Types of pricing strategies

There are several pricing strategies that organizations can use to set their product or service prices. The most common pricing strategies include:

Cost-plus pricing: This strategy involves adding a markup to the cost of production to determine the selling price. The markup is usually a percentage of the cost, and the goal is to cover the cost of production and generate a profit.

Penetration pricing: This strategy involves setting a low price initially to enter a new market or gain market share. The goal is to attract customers with a lower price and then increase prices once the product or service gains acceptance.

Skimming pricing: This strategy involves setting a high price initially to take advantage of early adopters who are willing to pay a premium for the product or service. The goal is to generate maximum revenue early on before lowering prices to attract a broader customer base.

Premium pricing: This strategy involves setting a high price to position the product or service as high-quality or exclusive. The goal is to create a perception of value and justify the higher price point.

Dynamic pricing: This strategy involves adjusting prices based on market demand, supply, and other factors. The goal is to optimize revenue by charging different prices to different customers at different times.

Bundle pricing: This strategy involves offering a bundle of products or services at a lower price than they would cost individually. The goal is to incentivize customers to purchase more products or services by offering a discount.

Psychological pricing: This strategy involves setting prices that are designed to influence customer perceptions. For example, setting a price that ends in 99 or using the “charm pricing” method, which involves dropping the price by a small amount to make it more attractive.

Negotiation in sourcing; Meaning of Negotiations

Negotiation in sourcing refers to the process of discussion and communication between a buyer and a supplier to reach an agreement on the terms of a transaction. Negotiation is a critical aspect of sourcing because it enables both parties to discuss their needs, expectations, and limitations and come to a mutually beneficial agreement.

Negotiation is a process that involves several stages, including:

Preparation: Before entering into negotiations, both the buyer and the supplier need to prepare themselves by gathering information on market conditions, competitors, and other factors that could affect the negotiation.

Opening: This stage involves setting the tone for the negotiation and establishing the agenda. The opening stage can include introductions, outlining the objectives, and setting ground rules.

Bargaining: This stage involves the actual negotiation, where both parties present their proposals and counter-proposals. The bargaining stage can involve give-and-take, compromise, and concessions.

Closing: This stage involves reaching a final agreement and concluding the negotiation. The closing stage can involve reviewing the terms, finalizing the details, and signing a contract.

Effective negotiation skills are critical for sourcing professionals because they can help ensure that both parties get what they need while maintaining a positive working relationship. Negotiation skills can include active listening, problem-solving, communication, and flexibility. Additionally, negotiation skills can be enhanced through training, practice, and experience.