Unit III: Pricing & Negotiation

Pricing & Negotiation

Pricing Basics and Objectives

Pricing is the process of determining the value that a business will receive in exchange for its products or services. It is a crucial element of the marketing mix (Product, Price, Place, Promotion) and affects profitability, competitiveness, and market positioning.

Objectives of Pricing

Businesses set pricing strategies based on different objectives, which include:

Price Models and Skills

Price Models

Businesses use different pricing models depending on their industry, costs, competition, and target market.

Pricing Skills

To set effective prices, businesses and sales professionals need strong pricing skills, including:

• Market Research: Understanding customer needs, competitors, and industry trends.
• Cost Analysis: Identifying production, operational, and marketing costs.
• Value Assessment: Determining how customers perceive the product's value.
• Psychological Pricing Techniques: Using pricing strategies like charm pricing (e.g., ₹999 instead of ₹1,000).
• Negotiation Skills: Convincing customers and partners to agree on a favorable price.

Pricing Tactics

Pricing tactics are short-term strategies used to influence customer purchasing decisions.

Negotiated Pricing

Negotiated pricing is the process of setting prices through direct discussions between buyers and sellers. It is common in B2B transactions, high-value purchases (real estate, automobiles), and service-based industries.

Key Elements of Negotiated Pricing

• Initial Offer & Counteroffer: The seller proposes a price, and the buyer negotiates for a better deal.
• Value Justification: The seller explains why the product/service is worth the price.
• Concessions & Compromises: Both parties make adjustments (e.g., bulk discounts, and extended warranties) to reach a fair price.
• Win-Win Outcome: The goal is to create a deal that satisfies both parties.

Negotiation Strategies for Pricing

Pricing is a crucial aspect of business strategy, affecting profitability, market share, and customer perception. Understanding pricing models, tactics, and negotiation strategies helps businesses set competitive prices while maintaining profitability.

Price Setting in B2B Markets

B2B (Business-to-Business) pricing is more complex than B2C (Business-to-Consumer) pricing due to factors like bulk transactions, long-term contracts, negotiations, and customized pricing structures. Here’s a detailed breakdown of key concepts in B2B price setting:

The 3 C’s of Pricing: Cost, Customer, and Competition

Effective B2B pricing is based on three key factors:

• Cost-Based Pricing Example: A manufacturer calculates total costs (raw materials, labor, overheads) at ₹500 per unit and adds a 20% margin, selling at ₹600 per unit.
• Customer-Based Pricing Example: A software company charges higher prices for a premium security feature because customers value data protection.
• Competition-Based Pricing Example: A logistics provider adjusts freight charges based on competitors to attract customers.

Pricing Strategies in B2B Markets

B2B companies adopt various pricing strategies depending on their objectives and industry trends.

Example: An industrial equipment supplier might use cost-plus pricing for standard parts but value-based pricing for custom solutions.

Price Positioning in B2B Markets

Price positioning refers to how a company places its product price relative to competitors and market perception. It helps define brand image and competitive advantage.

Example: A cloud service provider positions its product at a premium due to better security features, while a competitor offers low-cost cloud storage with fewer benefits.

Role of Sales Force in Pricing

In B2B markets, the sales force plays a crucial role in pricing decisions, as negotiations and customer relationships are vital.

Example: A sales representative convinces a large customer to accept a higher price by demonstrating the product’s long-term cost savings.

Bid Pricing in B2B Markets

Bid Pricing is used in industries where suppliers submit price quotes for a project or contract, and the buyer selects the best offer.

Example: A government agency requests sealed bids from IT vendors for a large software implementation project.

Internet Auctions in B2B Pricing

Online auctions are widely used in procurement, manufacturing, and wholesale transactions. These auctions can help companies secure competitive pricing.

Example: An automobile manufacturer hosts a reverse auction to get the best price for raw materials.

Ethical Aspects of B2B Pricing

Ethical pricing ensures fairness, transparency, and compliance with laws and industry standards.

Example: A chemical supplier unethically charges different prices for the same product based on the customer’s bargaining power.

In Short, Setting B2B prices requires balancing cost, customer value, and competitive forces. The right pricing strategy depends on market dynamics, sales force capabilities, and negotiation skills. Additionally, businesses must ensure fair and ethical pricing to maintain trust and compliance.

Managing the Personal Selling Function

Personal selling is a direct interaction between a salesperson and a potential customer to influence purchasing decisions. It is essential in B2B sales, industrial markets, and high-value consumer products. Managing personal selling involves recruiting, training, controlling, and evaluating the sales force to ensure efficiency and profitability.

Personal Selling

Personal selling is a form of direct marketing where sales representatives interact with customers to identify needs, present solutions, negotiate, and close deals. It is commonly used in B2B markets, industrial sales, and high-involvement purchases.

Process of Personal Selling

Example: A pharmaceutical sales representative visits a hospital, explains the benefits of a new medicine to doctors, answers their questions, and persuades them to prescribe the product.

Industrial Sales Force Management

Industrial sales force management involves organizing, leading, and motivating sales teams to sell products/services to businesses rather than individual consumers.

Key Elements of Industrial Sales Force Management

Example: A B2B software company divides its sales force into territories such as manufacturing, healthcare, and retail, with each team focusing on their assigned industry.

Sales Force Selection

Selecting the right sales people is crucial to building a strong and effective sales team.

Selection Process

Key Qualities of a Successful Salesperson

✔ Strong communication skills

✔ Persuasive ability

✔ Market knowledge

✔ Resilience & adaptability

✔ Negotiation skills

Example: An automobile parts manufacturer hires salespeople with technical knowledge of mechanical components and strong interpersonal skills to handle industrial clients.

Sales Force Training

Sales force training helps representatives develop product knowledge, selling techniques, and relationship management skills.

Types of Sales Training

Example: A medical equipment company provides simulation-based training where sales reps practice presenting to doctors in real-life scenarios.

Sales Force Control and Evaluation

Controlling and evaluating the sales force ensures goal achievement, performance tracking, and continuous improvement.

Methods of Sales Force Control

Example: A telecom company tracks monthly sales data to assess if sales reps are meeting their targets. Underperforming reps receive additional training.

In Short, Managing the personal selling function involves hiring, training, controlling, and evaluating the sales force to maximize efficiency. A well-managed sales team helps a company increase sales, build customer relationships, and gain a competitive edge.