Power Imbalance Assessment: Wholesale Price Discrimination
In my opinion, my negotiation partner has more power, which is facilitated by several factors. First of all, doodads are standard products, therefore, the margin on them is lower, and they are very price sensitive. They should be priced differently than premium or custom-made products, which are less price sensitive and have higher profit margins.
Further, when purchasing large quantities of goods, my negotiation partner must follow a very clear structure in order not to receive losses. The company can set prices higher than those of similar manufacturers. The price is formed by them not only based on the cost of the goods, but also based on the margin, which provides the profit margin necessary for the profitability of their work. Before determining the price of products, they set the calculations of payback and the required level of profit.
On my part, there is also a factor due to which I have power. Since I am a customer who buys in large volumes and often, I am more price sensitive than customers who buy in smaller volumes and rarely. Also being a subsidiary of a corporation manufacturing and selling doodads, relationships and product support are valuable to me, so I am less price sensitive than those for whom these elements are less significant.
Also, my strong point is the following argument: the wholesaler does not ensure the delivery of the product to the place of consumption, its preservation with the possibility of giving customers access to the product at the first request. Very often logistics creates the maximum number of problems for me as a retailer, and also requires large monetary investments. In order to resolve all issues, negotiations should be invited to start cooperating with the carrier company. I also need to organize a warehouse of goods directly next to the place of purchase (which is quite expensive). Therefore, as an argument, I will share information about the additional funds spent on each doodad.
Each pause in the process of product implementation leads to an increase in costs. I purchase products, but I do not sell them immediately, therefore, I need to additionally pay for their storage (rent a warehouse, pay for the services of workers). I can say that it may be expedient for me to reduce the quantity of goods purchased, since its storage and transportation are quite expensive for me. I don’t have enough resources, so I may have to reduce the range of goods; this should affect the willingness of my partner to make concessions in the negotiation process.
All of the above factors had an impact, and most likely, it was not possible to agree on a price reduction. However, due to the presence of certain factors of power on my part, if it is not possible to purchase goods cheaper at the negotiation stage, I can declare my conditions. For example, I can agree to pay the specified price, but on the condition that in the future I can get benefits as a regular customer. Such advantages can be a discount when purchasing a certain number of doodads, a promotional campaign, a loyalty program or preferential deliveries. As an argument, I can cite a study, according to the results of which a differentiated price strategy is most suitable for doodads (Akgün & Chioveanu, 2018). This strategy implies selling products to customers at different prices depending on the volume ordered by the customer, as well as set a scale of possible discounts on the products sold.
Akgün, U., & Chioveanu, I. (2018). Wholesale price discrimination: Innovation incentives and upstream competition. Journal of Economics & Strategic Management, 28(3), 510-519.