There are two directions a price can be wrong, and almost everybody only watches one of them. A quote far below the market reads instantly as an opportunity. A quote far above it reads as something to negotiate. Both are information, and both are statements about the person on the other side rather than about the product.
Which direction the price is wrong in
A trading company priced far below where the market is has departed from the real cost of the goods, and there are only two ways to do that. Either the quality has been discounted — the goods are not what the description said they were — or the company is not a company that will ship. Neither of those is a discount. They are different propositions wearing the price of a good one.
Too high is easier to explain and just as informative. There are two possibilities. Either nothing was explained to you: what the product actually performs, what the service around it includes, what is guaranteed and what is only usual — in which case you are being quoted against something different from what you think you are buying. Or the person quoting has decided you are not a real buyer, and is not going to invest in getting an order right for somebody who may not place one.
Neither of those is about what the goods are worth. One is about what was never explained. The other is about you.
Which leaves an uncomfortable middle. A price sitting comfortably inside the range tells you very little as well, and it is the case people treat as settled. That a quote looks reasonable is not a finding about a supplier; it is the absence of a signal. The most I take from a price that fits is that the person did not want the deal to end on that number, which is a fact about the conversation rather than about the goods.
- Far too low tends to be one of two things: the quality is not what the description says, or there is no company behind the quotation. It is never a genuine trade.
- Far too high tends to be one of two things: a product and a service that were never explained, so you are being quoted against a different thing than you think; or a seller who has written you off and is quoting on that basis.
Why the discount a trading company gets is real, and bounded
I want to be careful here, because the easy way to write this piece is to make it an attack, and I am the person being described. The price relationship between a trading company and a factory is not a wide gap. For an early purchase volume we may have some advantage over the factory. It will not be especially large, and the reason is honest and dull: a factory has production costs, and we have operating costs, and both of those are real.
What we do have is time. We have worked with our factories for a long time and that brings a discount, and that is a real discount rather than a courtesy. At the start of a relationship it is enough to put our price below what the factory will quote a first-time buyer. What it is not is unlimited, because it is bounded by the two cost structures underneath it — one producing, one running a company — and both of those have to survive the transaction.
So when a quotation sits a long way outside that range, it is not a trading advantage being handed to a lucky buyer. It is a different arrangement altogether, and the name of that arrangement is not a discount.
What the price is actually telling you
A price is a statement about what somebody thinks the goods are worth, and more often than that it is a statement about what they think you are. The quote that is far too high in particular is very often a seller who has decided you are not serious. Nobody has to say that. It comes out in the number.
Which is why I think haggling is the wrong response to a wrong price, at least once the gap is the size of a gap rather than the size of a negotiation. Haggling treats the number as the subject, and the number is a symptom. What sits behind it is one of two quite different things — something about the specification, or something about how you are being regarded — and those need opposite things from you. One of them is settled by finding out what was never said. The other cannot be settled by anything you do at all.
None of this makes the trade less trustworthy. I have quoted against what I believed the market was, and a company that has earned a discount over years is a real thing with real costs behind it. The limits are structural — a relationship earns a discount, and production and operation both have to be paid for — and a quote that ignores them is not a better offer from a better company. It is an offer from a different arrangement wearing the same name.
What I take from it
For a buyer and a seller it is not true that the bigger one is necessarily the best. It has to be a match — the supplier fitted to the order, rather than to some idea about who is more impressive. That holds for capability, and it holds just as much for price, because a price is only interesting while it sits inside what the arrangement behind it can actually carry. A number far outside that is neither a bargain nor a rip-off. It is information about the person who sent it, and it can be read without paying for the goods.
I should say what this is not. It is not a way of reading a price that I would put in a buyer's hands as a procedure, and I would be wary of anybody who sold one to me. What I have is a sense of which explanation is the more likely, and that is worth less than people would like it to be. It is judgement, and I hold it with less confidence than I held it ten years ago.