How Do You Respond to Pressure to Cut Prices? Six Guidelines

Situation: One client represents a majority of a company’s revenue. They have multiple contracts with this client. A new purchasing agent is on a mission to reduce purchasing costs, and claims that other suppliers cost less. What’s the best response?

Advice from the CEOs:

  • Spend time with your true client – the employees and managers who have chosen your product. These people stand to gain the most from an ongoing relationship with you and may be able to reduce the pressure from purchasing.
  • Assemble testimonials and metrics from the client to show that you produce a better result at lower cost than they can get from other suppliers.
  • Simultaneously, reduce your overhead so that if you must cut prices to retain the business, you can afford it.
  • If you must cut prices, you have other options:
    • Reduce the cost of resources producing the product and service. Let your client contacts know that you are being forced to do this. This may prompt them to argue that they need more senior experience from your team at the higher rate.
    • Offer lower prices in exchange for higher volume and longer term purchasing commitments. This can lock out the competition by reducing the frequency of contract renewals.
  • Remember that the job of the purchasing agent is to reduce costs. The agent who is hounding you is hounding other suppliers as well. If they can negotiate savings from 30% of the suppliers, it’s a big win. Get your ducks in line so that you aren’t in that 30%.

Key Words: Purchasing, Contract, Purchasing Agent, Cost, Client, Customer, Metrics, Cutting Prices, Purchase Commitment 

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