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  Negotiated Pricing

Introduction to Negotiated Pricing

In the above two techniques, transfer prices are fixed on the basis of either the cost price or market price.Though, the transfer prices might be fixed on the basis of 'Negotiated Prices' that are fixed by negotiations among the selling and the buying division. Occasionally it might occur that the concerned product might be obtainable in the market at a cheaper price than charged through the selling division. In this condition the buying division might be tempted to purchase the product from outside sellers than the selling division. Alternatively the selling division may observe that in the outside market, the product is sold at a high price but the buying division is not prepared to pay the market price. Now, the selling division might be unwilling to sell the product to the buying division at a price that is less than the market price. In all these conflicts, the entire profitability of the firm might be affected unfavourably. So it becomes advantageous for both the divisions to negotiate the prices and arrive at a price that is equally advantageous to both the divisions. Such type prices are termed as 'Negotiated Prices'. In order to make these prices efficient care should be taken that both, the buyers and sellers should contain access to the presented data that are including about the alternatives available if any. Likewise buyers and sellers should be free to agreement outside the company, but care should be taken that the entire interest of the organization is not jeopardized.

Ø   The major limitation of this technique is that lot of time is spent through both the negotiating parties in fixation of the negotiated prices.

Ø   Negotiating skills are needed for the managers for arriving at an equally acceptable price, if not there is a chance of conflicts among the divisions.

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