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.
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.