PricePoint Partners is a pricing management firm that helps clients leverage market based pricing to improve earnings, company value, and cash flow. Grolistic and PricePoint share a common pricing strategy which states that “value produced for a customer” drives price level.
One of PricePoint’s clients just completed a price negotiation that shocked their largest customer when they offered to say, “Goodbye.” It’s a story and a model worth your time.
Here’s the background. PricePoint delivered a negotiations training program to a 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 their client’s CEO:
Our largest OEM customer was approached by our low cost competitor who was proposing $350K in savings on a $1.2M account. Our customer wanted a 5% price reduction each year for the next three years from us 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 declining material prices and shared the horror stories from those of our customers that had tried our competitor. Our customer remained adamant in their demands. I explained to them that maybe they just needed to have the experience with our competitor 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 provide a counter-offer since their parent company was pushing them hard.
I went back with our original offer but added another $5K in annual savings. I gave them a progressive additional discount scale based 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% to 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. And what was a potential disaster turned out to be a positive deal for both sides.”
This successful deal highlights three key elements to protect your pricing:
- 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.
- 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.
- 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.
To protect your prices, play offense and play hard. And, play with the resolve to win.
How could your price negotiation strategy be improved?
How do you communicate “value delivered” to your customers?
