How to negotiate a great deal at the Dubai Gold Souk
I’ve been on holiday this week in Dubai and had a great time negotiating deals in the Dubai Gold Souk.
In my day job as a transactional lawyer, we are negotiating near daily and are trained on the subject too, so I’ve picked up a few good tips along the way. This article is a primer on how to save money if ever you visit the Gold Souk, and, more generally, a brief introduction to negotiating deals in any situation.
Before we get stuck in to my 6 top tips, if this topic of negotiation is of interest and you want to see more content on it, let us know. We’re guided by you completely on what content we focus on.
So here are my 6 golden (pardon the pun) tips on how to negotiate a great deal at the Dubai Gold Souk:
1. Research, research, research
The most important tip is that knowledge is power in these situations – and actually a number of the tips below are just elaborations or illustrations of this first tip. If you are like me, you do not know much about the gold market, you don’t own any gold, and, frankly, you’d much rather be doing something else than shopping for gold with your other half (much though you love them!).
But if you don’t do your research, then expect your negotiation outcomes to reflect that.
So before you arrive at the Souk, you should have done your research by reading a few reviews of a few shops, searched about stories of how others got on (Tripadvisor or Google reviews are great resources). Nowadays, with the amount of information you can get on Google and YouTube alone, there’s no excuse for not doing your research.
Even better, talk to a few people who have been in the past just to get a sense of how things practically work. You can also tap into local knowledge by befriending workers at the hotel, taxi drivers, etc to get some local market knowledge. Just make sure they’re not somehow incentivised by directing you to a particular place!
2. Have a clear set of goals in mind
The other side has a simple objective – to sell you as much stuff as possible at the highest possible price they can.
You need to also have a clear objective in mind, otherwise you’ll be easily swayed, your decision-making will get complicated and you’ll start trying to factor in a lot of additional noise being thrown your way (e.g. “we’ve got 50% off diamonds this week!” or “this earring goes really well with that dress you have on”).
For us, knowing that we wanted to (a) exchange my wife’s bangles and 2 rings; (b) buy new bangles and a chain; and (c) get a stud for another family member radically simplified our options.
(This didn’t stop us spending 5 hours in the Souk, but that’s a whole different story…)
3. Get a sense of the key metrics that will be important in negotiation
Negotiations are over various points. But if you don’t even know the possible points or “moves” you could make, then you’re weakening your position and coming up with a novel deal. So try and understand the mechanics behind the other person’s negotiation strategy.
In the Gold Souk context, you should know that there are different carats of gold, each with a different daily sell price and a different buy price. You should know that a retailer will buy gold from a wholesaler at the gold sell price (AED145.5, for example), then add in his or her labour cost (between 5-14% of the total cost), and then sell to you. They will also add in a compulsory 5% tax.
So when you get a quote of AED 1000, the majority of that will be the gold sell price (which is fixed and non-negotiable), then there is the labour cost (which is the primary focus of negotiation), and then there is the tax (which you can reclaim 85% of at the airport and is again non-negotiable).
You can also get a bit of a discount on the overall deal by exchanging your gold at a decent price – because a retailer will be willing to give you pretty much break-even rates (or keep a very slight profit) in order to get you to buy from him (because that is where his profit is).
When you understand these things, you’ll be able to distinguish when someone is simply posturing about not being able to go to a lower price, or whether you’re genuinely offending them by asking for a further reduction.
4. Get a sense of the market mood
Talking to people is the best way to get a sense of the market. Strike up a few conversations and ask how business is doing, how their season has gone, and if today is a busy day. These things lead to really useful nuggets a lot of the time.
So for example, one such conversation led me to learn that this last year has been awful for the Dubai gold retailers as traffic has almost halved because of this new tax that has been introduced. This in turn has driven up prices and has meant that customers are deciding that they’ll just buy from their home countries. However, the tax rebate that I mentioned above has only been running for 2 weeks, so there is a sense of cautious optimism in the market, but clearly also teething issues.
More generally, the wider mood music about the whole Dubai economy is that it is a bit subdued. Some insights I gleaned from conversations which inform this conclusion are: lawyers are not being hired as widely, hotel occupancies are low and competition is fierce, and Abu Dhabi is buying up a lot of key buildings from the Dubai government. You’ll be amazed at what you can learn about the economy as a whole from talking to people with different angles on it.
Another important way to get a good sense of the market mechanics is to go through negotiations with a few shops early on – even where you don’t necessarily like the piece. There is a way gold is sold and calculations run which you’ll get a sense of. Also, you’ll importantly get a quote from them which you can compare against with other shops. This is all great data.
Then more generally, just spend some time in the place. Just sitting there and walking around and talking to people (some you may think unconnected but are actually very knowledgeable about the whole market) will get you some great intel.
5. Look for a knowledgeable neutral bystander
If you can find a neutral bystander, you’ll be in a great position. In our case, we had researched that there was a particular wholesaler (https://sellgold.ae/) which basically supplies the majority of the retailers in the entire Gold Souk. So we went to these guys to get a quote on the gold we had to sell. They did all their high-tech tests (they usually don’t get retail customers so they were really happy to chat) and gave us a quote. They also told us that they advised us to just exchange with a retailer downstairs as they’ll give us a better quote than them.
Why would they tell us this? Because they don’t make much money from people coming in off the street. They make money from their wholesale and online business. In other words, our custom would have brought them a negligible profit and so they were neutral as you can get in such a situation.
They also helpfully explained to us some of the above market dynamics I’ve been sharing.
Getting our gold valued by these guys was really helpful in our ultimate trade, as it allowed us to bargain up the exchange price considerably higher (and it gave the retailer trust that the high-tech wholesaler had tested our gold and knew it to be good quality).
6. Use the multiple-contact approach
I haven’t mentioned much about the personal side of negotiation, but one important point to share in these souk situations is to not be afraid to walk away. Go a certain way along the negotiation process with someone and, if you hit a wall, walk away. Go back later and try again. If you hit a wall, go away again.
This can be time consuming and annoying, but human psychology is such that we’ll be much happier reviewing and revising our initial quote or position at a second meeting than at the same meeting. It gives a sense of “I’ve gone away and thought about this” or “I am relenting” or “I have looked around further and this is now my more educated offer”.
So that’s it for now folks.
Let me know in the comments below your own experiences and if you’ve found the above useful. If you’d like to hear more from us on negotiation, then drop us a line or comment below to let us know – there’s a lot more stuff we’d love to share on this inshAllah.
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