The document discusses negotiating price and understanding customer value. It provides an overview of MAANZ International, an educational institute that offers marketing courses and publications. It then discusses that negotiating price is necessary when neither party can impose their will, and that customers do not always pay list price. The rest of the document focuses on understanding that customers purchase value, not just products, and that marketers should focus on creating value for customers through benefits rather than focusing only on lowering costs. It also discusses understanding different customer perspectives on price and the importance of perceiving value from the customer's point of view.

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 any
education or training program. Persons and/or corporations wishing to use these notes for any other purpose
should contact MAANZ for written permission.
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2. MAANZ International
• MAANZ International, is a Not for Profit,
internet based professional and educational
institute which has operated for over 25 years.
• MAANZ International offers Professional
Memberships;
• Marketing Courses (Formal and Short)
• And Marketing Publications
• www.marketing.org.au
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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).
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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.
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5. Marketing as an Exchange of Value
• What is a market transaction all about? In
essence it's 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.
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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.
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7. Marketing as an Exchange of Value
•Various authors have provided •A trade-off between received value and
variations on this simple approach such desired value
as: • A customer makes investments in order
• to achieve a number of desired benefits.
•A trade-off between product quality Similarly organisations also make a series
and the price of investments in order to achieve a
• A trade-off between a set of benefits series of designed benefits and
and specific categories of costs outcomes.
• The hierarchy of derived benefits • The actual set of benefits they both get
obtained from particular product out the exchange must be weighed
attributes when using the product against their investments.
• The resulting emotional, practical and
logical worth associated with the product
•
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8. Pricing Problems are Universal
• For marketing strategists, Pricing is the
moment of truth. All of marketing comes to
focus in the pricing decision.
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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 why
their target segments buy. Even if the physical
product is the same (eg 2 airlines) some
simply prefer one over the other
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10. • Some like an organisations
positioning/attitude (Virgin/Body shop) If you
can 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.
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11. The Universal Approach is Simply Wrong
• Recent significant price rises in petrol showed
that the industry wasn't anywhere near as
price sensitive as was once considered.
• I personally would fire any so called marketer
who couldn't add value and get a better price
than the industry norm.
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12. Not Everyone Wants the Lowest
Price!
But Everyone Wants the Best Value
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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.
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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 is
becoming rarer in most markets) organisations
and ultimately their customers will suffer.
• It is in every-ones interest
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15. • A firm with very low margins cannot
undertake value adding activities or develop
new products. Ultimately they will try to cut
costs in areas that buyers consider core value
areas, and lose customers. Firms with low
margins are always that much closer to going
broke (with the resultant effect on suppliers,
intermediaries and employees - not only the
owners).
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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.
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17. To the purchaser, there are a number of ‘costs’
to be considered as part of the payment. They
include:
•Time Investment.
•Risk
•Opportunity costs What would be the best use of my money
at the present moment?
5
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18. The Lowest Price Is Likely to be the Worst Thing You
Can Do
• The lowest price is usually bad for everything:
• Poor strategy
• Poor profitably
• Selling costs may rise
• Poor marketing
• Bad for brand image
• Makes future sales harder
• Defeats true loyalty
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19. Negotiating Price
• Do nots
• 1. Do not start with the belief there are no
options.
• 2. Do not start with the price
• 3. Do not start with a low price and then
follow-up with a discount
• 4. Do not create prices using only a cost based
focus.
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20. Negotiating Price
• Do’s
• Start with a value based concept – not a cost
based one
• Understand why buyers buy – It is always
VALUE
• Understand value from the customers point of
view
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21. Price Is A Creative Variable
Implicit in the argument that price must reflect value is the
need for flexibility in the methods used to establish prices.
"price is a variable.”
10
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22. Price Is Just One Element Of Your
Marketing Mix
Pricing is but one of the four strategic elements comprising the
marketing mix.
If marketers are to meet consumer demand profitably, they
cannot afford to reduce their relationships with their markets to
simple price-quantity terms.
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23. The main care must be to tailor prices to market requirements,
and present them to those markets as integral parts of
appealing composite offers and strategies.
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24. The underlying reason for much of today's ineffective pricing
is a preoccupation among those who set prices with the need
to cover costs.
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25. Costs and Buyer Evaluation
• A fundamental principle in market-based
strategic pricing is to recognise that price is a
statement of value, not a statement of costs.
One of the leading causes of new-product
failure is a phenomenon of "price crunch." This
is the situation where the firm charges a price
that is significantly higher or lower than the
amount of value buyers associate with a
particular purchase.
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26. It is reasonable to accept the economic axiom that prices paid
tell us something about consumer evaluations of products.
(i) the traditional demand theorem that 'the lower the
price, the greater the sales'.
(ii) the premium-pricing dictum: 'the higher the price, the
higher the customer valuation - so, the greater the sales'.
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27. Why Do buyers Buy?
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28. Understanding Buyers
• 1. Not everyone is the same – that’s why we
segment and target.
• Understand the Price mind set (it affects both
buyer and seller)
• The value for some customers is in “out
negotiating” you. They just want to win.
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29. Value
Buyers' interest in price stems from their expectations about
the usefulness of a product or the satisfaction that they may
derive from it.
Because buyers have limited resources, they must allocate their
buying power so that they can obtain the most desired
products.
Buyers must decide whether the utility gained in an exchange
is worth the buying power sacrificed.
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30. Price And Value
A fundamental principle in market-based pricing is to
recognise that price is a statement of value, not a statement of
costs.
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31. Best Value.
The best value is the one that provides the most benefit (in
terms of the customer's desired set of attributes) for the least
price.
Value represents a buyer's overall evaluation of the utility of a
product based on perceptions of the net benefits received and
what must be given up.
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32. The amount that an organisation charges is both a determinant
and a reflection of the amount of value a buyer receives.
Price determines value because the customer is comparing the
benefits gained to the price given up (e.g., value for the money).
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33. Price also reflects or is a statement of value in that higher (or
lower) prices should correspond with more (or less) valuable
benefit packages.
Value Is Perceptual
A common mistake made by managers is to confuse actual and
perceived value.
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34. Product value, like product quality, has no
clear meaning except in terms of the needs of
particular customers.
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35. Buyers can encounter considerable difficulty when trying to
assess value. Their judgements are biased and emotional.
In addition, customers are usually looking at a combination of
factors when judging value, some of that may be different
from the factors considered important by managers.
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36. Understand the Price Mind set
• Everyone is doing it!
• The market is shrinking and there are a lot of
competitors using low price as their marketing
tool.
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37. Creating Customer Value
Many successful organisations have come to a fundamental
realisation:
The job of any market-driven organisation is not to sell a
product, but instead to create value for customers.
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38. Firms create value in many ways. In fact, the possibilities are
virtually limitless. Improved quality, faster service, more
comprehensive warranties, unique features and options, better
delivery, easier ordering, and a convenient location are but a
few examples of sources of customer value. Value is created,
then, through product benefits.
Customers do not purchase a product per se. What they are
actually buying is a set of need-satisfying benefits.
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39. The primary aim must be to offer products formed in
consonance with consumer demand, at prices compatible with
consumer evaluations and corporate sales/profit objectives.
Consumers value many other things apart from price.
Competition never occurs only in terms of price.
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40. Customers frequently do not purchase the item with the
highest quality, but they do tend to consider only those
products that meet minimal quality standards.
Further, some observers assume that quality is directly
associated with price. That is, higher price serves as an
indicator of higher quality.
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41. Where buyers are confused about the
attributes and performance capabilities of an
item, they will tend to use price as an indicator
of quality.
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42. Adding Value
• Customer service as the potential success.
Reward major customers for their loyalty
• Try not to buy loyalty – earn it.
• maybe movie tickets?
• Maybe thank you letters to some smaller
customers sometimes to make feel
appreciated?
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43. • For more information about MAANZ International and articles
about Marketing, visit:
• www.marketing.org.au
• http://smartamarketing.wordpress.com
• http://smartamarketing2.wordpress.com
• . http://www.linkedin.com/groups/MAANZ-
SmartaMarketing-Group-2650856/about
• Email: info@marketing.org.au
• Link to this site - - http://www.slideshare.net/bmonger for
further presentations
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44. END
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