Protect Your Pricing

We just heard from one of our clients about a price negotiation that shocked their largest customer.  I want to share the story with you.

First, some background. We delivered a price and value negotiations training program to a rubber industry client less than two years ago. They learned how to defend and protect their prices against aggressive buyers and desperate competitors. The story that follows is directly from the CEO of our client.

Case Study

Hi Ralph,

Just another story on using your method of price versus value during a customer visit.  We had our largest OEM customer approached by our low cost competitor that was showing $350K in savings on a $1.2M account.  They wanted a 5% price reduction each year for the next three years and wanted to realize any savings that we made as a result of joint continuous improvement results.

They called this a win-win situation for both of us.

I countered with a modest decrease due to rubber prices going down and shared the horror stories our customers that had tried our competitor had.  They were adamant in their demands.  I explained to them that maybe they just needed to have the experience with them to realize our value (they were shocked).

I did tell them that when they returned, it would not be to the same prices they currently had, as they would be treated as a new customer, eliminating their 24% discount and we would no longer accept their credit card payment and related charges of $19K per year.  They asked us to think about what they wanted and counter offer if we could as their parent company was pushing hard.

I went back with our original offer but added another $5K in annual savings.  I gave them a progressive additional discount scale base on them increasing sales for the next three years, and told them we would share any documented savings we made collaboratively.  The additional discounts range from 1-3% based on increased sales levels and are covered by fixed costs in S&A not going up.

Sharing the savings was no problem as we would get half of something we didn’t have.  With this they signed a 3 year deal.

With what was a potential disaster turned out to be a positive looking deal to both sides.

All the best,

Tom

This is a great example on how to protect your pricing. I see three key elements that made this a success.

• Attitude – The negotiating team for this client believed that they deserved the price levels being charged based on long term quality performance. It’s easier to defend your value when you believe in your offering
• Skills – The team had the right approach and was comfortable executing it in a difficult situation. Being prepared for price negotiations is absolutely key. Go forward with conviction.
• Interruption – The greatest risk to any buyer is supply interruption. The client used this very effectively to increase the buyer’s anxiety. However, you must be prepared to “walk” if the buyer calls your bluff.

So, the next time you are faced with protecting your prices play offense and play hard. And, play with the resolve to win.