Negotiating price2

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  • 1. The MAANZ MXpress Program Negotiating Price Dr Brian Monger Copyright January 2013. This Power Point program and the associated documents remain the intellectual property and the copyright of the author and of The Marketing Association of Australia and New Zealand Inc. These notes may be used only for personal study associated with in the above referenced course and not in anyeducation or training program. Persons and/or corporations wishing to use these notes for any other purpose should contact MAANZ for written permission. MAANZ International 1
  • 2. MAANZ International MAANZ International, is a Not for Profit, internet based professional and educationalinstitute which has operated for over 25 years. MAANZ International offers Professional Memberships; Marketing Courses (Formal and Short) And Marketing Publications www.marketing.org.au MAANZ International 2
  • 3. Negotiating Price In many instances, customers do not pay a standard list price. Instead, the final price is determined through a process of negotiation between buyer and seller. The negotiation process becomes necessary when neither of the parties to a transaction has the power to impose its own will over the other(s). MAANZ International 3
  • 4. A Word about Price and Value The Oxford English Dictionary refers to value as `an estimate of worth or utility, which would indicate that value is the outcome of some sort of assessment or estimate. MAANZ International 4
  • 5. Marketing as an Exchange of Value What is a market transaction all about? In essence its about exchanging value. There must be something of value created by the seller, offered and exchanged with something of value from the buyer. Customer value is represented in a series of trade-offs between what the customer gives relative to what they receive. MAANZ International 5
  • 6. Creating Customer Value The job of any market-driven organisation is not to sell a product, but instead to create value for customers. Value creation, is the source of competitive advantage in the marketplace. The fundamental purpose of any business is to create value where there was none before. MAANZ International 6
  • 7. Marketing as an Exchange of ValueVarious authors have provided A trade-off between received value andvariations on this simple approach such desired valueas: A customer makes investments in order to achieve a number of desired benefits.A trade-off between product quality Similarly organisations also make a seriesand the price of investments in order to achieve a A trade-off between a set of benefits series of designed benefits andand specific categories of costs outcomes. The hierarchy of derived benefits The actual set of benefits they both getobtained from particular product out the exchange must be weighedattributes when using the product against their investments. The resulting emotional, practical andlogical worth associated with the product MAANZ International 7
  • 8. Pricing Problems are Universal For marketing strategists, Pricing is themoment of truth. All of marketing comes to focus in the pricing decision. MAANZ International 8
  • 9. The Universal Approach is Simply Wrong One of their main problems is that they are not marketers and do not understand why they should be. It is up to the marketer to understand whytheir target segments buy. Even if the physical product is the same (eg 2 airlines) some simply prefer one over the other MAANZ International 9
  • 10. Some like an organisationspositioning/attitude (Virgin/Body shop) If youcan develop a preference you can charge more for it. You may choose not to charge more - but the objective of marketing is to increase the preference. MAANZ International 10
  • 11. The Universal Approach is Simply Wrong Recent significant price rises in petrol showed that the industry wasnt anywhere near as price sensitive as was once considered. I personally would fire any so called marketer who couldnt add value and get a better price than the industry norm. MAANZ International 11
  • 12. Not Everyone Wants the Lowest Price! But Everyone Wants the Best Value MAANZ International 12
  • 13. Not Everyone Wants the Lowest Price! There are many elements that can increase the value in any transaction (for both parties). That is, everyone gets better value out of the deal. Low prices are seldom going to be able to provide much in the way of added value. When a marketer offers a low price, the profit margin per item falls. Perhaps an increase in volume will compensate for this. However, the closer a price comes to breakeven (costs V income) the less value there will be for all concerned. The seller is closer to going broke and cannot offer any increased value to the buyer. If in fact they do go broke, the buyer has to find another supplier. A strategy that has an over-reliance on price-cutting is an overly simplistic strategy. It is the easiest strategy for a rival to copy and the hardest strategy to defend. MAANZ International 13
  • 14. Industries that have firms focused on the belief that lower pricing is the strategy of success will tend to develop price wars. Very low prices price lead to low margins per unit. Unless this is off-set by high volume (which isbecoming rarer in most markets) organisations and ultimately their customers will suffer. It is in every-ones interest MAANZ International 14
  • 15. A firm with very low margins cannotundertake value adding activities or developnew products. Ultimately they will try to cutcosts in areas that buyers consider core value areas, and lose customers. Firms with lowmargins are always that much closer to goingbroke (with the resultant effect on suppliers,intermediaries and employees - not only the owners). MAANZ International 15
  • 16. Good marketing is not about lowering prices (any fool can do that really!). The job of a good marketer is to increase margins and deliver better value (not less) to buyers. MAANZ International 16
  • 17. To the purchaser, there are a number of coststo be considered as part of the payment. They include: Time Investment. RiskOpportunity costs What would be the best use of my money at the present moment?