As individuals we frequently find ourselves in negotiation settings. Customers in many countries wouldn’t consider negotiating over price in a department store or a supermarket, yet they may at a farmer’s market, when buying a new or used car or a buying property. Such transactions are straightforward, in that finding strong legitimacy for such prices is fairly easy (price comparison is easily available online, for example), and subjective in that the transaction normally has an emotional component since it may involve personal desires and intangible preferences.
The stakes are much higher in business transactions, with more complexity, fewer customers and higher transaction values. Business negotiators are usually more sophisticated, know the market and may have strong purchasing power. On both sides, budget, key performance indicators and reputations play a big role in influencing decisions.
Reputation matters
There are two ways to diffuse this suspicion. The first is reputation. According to research, a seller’s good reputation has shown to generate goodwill and decrease PPU, softening the buyer’s response to the seller. A seller would do well, therefore, to build a good reputation ahead of the negotiation but if they’re meeting the buyer for the first time or if the company is a new entrant, the seller could use opportunities in the negotiation to build reputation. In a business setting, WTP is a bigger factor than in a consumer setting, but that doesn’t mean lowering the price is always a good idea. This could put a seller on the back foot, making them seem desperate or cavalier.
