Many companies currently approach their suppliers with the request to reduce their prices to support them during these difficult economic times. A pattern that is unfortunately all too familiar for many sales teams. This article proposes an approach to how suppliers can respond to this procurement tactic and how they can move the dialogue back to a value-adding conversation with the customer and their professional buying team by applying five simple steps.
First, and most importantly, do not just lower the price. This sends the wrong signal to the buyer, motivating them to take a closer look at your offerings. If one email makes you falter and change the price, what could a full-fledge re-negotiation process achieve?
Second, show them that you genuinely care about their business challenge. This might sound obvious but is the biggest outage by suppliers in these situations. A price reduction request can have various underlying reasons (e.g. lost sales, obsolete product offerings, a competitor’s move, etc.)? Find out what it is. Will your discount remedy the situation or is maybe a different intervention needed? Analyze their value chain end-to-end. What can you offer as a supplier to tackle this challenge (e.g. product innovation to increase sales)? Be collaborative and communicate in a concise way. Only those suppliers and salespeople that engage the buyer in a constructive value-based dialogue will succeed in this challenging situation.
Third, show them that you are competitive. The fact that you are contacted with a cost reduction request, is a strong indication that the buyer suspects that you are not price competitive. Is this though the only area you need to be competitive in? Identify the key aspects the customer is interested in with regards to the supply base to meet their business needs (e.g. speed to market, innovation, flexibility, agility, etc.).
Fourth, show them your plan to improve. Suppliers that are self-aware of what needs to change in the relationship with the customer consistently are seen as creating value above and beyond just the price. The more focus you put on your plan and how you intend to execute it, the less the buyer will ponder on the price reduction percentage.
Fifth, show them that you are responsive. Supply chain agility and flexibility are essential elements of your customer’s competitive advantage. Your ability to react to their requests quickly and to a change in demand patterns fast is what your customer is looking for in a supplier. Make sure that you are clear on your level of responsiveness and how it creates value and avoids costs in your customer’s value chain consistently.
Sixth, show them that you know what to win means. If you are not clear about what success looks like for you and the customer in the underlying business relationship, why would you expect your customer to know? Reaching your sales targets is an important goal but meaningless to your customer. Define your relationship goals and what you can achieve together with the customer. Articulate their success and define a clear path on how to reach these goals. Your ability to map out a journey that you will take the customer on to reach common success is what alleviates most short-term cost-saving discussions.
As tough as these cost-cutting requests might be, they are a chance for you as a supplier to reiterate your value proposition to the customer. Your clear and succinct message of how you care, how you stay competitive, how you will improve over time, what makes you responsive and what success for you and the customer might look like are the key elements to move a price reduction request to a relationship-building conversation.
Return the love and engage with your buyer in a value-based conversation today.