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Strategy for Choosing a Profitable Supplier of Translation Services

The price policy is one of the most burning questions for market participants. It is a well-known thing that all of us want to buy cheaply but to sell at a high price. But on the complex markets (particularly, on the translation services market) these simple tasks turn to the heaps of very complicated problems. Matter of price is very urgent both for the company providing services and for the customer of these services. How much money can the vendor ask for his services and what price can the customer offer for it? Is it possible to receive a contract with the help of price lowering? What are the limits of price lowering in order to receive a contract? How to hold a bidding in order to get the most favorable offer?

Each company has its own answers on these questions, but there is no the ideal formula. It can be explained by the fact that the raised questions are too complicated. Scientific researches in this sphere are as topical as researches in the sphere of nuclear physics or molecular biology: John Nash, a mathematician, who achieved great results in the sphere of competitive game research, was awarded the Noble Prize.

Game theory with reference to the economics concerns tasks, which are connected with the interactive behavior of the market participants when making decision on buying or selling under condition of lack of information and lack of control over the course of events. The researches in this field include the analysis of the strategy and pricing tactics and the analysis of the behaviour, which is shown by suppliers (either old or new market players) when competing for the contracts and by customers when finding the most profitable supplier.

Of course, any manager while making decision on buying or selling services, cannot go deep into mathematical models. Each market participant follows common sense and experience, using time-proved methods and considering factors which are well-known and significant from his point of view. Natural selection refers to the market as well: survivors and those who just feel better, evidently, use the right tactics. It seems that high theory may be forgotten and one should continue working in his time-proved way.

But that is not that simple. First of all, there are a lot of factors which have an influence on the business development. If a company is successful, it does not mean that it has the optimum price policy. Secondly, as far as the market develops and fills, a lot of new players come, who tend to lower the price because of lack of experience and increasing competition. It makes price pressure on the experienced players; their price policy needs corrections. Thirdly, the more there are players on the market, the more there are opportunities of holding a tender by experienced customers among suppliers. The tactics of tendering is noteworthy in this case.

Let’s analyze the most vivid task for the translation agencies: creating a tender offer which will help us receive the contract. In case of a free, uncontrolled and competitive market, e.g. the translation services, the task conditions are as follows:

1. Market participants are independent and competing players who have no mechanism of the mutual influence.
2. Market participants get money if they receive the contract, but they lose money if they miss the contract.
3. Market participants do not have an opportunity to learn what price was offered by the competitor for translation services.

A potential customer, trying to find the most favorable offer, does not follow the price only, but some other considerations as well. Very often he chooses the «top-priority» suppliers and starts price negotiations with them. In fact, the potential supplier accepts offers in several steps, at each step he informs the participants about the lowest rate and asks whether some of the suppliers are  ready to offer the more profitable price. The similar situation is on the open market with a great number of suppliers, when the «current rate» is conditioned by the market.

So this very task is a well-known problem in the field of competitive game theory. In the second half of the 20th century, scientists achieved great results in the attempt to create tactics of price negotiations with the predictive result under the above-mentioned conditions. The solution of this mathematical task gives us direct answer on how to behave in order to receive a contract.
In such a short article there is no way to go deep into mathematical models. However, there are some interesting results for us, which are described below.

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