There are two huge trends sweeping through business to business (B2B) relationships right now: extreme collaboration and extreme competition. Next week I’ll share the advice I’ve been giving on collaboration, but this week, I’m focusing on the competitive angle.
Most big retailers launch “take” initiatives every year, making a big ask (five to ten percent) on cost reduction or payment terms. But the tactic is now becoming widespread across many different industries and sectors.
So what do you do when a major customer demands a hefty price cut?
The one thing you don’t do is offer to cut your price – all you've done is given them a big chunk of cash and permission to ask for more next year. Over time, the cost of giving a one-way concession, instead of getting to a value creating trade, is vast. And your initial response to the ask has a huge impact on the value of that outcome. Here are five standard responses you can use to take control of the conversation:
Reciprocity: “Yes, we can help you reduce costs, but there are certain things we’ll need in return...”
Disempowerment: “Our prices are set at a national / global level, which I can’t change. However, there are some things we can do...”
Cheaper option: “We can’t provide that product / service at a lower price, but we do have alternatives that could actually save you more...”
False economy: “Cutting prices any further would kill our business, which certainly wouldn’t help you, but there may be other ways...”
Call my bluff: “Right now you have the best price we can achieve. Maybe we just need to accept that we’re not right for each other...”
BOTTOM LINE: Be confident. Anyone who is currently trading with you is doing so for a reason. Don’t underestimate the value you provide them, and don’t assume they have a better alternative ready to go.