Instead of trying to squeeze suppliers, businesses should work with them to generate cost savings
All too often when we meet peers, competitors and entrepreneurs, we are asked about strong negotiating tactics to unsettle and win over suppliers. But the key is not to see it as a battle, but collaboration. A collaborative approach has helped us time and time again to generate cost savings we can pass on to our customers and maintain our low price promise.
Bring Suppliers onside
The single biggest piece of advice I can offer to etailers is to share your data with suppliers. Show the traffic their product receives on your page to show the volume they could be shipping, or demonstrate the boost in volume sales generated by a previous discount.
Understandably your suppliers won’t renegotiate prices if the only benefit they can recognise is a larger profit margin for you. Theoretical models are a chance to demonstrate the profit both you and the supplier can make.
It can take time to work up theoretical models for clients, but rationalise the time spent by remembering that every model you work up gives you an opportunity to grow sales and beat competitors.
In the models I’d recommend you focus on what effect small changes can have. Given traffic stats and abandoned baskets, what would a five percent reduction add to volume? Then build up from there to show the opportunities that lay just a few clicks away.
Yes, a 90 percent price reduction would drive volume, no one will argue about that, but be sensitive to their margin and also brand protection, no one wants to see their item being flogged; these aren’t petrol station CDs you’re working with.
While it is a collaboration, ask yourself what further incentive you can give them to show you’re supportive of their product. Could their product become a featured item following the price decrease, with a high presence on the home page of your site?
Put your money where your mouth is. The problem with a theory is that it doesn’t put pounds in anyone’s pocket. Suggest trialling a different price point to see whether the numbers stack up, being careful not to trial anything during a season that might invalidate your results. If it works, you’ve strengthened your argument, if it doesn’t, go back to your models and work out why.
Remember, it’s in their interest too
Getting suppliers to reduce their price point doesn’t just benefit you. Having highlighted in your theoretical model that the customer sees the benefit directly, you can show, in good faith, that there’s a route to more volume and profit.
In the printer ink business we are in a very strong position because none of our suppliers has ever asked us for a contract. There are very strong fluctuations in the price of cartridges that mean even a three-month contract wouldn’t be feasible, but that doesn’t mean the tips above aren’t relevant. A sustained contract will give you more time to develop a theoretical model and mount a stronger argument. Seed the idea early into the relationship by flagging a possible trial of different price points at the end of the current agreement to see whether together you could generate more business.