Negotiation in Purchasing and Marketing

Negotiation is a two way communication where in the dealing parties always have some issues on which the settlement is sought. All such issues provide the subject matter for the negotiation. It should also be noted that negotiation is possible only for those issues which are subject to settlement under various alternative sources. There cannot be any negotiation for an issue which has only one solution.

The two parties can be purchaser/buyer and marketer/seller. Both parties are interested in clinching the deal so that the transactions can take place. It is a win-win situation for both of them even after the negotiation.

The areas of negotiation can be Price, Quality, Quantity, discount, loyalty discount and after sale Service.

Price is the key as well as an important consideration in the negotiation. The buyer strives to prove that there exists a keen competition in the market and so the supplier should offer the most competitive price. The buyer also expresses his intention of buying over a period of time and therefore intends to buy from the same supplier.

The supplier would try to prove his hold in the market through quality and thus will try to strengthen his bargaining position. While negotiating on the price, each break up of the price should be negotiated separately. In case of conditional price (e.g. f. o. b price) the incidence of each condition on price should be measured accurately. Sometimes instead of price negotiations, cost negotiations are carried on. Under such negotiations, discussions on cost are made on each element of cost. The usual break up of the price along with the elements of the cost is as under:

Material cost + Labor Cost + Overheads = Cost of production

Cost of Production + Profit = Price

The arrival at each element of cost is a technical matter and is subject to substantial deliberations. Especially the overheads part of the cost is most debatable. However agreement is possible on all these issues.

Quality: The quality considerations are also subject to debate and deliberations. The quality will be largely affected by factors such as the dimensions of raw materials, material mix, quality control, processing method and even primary and secondary packing. All these issues should be deliberated and agreed upon respectively.

Quantity: The quantity considerations involve the negotiation on issues such as quantity discount, commitment of the supplier to meet the future requirements, the guarantee from the buyer to place orders in future etc.

Discount: As mentioned above is for quantity.

Loyalty Discount: This additional discount is passed on to the buyer at the end of the contracted period (loyalty discount) in cash or kind. Most suppliers prefer this discount. It is passed on in the form of free supplies.

After Sales Service: The service aspect of the negotiation involves considerations such as timely delivery, after-sales services, treatment of defectives and rejections etc.

As settlement between buyer and seller is a composite deal, the impact of all these factors should be weighed individually before finalizing the final deal.

There are some principles of successful negotiation. Negotiation requires a specialized skill. The essential element in negotiation is the bargaining between the individuals or groups of individuals, so the negotiation process involves personalities, their motives, their strengths and weaknesses and above all  a great deal of psychology. The following rules should be observed in carrying a successful negotiation:

*The issues of the negotiations should be organized properly

*The buyer should carry on the negotiation on his home ground and as per mutually convenient arrangements. The buyer should be reasonable and his arguments should enable the supplier to accept majority of the points.

*The buyer should allow the supplier to do most of the talking

*Only one point must be taken up at a time.

*The talk should be directed towards the proper person.

*The discussion issues resulting in disagreements should be postponed for the next meeting (if possible).

*Both buyer and seller must have correct knowledge of facts and figures.

*One should try to avoid the emotional reactions to the presentations of the other, at the same time emotional touch to the presentation should also be eliminated.

*If any party has to retreat on a point, allow it to be done gracefully

*The objective of any negotiation is to come to a conclusion, so try to avoid any preliminary and impossible closures.

The buyer and group, the seller and group must not be adopting ‘Business at any cost’ policy. The organizations they represent must not be put to any loss because of the negotiations.

  • M.Sayeed

    Very well Explained..Thanks for sharing.