News & Insights | News | 21 September 2015

Value is determined by the perception of value by the other party. People will pay more for a product if they perceive that it is worth more to them.

Supply and demand determines the price of things. Products that are in plentiful supply generally cost less than those that are limited.  Therefore a key concept in business is to create products that are not only in high demand, but are not easily copied or that are protected so that they cannot be copied. By doing this demand outstrips supply, and prices, and therefore margins, climb.

 

Understanding this makes it easy to realise why Nestle worked so hard to trademark the shape of the four finger KitKat. In 2014 KitKat was the 5th largest selling chocolate bar in the UK with sales of over £106 million, making it a target for cheaper copies promising similar but less expensive products. In the age of discount supermarkets this presents a real threat to the sales of KitKat.

 

In the last few days the courts have ruled that KitKat cannot be identified simply by its shape, meaning that Nestle have lost their case and competitors can legitimately create a four fingered chocolate bar.

  

So what now? In negotiation it is recognised that value and pricing is not as simple as the supply and demand curve. As well as availability of your and similar products, value is determined by the perception of value by the other party. People will pay more for a product if they perceive that it is worth more to them.

 

In negotiation this can be done in several ways, for example by shifting the understanding of availability by creating additional short term demand through advertising, or somehow limiting supply or availability. But if your product is easily substitutable then instead of creating demand for your product, perhaps your activity will simply create demand for all similar products? 

 

Perhaps a more strategic approach might be to consider more holistically the differing perceptions of value. Different customers will have individual measures of performance, and as a result have personal goals. The role of your product in delivering those targets could be an opportunity. If you are able to take a flexible approach to factors such as payment terms, logistics, rebates, promotions, advertising, range or sampling you might find that some of these mean more to your customer than you think.

 

Working with them to identify what these factors are and then making proposals that demonstrate flexibility in these elements could be enough to differentiate you from your competition. Perhaps they are even willing to pay more for your product in return for improved terms elsewhere.

 

Too often negotiation is seen as an opportunity to maximise value across every single variable. But if you are willing and able to trade away some value in one area, you are likely to maximise value on the factors most important to you.