Rules and Tips for Price Negotiations

Negotiating and Bargaining
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Mohammad Hamdan
Russian Federation

Rules and Tips for Price Negotiations

Whether you are an owner of an investment project or a manager, an employee or an executive director, you will find yourself in many situations as a seller or buyer. How can you, as a buyer, get the lowest possible price? And how can you, as a seller, get the highest possible price?
Below you can review the most important rules that should be followed at the stage of negotiating prices to close the deal and get the best possible price for you and your company, whether you are a buyer or seller.

A) Rules for the BUYER to reach a LOW price:
  1. DO YOUR HOMEWORK
    Make sure that you carry in your negotiating bag the necessary information that will give you leadership in the negotiations and control of prices. Be sure to know the cost price of the seller, competitors' prices, the existence of a deadline for the seller to sell the goods/products, knowing the seller's goal of selling: is it with the aim of making a profit or with the aim of getting rid of the product? If you have such information that will be more than useful; it will give you bargaining power in negotiations.
  2. MAKE THE SELLER NAME A PRICE FIRST
    If you name a price first, the seller may agree and end the negotiations, while she/he was willing to reduce it. When you negotiate the price, set it in a non-reasonable way "very low", but not in way that shows you are not serious. Here appears the importance of doing your homework; for example, start by offering the cost price.
  3. BE QUIET (USE THE POWER OF SILENCE)
    When the seller starts talking, try to respond to her/him with silence. Take time to answer her/his offers. Let her/him keep talking and feel insecure, at this moment she/he will automatically start to fill in the silence, trying to justify her/his offer or make further concessions.
  4. ASK FOR EXTRAS
    When a specific price is already agreed, go directly to what additions can be provided by the seller, whether it is accessories related to the sale, obtaining free quantities, or obtaining discounts on subsequent purchases. All this will have a positive effect on the total deal at the end.
  5. BE WILLING TO GO AWAY
    What gives you the upper hand in the negotiations is the fact that companies are afraid to lose the sale, or to allow the potential buyer to walk away without completing the purchase. So threaten to withdraw, as that would stimulate the offer. This rule is a double-edged sword if the product offered for sale is unique and has features that you really need. So do not follow this rule if you can not afford to not complete the deal, or if there is no viable alternative option.
  6. INSIST ON RECIPROCATION
    Never submit a concession without getting one in return. This is a big mistake and an unintelligent bargaining act by the buyer. Always make sure that if you make a concession, it must be reciprocal. Otherwise, go directly towards thanking the other party and leaving, that will give her/him the impression of your departure and she/he will rush towards you to offer you a concession. This behavior might give you the helm of the leadership to obtain another concession.

B) Rules for the SELLER to reach a HIGH price:
  1. BUILD VALUE
    Focus your conversation with the buyer on the value you provide, rather than on the price. If the negotiation is just on the price, the lower one will win anf that might be not you. Solve the problems that you encounter during negotiations, whether related to price, trust, competitive challenges, or anything else, by focusing on value. Work to build value for what you sell by focusing on the goals of and benefits for the buyer and create new ideas for her/him to achieve through what she/he buys. The buyer will appreciate such assistance and will not ask for a severe price reduction.
  2. LEAD THE NEGOTIATION
    Be the initiator, define the negotiation agenda, pricing policies, ideas, interests, terms. Allowing the buyer to lead the negotiations forces you into trying to catch up with her/him, and your actions will be based on reactions. Always write your own contract and do not negotiate a contract that was written by the buyer.
  3. EFFECT EMOTIONS
    Play on the buyers' emotions. Sales processes and negotiations are emotional affairs, with caution, anxiety, frustration, and anger, as well as satisfaction, loyalty, trust and comfort. So focus your influence on the feelings of your buyers, make them feel connected, respected and appreciated. Make them love buying from you. Giving a little something for free often has a magical effect on emotions.
  4. CLAW BACK MONEY IN OTHER AREAS
    The buyers argue, debate, and maneuver to lower the price. You can provide that to them to increase your attractiveness, but remember to take other methods of extracting value, don't let focusing on price distract you from it. You can lower the selling price but in turn, for example increase the price of accessories that the seller cannot achieve satisfactory results without.
  5. JUSTIFY THE PRICE
    Do not throw prices arbitrarily, this reduces credibility and destroys trust between the parties. Remember that the buyer has prepared her/his homework well and probably studied the market before heading to you. So offer a reasonable and justified price and, as already mentioned, focus on value to justify the price.
  6. LEAVE THE CUSTOMER FEELING SATISFIED
    Whatever you do, however you negotiate; remember that you are creating a client for your company. Even if a transaction is not completed, it will affect your reputation. Therefore, work hard for the potential buyer to leave from the negotiations satisfied and happy, whether the deal is concluded or not. Be calm, patient, a good listener, and rationally justify your prices.
Although price may be the most important issue at stake in your negotiations, discussing and negotiating other issues such as financing, payment, delivery, solving disputes helps to improve the deal and end the negotiations in a manner that satisfies both parties.
⇨ I am curious for your experiences and ideas gained while leading negotiations. Please react and help to build this important topic.

References:
Mike Schultz, John Doerr, and Bob Croston, "6 Essential Rules of Sales Negotiation", RAIN Group, p. 26.
The World Bank (2018), "Negotiations and Best and Final Offer (BAFO)", p. 65.
Doug and Polly White (2015), "8 Pointers for Setting a Price in Negotiations", Entrepreneur.
Carl Natale, "How to Successfully Negotiate Lower Prices in Any Situation", Money Crashers.

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