Only time I'd use it is for negotiating prices.
Player and NPC roll off on diplomacy, and if either one beats the other by 5 or more, the price goes 5% in their favor. A difference of 10 or more means 10%, but no more than that unless the situation calls for a serious ripoff. That roll represents the entire negotiation process, so no rerolls. If the NPC wins, the player has to take it or leave it. If he leaves it and tries to find a different buyer/vendor for the same item, then depending on what it is, it will probably take him some downtime to find another suitable one in the same area. That could be just a few hours for the most common goods, a day or so for a magic potion, weeks for 1-10k items, or perhaps months for things over 10k. This time should reset if the PC travels to a different settlement of appropriate size before trying again.
Just to make sure that diplomacy is worth the skill points, even when the monsters aren't the negotiating type.