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What is Price Negotiation?

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  • Written By: Carol Francois
  • Edited By: Heather Bailey
  • Last Modified Date: 18 August 2016
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Price negotiation is a common occurrence when purchasing materials or supplies. During a price negotiation, there are two roles: buyer and seller. The purpose of the negotiations is to determine a price that is acceptable to both parties. Upon the completion of negotiations, either a deal is reached and the product is sold or there is no sale.

In North American culture, price negotiations are restricted to large purchases or specific types of sale environments, such as flea markets or fairs. Most people will conduct price negotiations for a vehicle or home. The vast majority of retail outlets have a fixed price structure, with no room or authorization to negotiate.

However, outside North America, there is a process for price negotiation on a daily basis, for everything from fruit to services. This culture of bargaining results in a greater level of negotiation skill on the part of both buyers and sellers. Prices are also under continual pressure to reflect true market demand. As such, there is a greater degree of fluctuation over time, with the exception of staple items, which have long-term patterns of activity.

There are three primary items that impact price negotiations: buyer type, financial considerations, and negotiating team skill. All these items have a specific role to play in all price negotiations. It is important to consider all five as part of a balanced scorecard, with weights attached to each item as determined by the actual situation.

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Buyer types are broad categories used to describe the different behavior patterns of buyers. For example, a bargain hunter is someone with detailed knowledge or understanding of the item, whose main priority is to pay less than market value. A strategic buyer is also looking for a low price, but in consideration with the value of the item and the cost required to significantly increase that value.

Financial considerations are part of every price negotiation, but there is more to consider than just the sticker price. Service costs are an important consideration, as are consumable materials required to use the product and the overall useful life of the product. Payment methods are also part of financial considerations, as this has an impact on cash flow.

The skill of the negotiators on both the buyer and seller side has a huge impact on the outcome of these negotiations. A skilled negotiator has a clear understanding of the upper and lower bounds and the items where there is room for compromise. Delivery dates, payment terms, and service contracts are all part of the price negotiations.

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mutsy
Post 5

Greenweaver- But do not forget that price negotiation can also include salaries regarding within contract negotiations.

Many union members have their contracts negotiated yearly which determine their pay as well as essential benefits.

Teachers for example, usually belong to a union that negotiates their yearly contracts. It often details their salary increase percentage if any as well as the terms of other benefits such as health care benefits or pension plans.

GreenWeaver
Post 4

Crispety- So when a customer provides an objection regarding the price of an item stating that it's too expensive, a salesperson trained by a negotiation course might refer to the premium features of the product or service in order to justify the price.

Focusing on the quality of the item is generally the best tactic that a salesperson can use with a customer.

Most customers want a reliable product and by performing product demonstrations and providing testimonials also enhances the salesperson's credibility.

Crispety
Post 3

Cafe41- Since price is generally the biggest obstacle in price negotiations; many companies provide negotiation training through various negotiation courses for its employees.

Usually these courses are best suited for the sales force of the company since they have to negotiate directly with the customers. These salespeople often learn how to handle objections from customers regarding pricing.

cafe41
Post 2

Sunshine31- I do the same thing when I go shop for a car. I never show in any emotion.

Also, shopping for a home involves considerable negotiation. Having a great realtor and knowing the market price for homes in the area offers the buyer a great advantage when conducting house price negotiation.

The buyer also has to conduct an inspection in order to determine what the appropriate price of the home should be. This gives the buyer leverage and creates an advantage for the buyer regarding the home price negotiation process of buying a home.

sunshine31
Post 1

One of the best negotiation tips regarding any product or service is to do your research. Finding out what multiple companies charge for a product or service puts you at an advantage when negotiating a price.

For example during a car price negotiation, it is not uncommon to provide pricing data from other dealers. This helps the dealer know that you're negotiating with that that you are aware of what the various competitors are charging for a specific car.

Price negotiation tactics might include not showing emotion or interest in the car. This lack of emotion puts the customer at an advantage over the dealer.

Negotiations are like a poker game you never want to give up your hand ahead of time.

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