With a price increase, poorly defined policies leads to lack of price integrity on the
seller’s side, which in turns makes the buyers adopt defensive negotiation tactics.
If no price consistency, consumers will keep looking for substitutes to threaten you
lower your price. Competitors also won’t know your price due to no consistency.
They can only know the info from purchasing agents, who tends to tell them that
you provided a lower price without telling them the restrictive terms so the
purchasing agents can negotiate with them for an even lower price. As a result,
competitors will think you are pricing lower and so they will price even lower than
necessary to win sales.
Benefits of policies for price negotiation
With a price increase, if company has strong pricing policies, seller now has more
control and price integrity over purchasing agents, leaving purchasing agents to
make decisions such as to compromise or check what other companies are doing.
With strong policies (including discount and trade off policies), sales rep has the
power to provide trade offs without consulting his supervisor. Therefore the buyer
now has to make a decision on whether to keep threatening the seller to lower
price, or working with the seller and save money from trade offs/discount policies.
One result is the buyer becomes more open up and forms a mutually beneficial
Conclusion: changes in price should be driven by consistent policies that would
empower and motivate sales reps to sell on value rather than on price.
Policies for different types of buyers
Value buyers: buys a disproportionate share of sales volume
- Have sophisticated purchasing departments that buy large volumes
- Can afford cost to search and evaluate many alternatives
- Try to get all features and services
- Try to push down price as low as possible
Policies: ones that empower sales reps to make trade-offs, and offer defense
against pressure on price alone
- Understand how your product may add more value to customer than
- Understand how change in customer’s behavior can add more value to you
- Create a set of pre-approved trade-offs