Customer–Salesperson Price Negotiations During Exceptional Demand Contractions

Abstract

Extant literature has studied how customer–salesperson price negotiations evolve in “normal” circumstances. However, recent economic recessions illustrate the need to advance theory on the question of how price negotiations evolve in “abnormal” times when customer demand significantly contracts beyond expected variation. In response to this gap in the literature, this study uses a multi-method design to investigate price negotiations during exceptional demand contractions. Our results from a theories-in-use study reveal that during such circumstances, salespeople’s perceived dependency on customers increases while customers’ perceived dependency on salespeople decreases. The inherent “power shift” should benefit customers in subsequent price negotiations. However, customers are less likely to capitalize on their power if they have a close relationship with a salesperson, implying that salespeople do not have to concede on price negotiations. This effect is likely due to increased sympathy during periods of exceptional demand contractions. The authors further validate key propositions from this qualitative study in a field study and a scenario-based experiment. Altogether, this study suggests that managers should not be too hasty in approving and encouraging salespeople to offer unnecessary price discounts during exceptional demand contractions as buyers may become more sympathetic and lenient during price negotiations.