A benefit of this approach is high profit margins. Conversely, selecting a high-price strategy can also limit the product's marketability and will probably attract competition to that market. A low-price strategy is ideal if you want to dispose of excess or obsolete inventory. Although it tends to discourage new competition and might reduce the competition's market share, the result will be low profit margin. It enables a company to meet the competition and at the same time retain an adequate margin and develop market share.
Moderate pricing can lead to a long-term position in the market.
The disadvantage is that it might encourage existing suppliers to present tough price competition. For this reason, it is important to know your competitors' prices prior to market entry. While the final price of the purchased item often is thought to be a principal focus of negotiation, there are many other elements of the contract that a buyer and supplier can negotiate. Buyers in the United States were surveyed by the National Association of Purchasing Management, Inc. to rate the relative importance of various contractual elements for international negotiation. Respondents ranked quality assurance and timely delivery schedules as being significantly more important elements for negotiation than price.