With commodity prices soaring and widespread market volatility, 2023 brings with it more reasons than one for suppliers to initiate a cost price increase.
So how do you feel about kicking off a cost price increase negotiation?
Addressing perceptions of power
We regularly train and coach account teams from both supplier and customer perspectives, and a cost price increase scenario is the number one topic that prompts people to ask for help. It tends to induce an understandable mixed bag of concerns including fear of ruining a good relationship, feeling less powerful than the other side, and worry that they will take their business elsewhere.
As we begin 2023 with a new fiscal year looming, we understand that worries such as these will be on people’s minds. And we want to help.
Five steps to power building
So, for anyone who can’t commit just now to one of our training courses, or for anyone looking to refresh their skills, we’ve put together a New Beginnings mini guide to negotiating a cost price increase.
It includes five critical areas of focus that will help with both your negotiation planning and execution. All the while ensuring that you achieve your commercial goals by working collaboratively together with your customer. Read on!
1. Strategy and Preparation
You may well have been told before that preparation is (almost) everything. Well, that’s true. It’s vital. Planning out a negotiation strategy and preparing yourself to deliver it is always time well spent.
Don’t do it alone however. Seek input from others as you prepare your plans, and if you are negotiating as part of a team, then prepare as a team too. Ensuring that everyone is fully bought into your strategy and understands and shares your goals is a vital component to success.
Take time to plan your negotiation sequence and how you will position each move. Consider plotting your moves on a timeline. Would it be wise to set out an initial position prior to a formal meeting? Will one meeting be enough? Should you build in contingency in case you wish to take some time out to consider an offer?
Do your research on your counterpart(s) and carefully consider what their position is likely to be. Imagine yourself in their place and plan for a range of responses.
2. Power: less feelings, more facts
People generally feel less powerful in anticipation of a negotiation than they really are. Try not to base your assumptions on gut feel. Instead, try to work with facts. Using hard evidence as the basis for decision making tends to stimulate the use of the more logical aspects of our brains, rather than responding emotionally.
Just because you are the smaller company, it doesn’t necessary mean you are weaker. Explore the inter-dependencies between you and your customer and you may see sources of power that were previously hidden to you.
3. A partnership approach
Try to frame the drivers behind the need for the price increase as a problem that you and your customer share and can solve together. Positioning it in this way helps to encourage a partnership approach, and collaborative working.
Share with your customer the realities of the pressures your company is under. Again, share facts to quantify the problem and to keep emotional responses out of the equation.
Consider the history of your relationship to date. Have there been times in the past where you have worked together before, where your company has helped to resolve a problem on the customer side? If so, gently remind them of this and the benefits of a trusted partnership.
4. Negotiating price trading: keeping track of the numbers
As part of your planning, brainstorm variables other than the price increase that could also be traded as part of your negotiation. For each variable, consider the differential value to you and to your customer.
You may well identify other elements that you could offer to concede to help balance the price increase. But remember to quantify a cost value for each variable. Make sure you don’t give away with one hand what you are gaining with the other.
5. Listening
And when you meet with your customer, remember to listen to them. Take time to hear their position and hear their challenges.
Demonstrate understanding and empathy throughout your meeting. Help to keep them focused on facts, not feelings as well as yourself. Ask them to quantify the issues they raise and work on identifying the impact of issues together.
These are difficult times for us all, and businesses give themselves the best chance of riding the storm if they face up to the challenges together, in partnership, and collaboratively.
We hope this mini guide goes some way to helping you prepare for one of the more daunting types of negotiation. Arming yourself with tools and techniques such as these can really help to raise your confidence.
Do get in touch if you’d like to talk through any of these areas in more detail, or if you’d like to discuss our collaborative negotiation training solutions. And good luck!