted a bit more discount. I was familiar with the brand and the model (a 2006 Kawasaki Concours with 17,000 miles). I liked the motorcycle .I trusted maker because of its history and reputation. I also knew that this model held little appeal for most motorcyclists. The model had existed in mostly pristine form, with little variance, since its mid-1980s introduction. If it were otherwise, there would be no need to discount.
My offer? Less than the discounted price. Remember, I was an unmotivated and ambivalent. I was willing to buy, but only at my adamatine price. The motorcycle was sure to depreciate at no less of a rate under my ownership than under the dealer's.
The dealer was less ambivalent than I was. He riled more than anything. He was offended. My offer was below his cost: It was below the price the dealer paid to acquire the motorcycle.
We had a conflict of values.
I was willing to pay less, he wanted to receive more. Nothing unusual here. Buyers want to pay less, sellers want to receive more.
Both sides are constrained by market circumstances. If the prospect for a higher price is reasonable (as evinced by comp sales). The seller should rationally wait for that someone. If no one will pay the seller's price, why not sell at the best offer available.
Of course, both sides are predicating their choice on an uncertain future. The market price could go higher or lower. And the perceived future is what matters.
I thought the future market price for the Kawasaki would be lower than the already discounted price. The dealer possibly thought the price would be higher, but he was diffident in his belief. The dealer wasn't vetting the market, he was vetting his cost, which has no bearing on the prevailing market price.
The dealer was focused on the past, his sunk cost, which he was more than willing to share. After all, what reasonable buyer wouldn't assist a seller in recouping his purchase price.
This buyer, for one.
I couldn't care less. Sunk costs are sunk. I cared only about the market value today, which I had deduced was above his asking price and his cost.
The insurmountable object confronted the immovable force. I was unwilling to pay more, based on my perceived future value. The dealer was unwilling to accept less, but his decision was based on his sunk cost. Unbeknownst to the dealer (or perhaps beknownst when time permits reflective thought), his sunk cost is irrelevant to intelligent buyers.
If the market were more favorable to sellers, perhaps he could have priced and sold the motorcycle twice what he had paid. I'm sure if the market were so favorable to the seller, the invoice would have remained filed away.
Market value -- subjectively derived -- is all that matters. The cost-theory of value is a nonstarter. Keep that in mind that next time you're negotiating a purchase or sale. When negotiating, always concentrate on the subjective market value and your opportunity cost -- what you give up -- to realize that value. That's what drives the bargain.
As for the motorcycle, I'll return in a couple of months on a gunmetal gray winter day. If it hasn't been sold, I'll try again. Why rush? I suspect the market will be even less accommodating to used motorcycle sales in December and January than it is in mid-October.
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