06/04/2004
Lessons in Bargaining

1. Stalking Horse. Put in a bid in to rent a property that had been vacant for months. As soon as my binder was signed, seller took bid to those waiting and got two higher bids that trumped me. Forbidden fruit is sweetest, and competition is the most powerful motivator for buyers. One mutual fund buys, then others follow.

2. Substitution. At a Starbucks on 37th Street I notice no bums sitting and ask manager about it. He says, Why. we recently changed from cushioned chairs to harder chairs, and the bums now go to atriums or a park or an ATM, where they can find more comfortable resting arrangements. Substitutes exist for everything, and when the opportunity cost of something (like water in a drought) is very high, a slight rise in price induces substitution. That's why the cobweb theorem works and oil will be in retrocession.

3. Bright Colors. Vanna Lorie has a kitsch poster on her wall, How to Sell Art, and one of the directives says, Bright colors sell 10 times as well as dark. I came into a Polo store to buy some pink and yellow pants displayed in the window. " great, everything's on sale. Oh, too bad, not the bright colors; they're for the summer and in fact we're sold out ones you want. The IPOs always appear so much more attractive then their more seasoned counterparts.

4. Simple Is Best. Neil Raphel, the former president here who helped to channel Trout out of my firm, now runs a marketing business. He has a 7x10 postcard mailer that he can send out for 15 cents with four colors and nice copy and response vehicle. It pulls better than the standard four-page letter, brochure, respons card, and envelope. I hypothesize that one-product and single-name companies sell at better multiples than more complex businesses.