Tuesday, January 4, 2011

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 is 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? Suppliers know that 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 competitor's 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 because if the Buyer needs or wants those features it allows them to charge their price.   

Some of the most basic sales approaches follow a simple flow. 
1) Understand the Customer’s needs or problems. 
2) Show how your product or service meets those needs or solves those problems. 
3) Connect the features to the benefits the Buyer will derive so the Buyer sees the value and is willing to pay for that value.

You have the most leverage if the Supplier needs or wants your business and 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. If a Supplier knows that you will benefit from those unique features, that provides greater value so there is even less reason for the Supplier to discount their price.

That’s why Suppliers 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 themselves against the competition as part of their product positioning.  They will know where their product or service stands versus the competition. Suppliers also want to understand whether you need or want their unique product or service features and the value you place on them. The reason for that is if they know that it becomes difficult for you to convince them that there is another Supplier that has a lower price / value point that they need to compete against. 

The reason why Suppliers include unique features in their products or services in the first place is because they know that if they can discover that you need or want them, it dramatically reduces competition and competition is the thing that help you reduce their price.