Perspectives

Evening the odds in price negotiation

How to understand the schemes of purchasing agents

​Price negotiation is usually a David vs. Goliath confrontation. David, the sales rep, has much less influence over what his company sells than the purchasing agent has over what his company buys. Purchasing agents are better informed, since it is legal for them to compare prices and terms with other buyers, while it is illegal for sellers to do so. Finally, salespeople are usually paid for making sales, while purchasing agents are paid for saving money. Not surprisingly, Goliath, the purchasing agent, usually wins, in part because David, the sales rep, is often so disheartened that he expects to lose.

Recognizing deceptive tactics

While the ideal solution to this problem is to replace price negotiation with a non-negotiable price menu, that's not always feasible. Only a quality leader can lead a market to such a policy, and only companies that could survive calling a large buyer's bluff can afford the cost of the transition. Even then, the transition from negotiated to fixed prices usually takes some time. In the meantime, it's essential that salespeople be able to recognize and parry purchasers' deceptive tactics.

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Common mistakes in price negotiation

Learn how to avoid some of the most common mistakes to price negotiation:

  • Discounting the price increase
  • Discounting in return for "incremental volume"
  • Letting past behavior set future expectations
  • Value the differentiators
  • Contracts with one-sided obligations
  • Fixing the price/performance ratio

Price negotiation leverage

​In each of these cases above, the seller's disadvantage in price negotiation may be a devious purchasing agent—or simply a buyer who understands no better than the seller the true value of the product being purchased. In either case, when you understand your product's value and communicate that value to buyers, you create buyers who know the value of what you are offering them and who know that you know. The net result is a lot more leverage in price negotiation and, likely more profitability.

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