Price negotiations involve a buyer and seller reaching an agreement on an acceptable price for a product. In American culture, negotiations are limited to large purchases or specific retail settings, while outside North America, bargaining is common. Three main elements affect negotiations: buyer type, financial considerations, and negotiating skill.
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 negotiations is to determine a price that is acceptable to both parties. At the end of the negotiations, an agreement is reached and the product is sold or there is no sale.
In American culture, price negotiations are restricted to large purchases or specific types of retail settings, such as flea markets or fairs. Most people will conduct price negotiations for a vehicle or home. The vast majority of outlets have a fixed price structure, with no space or authorization to negotiate.
However, outside of North America, there is a process for negotiating prices on a daily basis, for everything from fruit to services. This bargaining culture results in a higher level of bargaining skill on the part of both buyers and sellers. Prices are also under continuous pressure to reflect true market demand. As such, there is a greater degree of fluctuation over time, with the exception of basic items, which have long-term patterns of activity.
There are three main elements that affect price negotiations: type of buyer, financial considerations, and the skill of the negotiating team. All of 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 different patterns of buyer behavior. For example, a bargain hunter is someone with detailed knowledge or understanding of the item, whose top priority is paying less than market value. A strategic buyer is also looking for a low price, but in consideration of 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 price tag. Service costs are an important consideration, as are the consumable materials needed to use the product and the overall useful life of the product. Payment methods are also part of the financial considerations, as this has an impact on cash flow.
The skill of the negotiators on both the buyer’s and seller’s sides has a great impact on the outcome of these negotiations. A skilled negotiator has a clear understanding of the upper and lower limits and the elements where there is room for compromise. Delivery dates, payment terms and service contracts are part of price negotiations.
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