Price Negotiation Is Not Always The Best Practice
I believe that there are many misconceptions regarding negotiation styles, goals and objectives. One approach to negotiation is typically with the intent of paying less than offered, a philosophy frequently practiced in two specific instances: buying cars and buying houses. Both scenarios have built-in assumptions that the starting price is artificially high and intended to be negotiable. One anticipates and expects to reduce it with counter-offers that are lower than the offering price. However, is this the style or goal of negotiating in supply relationships in a business-to-business environment? Must we emulate it to be successful?
Typically, much thought is put into developing a pricing policy. Overhead, cost of goods and, of course, desired profit are all added together to result in a price. Can a manufacturer afford to sell for less than the stated price? Probably, but why should they? Should we always be looking for a better price? Maybe, but only under the right circumstances, not as an automatic action. The question is, what are you trying to accomplish? What is most important for your success? Is it just a lower price or something more valuable?
Usually, a cooperative relationship customized to meet your needs which may require credit terms longer than usual or beyond your credit rating entitlement is far more important than a discount. Your business may require a reduced minimum order, or multiple shipments, a quicker delivery schedule, customized assortments, blend or different non-standard colors. Perhaps drop-shipping to your client, or any host of specialized support requirements is necessary. None of these things relates directly to price or discount, and all may be far more important than a lower price.
I can see looking for a bulk discount offered for higher purchase quantities, however, in the beginning of a vendor relationship when you are figuring out what they may be willing to do for you, I would leave the price alone. Let them earn their desired profit. At first, you are trying to achieve a working and supportive successful relationship that is conducive to doing business. A lower price is not a priority on the list of requirements for you to achieve this. All the above-mentioned support services are probably far more important than milking the vendor for a few more pennies. In fact, it can be argued that with all the special services you may require, perhaps an increased price is appropriate. My point being, let the vendor live and better yet allow him to enjoy the business and make a respectable profit on your order while he works on other issues to better support your business needs. Price discounts can come later on once a relationship is established. Even then, I would suggest that if a vendor is delivering on all other issues on time and as requested, the last thing you want to do is attempt to decrease his profit, possibly making him less appreciative of your business and less motivated to provide you with all the services you require.
Others feel it is their appropriate responsibility to hammer down everyone’s price into dust and to extract the lowest possible price imaginable, every time. I say, let everyone in the food chain eat, or in the end, the relationship you want and the commitment you will need at some time may not be there. If your margins are not adequate, then increase your own pricing, you also have a right to profit. However, making it up by beating down prime suppliers is penny-wise, pound-foolish (to quote the old saying) and may not be worth pursuing. Occasionally, I will even offer to pay more to a favored vendor for rapid delivery or even on-time delivery or for other specialized services I may require. Cost control is important, but I believe that profit is made when a sale happens, not when a vendor is beaten into submission.
Furthermore, I believe that business today is all about teamwork, with all your primary vendors being part of your team. Working together as a team should be the highest objective and this may be inconsistent with extracting a few more pennies out of his profit to fatten your own. This does not mean you are required to be a dummy. If there are quantity discounts available, take them. If there are prepayment discounts, take them also, and if paying C.O.D. there should be a few points discount for such payment terms. However, once the correct price is determined I would let my prime vendors enjoy the sale and make their expected and deserved profit. I would much prefer to get expedited delivery or a half-order or special mix, or longer terms… whatever it may be that is very important to my success.
If your vendor doesn’t want to take your calls, or cringes when you place an order because the price is too low, you have made a mistake not worth all the discounts you have won through tough negotiation. Earning discounts from a loyal, long-term commitment is another story, but bone-crushing negotiation for the sole purpose of beating your opponent when your opponent is really a team member is counter-productive. Let everyone earn, especially those on your team. Treat your vendors well. They will someday be called on to return the favor and will be there for you if you have been there for them.
Many people think that if one does not attempt to negotiate prices, they are failing at their responsibility and appear to be less of a businessman. I believe the exact opposite is true. Honoring your crucial supplier’s price is smart business while you ask for and receive important cooperation and consideration on other matters. In my opinion, this is the best path. Create a solid profitable relationship and things will go your way when you need concessions. Beat your vendors up over every price point and they will remember this when you ask for help.
Negotiating must make sense, so first ask yourself what you must achieve and then go after it, remembering that price may not be the number one concession you need for a successful long-term relationship. Think about it and act appropriately the next time you are “negotiating” with a prime vendor.
