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Negotiation
Tactics
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When retail asks for a price – how can I ensure that I negotiate a price that will maximize my sales & profits - what do I say? |
First, you have to know all of your potential costs. Secondly, you need to find the street price range of similar products in the chosen sales channels. Thirdly, you calculate the percentage profit margin the sales channels can get. You have to hit the margin range that is expected by the retailer, so do calculations until you reach that. If you are new to the buyer – you will probably be told that your price is too high. |
What you must know before the meeting
To find the right price you first have to be clear what ALL your costs are. Here is a list of some of the potential costs to take into consideration BEFORE contacting your sales channels:
You now know the potential cost of your product. By going through all of these steps, you have an overview of your costs and expected profit. You can now work on the price. The next step is to find consumer prices of similar products (see topic Category Management) in chosen sales channels (see topic Choosing sales & distribution channels). You now have a consumer price (street price). Since retail calculate profit margin from street price and focus on margins measured in percentage (see topic Price setting) you should focus on giving them the adequate percentage margin. If this margin seems right, you also have your price. Retail does not care if you have a loss If you have many products in your portfolio, one of the products might be your entry product and you therefore may have to calculate with a loss for that product in the short term. However, in the long term you have to calculate with a profit. Retail only has a short-term memory and they cannot remember/understand that you had a loss with a previous product and therefore need an extra profit this time! |
Not all product categories are the same – mark-up will differ Retail has different mark-up requirements for different product categories. Purchase quantities also have an influence. However beware, you might be better off with an escalating sales success instead of risking your whole company in one BIG order. Your price is to high On-line retail will probably accept any of your price suggestions. They have close to none stock and buy “one” product at a time through your distributor. Off-line retail is different. As a standard procedure, off-line retail tries to determine your final price. So if you are new to them, the first price you ask for will probably be rejected. Retail does this, not only to maximize there mark-up, but to be sure that other off-line retail chains do not get the products cheaper. In case of price wars, the big retail chains want to know what the competitor’s abilities are. Retail expects to be honored for scale of expected purchase. USP’s It is obvious to focus on price as a sales factor. However, help yourself by highlighting the other Unique Selling Points (USP) - and at a minimum explain the price per performance compared to competitors. (See topic Category Management). One of the strongest arguments is to refer to your success at competing sales channels. Your strategy is to build on success (see topic Choosing sales & distribution channels). Downsides of Exclusivity Exclusivity can be your way into the market. On the other hand, it can also be a dangerous phenomenon. You risk tiding yourself to a retail chain that does not perform well for you, and you are vulnerable to their success or failure with your product. Retail chains can be ruthless and you could end up in a situation where you loose control over your sales. One way around this is to make some cosmetic changes (i.e. on the packaging) to each retail chain. If you have to take back products, you can still repackage them and ship them to other better performing chains. Retail chains tend to be optimistic when evaluating their ability to sell your product - this is to make you excited. There is not much to do about this but you can minimize the impact of this by having an exit strategy (see topic Exit strategy).
Jens Welling |
The author of this article Jens Welling has worked with retail purchase, retail sales and retail marketing over the last 15+ years. Jens Welling has written a number of articles as a good source for any new and established company who want success with retail sales. Below are short descriptions and links to other articles. |
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Why You Have To Do Your Homework Choosing Sales And Distribution Channels Category Management Unique Selling Points (USP) Price Strategy What The Buyer Wants To Know Exit Strategy Price Setting |
Negotiation Tactics Rejection From Buyer Marketing Strategy Education Management Warranties Building A Brand Logistics Keeping Your Store Sales Alive Product Development |
