Say you’re buying a product or service of some kind. How do you verify that the price you’re asked to pay is fair, that you’re not getting ripped off?

There are two ways:

  1. Make sure you’re being charged no more than others, and the price is disclosed publicly and transparently. An example is an MRP. Or mutual fund NAVs.
  2. Negotiate in private, with non-transparent prices.

Straegy (1) makes sense for standard products, like anything you buy in a shop. And for standard services like a doctor’s consultation.

Strategy (2) makes sense for custom services like consulting. Many of my clients have gotten different things from me. For example, we built a Chrome extension for one client. Identified new market opportunities for another. Optimised the hiring process for a third.

Using strategy (2) to negotiate standard services like a coworking space is a waste of time. When I say standard, I mean the product isn’t going to change — they’re not going to build a new building for you as a result of the negotiation. You’re only haggling over price. And such negotiations are zero-sum: everything you gain comes at the expense of the other side. And playing zero-sum games is ultimately not productive. And, after spending your time playing the game, you might end up getting a worse deal than others. And you have no way of even knowing if that happened. Don’t play games where you have an information asymmetry. What if you could get the best possible deal without even having to negotiate? That’s what strategy (1) gives you, and saves you time, which you can use to play positive-sum games instead of zero-sum. Which, in turn, give you a bigger benefit.

Use strategy (1) for standard products and services and (2) for custom services like consulting.

This framework also gives you a way to identify opportunities for a startup: identify a standard service that’s being priced as per strategy (2), and change it to strategy (1).

On-demand Leader. Earlier: IIT | Google | Solopreneur | Founder | CTO | Advisor