by Diego San Román
Arguing over the price in a buy-sell negotiation is a waste of time, as the focus should be on the perceived value of both parties. The key to a successful transaction is understanding and agreeing on the value each party gets from the trade.
Value is not measured only in monetary terms. Customers buy products or services because they perceive value in them, which includes both functional and objective elements as well as emotional and subjective ones. Therefore, the negotiation should focus on how much each party earns from the transaction.
Components of Value:
- Functional, intrinsic, and objective – these are the tangible elements that can justify a fair base price.
- Emotional, extrinsic, and subjective: These components can greatly increase or decrease the price the customer is willing to pay.
The Value Equation and its impact on any business depicted in detail:
A business transaction should be a process of aligning and agreeing on the value, rather than focusing on price. An appropriate price should cover costs, include a reasonable profit margin, and reflect additional value by differentiation. A price is perceived as reasonable if the value offered is seen as equal to or higher than the price paid. The price is the final value of the transaction and is fixed when there is agreement on that value.
In addition, it is essential to calculate the break-even point and return on any investment. In strategic cases, selling at a loss may be viable, if there is a recovery plan agreed and signed with the buyer that guarantees a win-win situation for both parties within a set timeframe.
Therefore, discussing the price without considering the value is a common mistake. Effective negotiation is based on facts, data, and the perception of the value that each party gets, thus ensuring a fair and sustainable transaction.
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