Thursday, December 16, 2010

Understanding the Product or Service and its Position in the Market

In preparing for a negotiation there are several things that you should know about the product or service that you are purchasing
  1. What are the product’s or Services features?
  2. How is it made or performed?
  3. How is it positioned in the market?
  4. Who are the competitors?
  5. What features do their products or services have and how are they positioned in the market.

What does this have to do with negotiation? Purchase decisions are made based upon perceived value.  Suppliers will set their pricing based upon how they perceive their product will be valued in comparison with competitors products.  Whether they hold to their pricing or not will be dependent upon several factors. One is how much they need or want your business. The other is whether they have any product features that are unique that will differentiate themselves from the competition that the Buyer needs or wants.

You have the most leverage if they need or want your business and either they don’t have features that distinguish them from their competition. You have the little leverage if they don’t need your business and they know that you need or want features that are unique to their product, You have almost no leverage if they know that you will benefit from those features as that provides greater value so there is even less reason to discount.

So knowledge about the product and its features versus your needs should tell you whether there is competition and whether you can walk away from the Supplier. That’s why supplier always want to understand what your needs are and how you perceive their product versus the competition. They want to understand who the competition is because they have already mapped the competition and their product on their value equivalence line on price positions so they know what they have and how they will price their product.  For example many times a market may not be just one market, there can be multiple market clusters. For example there can be a no-frills market, and average market and a high end market that differ based upon the perceived value of the product. If they know who their competition is, they will also know what cluster they fall into and what to expect from them with regards to the value offered and the pricing.

There are a number of factors that are taken into account in positioning a product. Price or cost of use is clearly one factor. Differentiation by function or available features is another factor. Target market focus can be another factors such as companies that target niche markets. Where its impossible to differentiate between products as part of positioning companies may use other factors such as inventory stocking, response times, and service experience as part of the value calculation in positioning

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