By Lacey Filipich BEng(Hons) MAICD Cert Gov (NFP)
‘Thanks for seeing me without an appointment.
I’ve received offers of 3.99% variable on my loans from three other banks.
I’d like you to match that.’
‘The other gas company has offered me a 20% discount for the next year if I switch to them.
What can you offer me to keep me as your customer?’
‘I see these vacuum cleaner bags are $27.95 per box.
Can you do a better price for me please?’
These are real sentences uttered in the last month. I spoke the first and third, a colleague of my husband spoke the second. In all three cases, it resulted in a discount – not always the requested amount, but a discount nonetheless.
When I tell people that I asked for these discounts, I get a variety of responses:
- Noses wrinkled in distaste at the thought of asking for a discount (how low-class).
- Smug looks of the ‘I already get a great deal so I don’t need a discount’ variety.
- Blank looks of the ‘I didn’t know you could do that’ variety.
- Blank looks of the ‘why would you bother’ variety.
I’ve met only a few fellow discount-seeking kindred spirits in my time. I ponder why that is.
My conspiracy theories
I think we have been conditioned not to ask for discounts. We are made to think it’s rude, or we have so little experience in it that we find it uncomfortable so we avoid it. This happens in several ways:
1. Societal norms
Many people have been raised to believe talking about money is bad or rude. This extends to even those situations when talking about money is unavoidable, like when you’re paying for things or in a salary negotiation. There’s also a perception that not caring about cost means you appear wealthy. The bloke who signs the bill at the restaurant without even looking at it is seen as affluent, the bloke who goes through the bill line by line before paying is seen as cheap.
2. Lowest prices guaranteed
The catch-cry of many a chain store, often followed with their Get Out of Jail Free card: ‘if you find a lower price on a stocked item, we will beat it.’
I should bloody well hope so.
This guarantee puts the onus on you: you must find the cheaper price, and sometimes you need to prove it (i.e. it has to be a written quote – thank you, fine print). It does not mean that the store surveyed every competitor to ensure its price was the lowest – a nearly impossible task in our web-driven world. So they put up this catchy slogan, and before you know it, you’re taking them at face value and paying whatever price is marked because of their ‘guarantee’.
3. Marked price = fixed price
Unlike many Asian countries, where the marked price is merely a starting point for negotiations, we’ve been raised to believe that a marked price on something is what you have to pay. Well, on most things – perhaps cars are the exception. There are many circumstances in which this is true – for example, I doubt the Coles cashier will enter into a negotiation with you about the price you’re willing to pay at the checkout. But many people are shocked when I tell them I ask for a discount on nearly everything I buy at electrical and furniture stores. Having a marked price does not mean you absolutely must not ask for a discount.
4. Comparison rates and prices
Bank: ‘Our mortgage offer: 4.19%. Comparison rate: 4.79%’
Average consumer: ‘Wow, what a fabulous deal! You mean I get a 0.6% discount when I sign up with you? Brilliant. I’ll take it.’
Except no-one else is offering 4.79% as an introductory rate. Oh no. In fact, there are banks offering 3.99%. Don’t see that on the comparison rate, do you.
It’s almost as bad as ‘RRP $599. Our price: $199. What a bargain!’
Average consumer: ‘Well sir, that must be a bargain – it’s a 65% discount! I’ll be saving $400! I’d be crazy not to!’
Except in extreme cases, they are still making a profit. Just because the profit is $400 less doesn’t mean they’re not still doing very well out of the deal. Don’t fall for the old marked-up comparison price.
But what’s it worth?
Okay, so the marketing people and corporations have united against us to brainwash the nation into not questioning prices. Well, perhaps they haven’t, but that seems to be the outcome anyway.
So what is it worth to you if you can overcome all the pre-wiring and sneaky advertising strategies?
It can be tens or hundreds of thousands of dollars over your lifetime.
Yes. Seriously. It’s big bikkies. You’d be mad not to try.
In the three examples I gave at the start of this article:
- The bank dropped my loan from 4.45% to 4.20% (not the requested 3.99%, but a 0.25% drop was acceptable to me).
- The gas company matched the competitor’s offer, resulting in a 20% discount on the unit rate of gas for a year for my husband’s colleague.
- I got the vacuum cleaner bags for $23.75.
Yes, I have a vacuum cleaner with a bag. Yes, I prefer it to bagless. Back to the point…
So how much each discount worth?
- The 0.25% drop on my mortgage rate is worth $812 over a 12-month period. Over the 30-year life of my loan, it’s worth $24,346. Yes, this applies to the life of my loan.
- For someone paying $1,500 a year in gas bills, that 20% discount is another $300 in their pocket.
- My request to the vacuum bag supplier saved me $4.20 (if I get it every time, that’s $8.40 a year).
Now look at it from an hourly rate perspective:
- Getting the bank to drop my loan took about 2 hours of my time – at lot longer than previous instances because I had a dud experience with the first person I spoke to. Regardless, my hourly rate for that work was $12K. More than I’ve ever earned in one hour.
- My husband’s colleague spent less than 30 minutes on his price request, making his efforts worth $600 an hour.
- It takes about 5 minutes for ask for and receive the $4.20 discount on my vacuum cleaner bags (I’ve done it about 8 times now). So that’s about $50 an hour.
Do you earn less than $50 an hour? How about less than $600, or $12,000, an hour? Seems like a pretty good time investment now, doesn’t it.
Think you could get over your preconceptions and aversions to earn an hourly rate like that?
Start asking for discounts
Most people I speak to are uneasy asking for discounts for a variety of reasons (thank you, marketing brainwashers). If this is you, your first goal is to overcome that discomfort. How do we do that?
Practice. Lots of practice.
Every chance you get, you need to ask ‘Can you do a better price for me?’ Ask it with a big smile and lovely manners – no need to be rude. You’ll be surprised how often you’ll get a positive response.
Do it in furniture and electrical stores – Harvey Norman, The Good Guys, Retravision, Forty Winks etc – and they’ll usually knock a few bucks off just for asking. Do it when you’re buying a car. Do it at the local markets (yes, even there – small discounts add up). Do it whenever you possibly can. Most especially, do it with your lender on any loan you have.
Not convinced? Well, what are you worried about? What’s the worst that can happen if you ask for a discount?
They might say: ‘No.’
That’s about as bad as it gets.
You can smile and say: ‘Oh well. I’ll take it anyway.’ You pay full price and you’re finished. No harm done, no noses out of joint. Or you vote with your feet and you buy elsewhere.
It’s highly unlikely that they’ll be rude about it, or laugh you out of the joint, or publicly denounce you as a discount-requester to any passers-by. Even if you come across someone smug and unhelpful (like I did with my bank last week), unless you’re related to them you probably won’t ever have to see them again. So you’ve got very little to lose simply by asking.
Your mission, should you choose to accept it
Let’s go for the biggest bang-for-your-buck discount most of us can get: a rate reduction on your mortgage. When you’ve earned yourself tens of thousands of dollars on your first try, my hope is that will motivate you to ask for discounts elsewhere. If it doesn’t, you’ve saved a bunch of money anyway so you can relax.
As soon as you finish reading this article, you’re going to look up your mortgage rate. Then you’re going to allocate an hour in your day to go to the bank tomorrow if:
- You have a home loan (i.e. you live in the property) and the interest rate is:
- More than 4.20% if you’re with one of the Big 4 banks
- More than 3.99% if you’re with a smaller or online institution
- You have an investment loan (i.e. the property is rented) and the interest rate is more than 4.47% regardless of what lender you’re with.
Why those numbers? Because that’s the rates I got my bank to agree to last week. You should be able to do just as well as me, unless you’re a bad or risky customer (which I hope you are not).
Why the difference between Big 4 and online banks? Big 4s apparently have a policy not to try to compete with the little lenders, which have lower costs when they’re online only. It’s a cop-out, but whatever.
Why the difference between home and investment loans? ASIC regulations and tightening property markets have caused lenders to be stricter on the riskier investment loans. More on this another time.
Okay, enough of the FAQs. Here’s what you’re going to do tomorrow:
- Walk into the local branch of your bank/credit union and ask to see the personal lender (alternative: call your bank/credit union if they’re an online only affair or you don’t want to do this in person – phone can be easier)
- Your script is:
- ‘Thank you for seeing me without an appointment. I’ve had an offer from [insert competitor’s name] for [insert interest rate – at least 0.25% lower than your current rate]. I’d like you to match it.’
- They may immediately come back with an offer, or they come back with:
- ‘That’s very low. We can’t match that.’
- ‘We have so much more to offer than [competitor] – offsets, security etc.’
- ‘Well, I can’t approve that.’
- Any excuse they offer, you can reply with: ‘That’s fine. But [competitor] has made this offer and it’s very tempting. I’d like you to at least try to match it.’ If they keep going, ask them how they would go about asking for the reduction – there’s usually a centrally located pricing request team they submit to. Ask them to put in the pricing request and you can see how it goes.
- They will usually tell you they’ve submitted, and will call/email to let you know what’s happened. If they don’t call/email, follow up.
Then you wait. Then hopefully they come back with a discount, which you accept and suddenly you’ve made yourself $10K+ for an hour’s work.
In my negotiation last week, my rates were 4.45% for my home loan and 4.72% for my investments. I asked them to match 3.99%, which I had been offered by ING, HSBC and UBank (note: they never ask to see the offer, so you can tell you had the same offers if you want). They came back with 4.25% and 4.47% respectively. I told them I wasn’t happy with the home loan (the biggest mortgage I’ve got) and they came down a little bit more to 4.20%.
So, you can use me as your competitor reference if you like. I’m with the Big 4 bank that has the yellow and black logo.
The squeaky wheel gets the oil, people. Squeak away (politely of course) and get yourself some discounts.
And if you do better than 4.20%, I want to know about it so I can go back to my bank and ask for more!
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Lacey Filipich is the co-founder and director of Money School. She helps parents raise financially savvy kids and helps adults get on top of their finances. Connect with her on LinkedIn and follow the Money School Facebook page to learn more.