Price in the Client’s Eyes
In the twenties and thirties, American cities had a game they called the numbers. You bet a few cents on three digits. If your number came up, you got paid. The odds of guessing right were one in a thousand. And the payout was usually six hundred times the stake—in Cleveland, as little as five hundred. In other words, out of every thousand dollars bet, about six hundred went back to the players and the rest stayed with the bank. A bank, mind you, without a single marble column.
A bad deal, you’ll say. As arithmetic, a terrible one. And yet millions of people played every day, in Harlem, in Chicago, in Boston. In New York whole gangs, Italian, Jewish and Black, grew rich on the game and went to war over it. Why did people pay for something that on average took forty cents out of every dollar they put in?
Because they weren’t buying arithmetic. Value isn’t what a thing costs. It’s what a man sees in it.
What the Player Was Buying
Look at what was on the counter. Hope—for a few cents, for a whole day, until the evening number. Convenience—the runner came round your block, knew you by name, took small change; no need to go to a bank. Speed—the result today, not in a month. Company—the whole neighbourhood talked about the same number in the evening. And one more thing, the most interesting of all: the certainty that you weren’t being cheated.
At first the winning number was drawn from a bag of balls, or a wheel was spun right there in the bank’s back office. The players naturally suspected the wheel was rigged, and they were often right. So the organisers hit on taking the number from the newspapers: the last three digits of the daily US Treasury balance, or the middle digits of the trading volume on the New York Stock Exchange, or figures worked out from the totals bet at the racetrack. Nobody could fake a number like that, and everybody could check it in the morning paper.
That move cost the bank nothing. The payout stayed at six hundred to one. But the game became worth more to the player, because the main fear had gone out of it. The price in the client’s eyes went up without a single extra cent of cost.
What Makes Up the Price in the Client’s Eyes
When a man decides whether to pay you, he weighs up several things, whether he knows it or not. How well it works. How fast. Whether he can rely on it. How much bother it is. Whether he can use it in different ways. How it looks to other people. Whether it pleases the eye, the hand, the tongue. What he feels while he’s at it. And what it costs, in money and in time.
The numbers lost on the main count, the money. But they won on speed, convenience, reliability, feeling and company. So they sold.
Young men think the client chooses on price. The client chooses on the sum of all of this, and price is just one of the terms. If you can’t be cheaper, be faster, more reliable or easier to deal with. If you can’t manage any of those, look for another Business.
What Gets Sacrificed
Ask a man what he wants and he’ll tell you: everything at once, top quality, instantly and for free. That’s not an answer, that’s a prayer. We respect prayers, but we don’t send invoices against them. Real wants only show when a man has to choose.
Don Vincenzo once set up a choice like that on purpose. The hotels were asking us for everything at once: cheaper, faster, and not a single sheet lost. The Don invited the managers in and put the question differently: if you can’t have it all, what will you give up? Two of them said “price”: getting their linen back by morning mattered more to them than saving money. The third said “speed”: he had a big storeroom and could wait two days, but he counted every coin. From then on we made them different offers. Not one of them would put up with lost sheets. That we made rule number one.
If you want to know what really matters to people, make them choose between two good things. Surveys where everything is “very important” are worthless, though they’re usually the most expensive thing you’ll pay for.
The Alternative Sets the Ceiling
Every client of yours has an alternative: another supplier, doing it himself, or doing without. Your price can’t stay for long above the value in his eyes minus what the alternative gives him.
In 1916 in Brooklyn, Neapolitan gangs tried to squeeze the artichoke wholesalers: fifty dollars on every railway wagon. The historian Mike Dash tells how the traders unexpectedly banded together and refused to pay. The gangsters came down to fifteen, and in the end they settled on twenty-five. It’s a dirty example—extortion, not trade. But the mechanism is plain: once people had an alternative, sticking together, the price of “peace and quiet” fell by half in a single conversation. The best price negotiation I know of was carried out by artichoke traders.
Bundle or Unbundle
Last thing. Any offer can be put together from parts or taken apart into parts. Our laundry sold washing, ironing, starch, rush jobs and delivery. To the hotels we sold the lot together, under one contract; it suited them better. To the student from the next street, just the washing, no ironing, no delivery, and he was delighted not to be paying for extras.
Bundle it up when the client would rather buy everything from one man and not have to think. Break it apart when he’s paying for things he doesn’t need and getting angry. Make the pieces of your offer so you can shift them around like building blocks. Then you won’t have to build a new Business for a new client; it’ll be enough to rearrange the blocks.
And remember the numbers game. Sometimes the most valuable thing you can add costs you nothing: an honest figure from the morning paper.