Unlocking the Buyer’s Mindset: What Drives Price Demands from Procurement?

If you have been in sales for more than a week you have encountered someone from Procurement telling you one or more of the following:

• “Your price is too high.”
• “I need a discount.”
• “Can you do better?”
• “Your solution is too expensive.”
• “You’ll have to do better than that to get our business.”
• “Your competitor has a much lower price.”

In many cases these phrases are simply weapons in procurement’s arsenal to strike fear in the hearts of sellers. But there are fiscal realities behind every demand for a price discount.   Let’s look at the fiscal realities that prompt this obsession and mindset of procurement agents

Types of Discount Seeking Clients

There are five (5) types of discount-seeking clients:

1. Sea of Red-ink Accounts: These are organizations that are losing money and are in financial trouble. Some are struggling to stay afloat. While this may be the case you don’t manage their company and you didn’t create their financial problem.
2. RFP Fanatics: You know the type. They don’t believe in the value your product, service or solution provides or in business relationships. Every purchasing decision goes through an RFP. In some cases, this is a legitimate activity such as those mandated by law. For most, however, it’s designed to pit one vendor against another and commoditize everyone’s offering.
3. The Sky is Falling: This is the client that tells you that revenue has fallen, or their costs have increased, and they have been mandated to get a price reduction from all their vendors. They want you to believe that if you don’t provide them with a discount they will be forced to lay off staff and/or close their doors.
4. Mandate: This is the client that tells you that he has been mandated by the C-Suite or his/her boss to get a price discount from every vendor. They hate to be the bearer of this bad news but their hands are tied. They then proceed to tell you how much of a discount they are expecting, or they suggest a percent discount to you.
5. Bargain Seeker: This is the client that is doing well financially but simply has to ask for a discount because it’s expected and its part of their DNA. They want a discount because they have been trained to ask for one.

Understanding Your Buyer’s Reality   

Procurement professionals are taught the following:

• Rule1: Always challenge the price. Simply challenging the price gets most sellers to offer a discount without any further negotiation.
• Rule 2: Always tell the seller their price is too high. This is done to make you question your price and hopefully to acquiesce to a lower price.
• Rule 3: Always tell the seller that their competitor is less expensive.
• Rule 4: Always, always ask for a discount because if you don’t you will never get it.
• Rule 5: Prey on the sellers’ insecurity especially if they are approaching the end of month, quarter or fiscal year. Procurement professionals know that sellers need the sale to make their sales quota and earn the maximum possible commission.

5 Keys for Sellers to Remember

These five “keys” can serve as guidelines for handling price demands.

1. Procurement agents usually ask for a greater price discount than they need.
2. When you concede a price discount you erode margin and reduce revenue.
3. If you are selling more than one product to procurement, any price discount may be used by procurement to justify a comparable discount on other products.
4. Before you make any price concession, make sure that the concession will result in a purchase order or contract.
5. Never concede on price without asking for something in return.

Parting Thoughts

Every day we make decisions to buy a product that is not the lowest price. Starbucks sells coffee. They get a premium price because of the perception they have offer a better product and a better coffee drinking experience.  They don’t negotiate their price. Either you pay it or you don’t. They have created a cult following by creating a perception of value. You can do the same.

As always, we welcome your thoughts and input. Let’s start a discussion and elevate the sales profession with a thoughtful and informative discourse.

Authors: Thomas J. Williams and Tom Saine

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