FIGHTING A PRICE INCREASE
By Robert M. Benedict 

Best Opening Question:

Think about your goal in calling the supplier.  What are you trying to accomplish?  In priority order, the goals are:

• Eliminate the increase
• Reduce the increase
• Move back the effective date
• Trade it for something else
• Justify it for management

In the best approach, what should be your opening question?  If the least advantageous goal is simply to justify it – why do so many professionals open by asking….”How can you justify the increase?”

My clients tell me their most effective opening question, after they position their leverage is:  “How can we eliminate this price increase?”  It aims high and sets a target for discussion.  Think ahead to the supplier response.  If the seller says:  “I can’t do that for you,” two responses ought to leap to your mind.

One response is:  “What can you do?”  Get that firmly established and then move on to the next response, which is:  “Who in your organization can do more?  Who has the authority to drop the increase?”

Ask yourself key questions in your preparations.  Is this a fair increase?  What are the industry trends?  Have competitors raised their prices?  By how much?  What is my leverage?  How will I position it?  What are my options?

Rehearse before you react.  Rehearsal is one of the greatest secrets to success.

Be sure you talk to the right person.  Don’t get “bogged down” talking to the wrong person.  Find who has the authority to negotiate.  When a salesperson says, “I can’t eliminate the price increase for you,”  what they usually mean is that they don’t have the authority, not that it can’t be done.

In our Real World Negotiating™ Seminar, we emphasize that a supply chain management professional must decide whether they are going to fight a price increase using a cost-based approach or a market-based approach (and we show how to do it).  The following provides one example of how a cost-based model can prove helpful:

Sometimes a major supplier is called into your company to justify the price increase in person.  In these cases, they may use a more subtle form of “fogging,” saying:  “Look, I can document that we’ve experienced a 9% increase in direct materials costs and a 6% increase in labor rates.  We deserve this price increase.”

Our clients find it very effective to go to the whiteboard or flipchart and list the items that make up the price:

Percent of Total Price                                                       Percent of Increase

                                                            Material

                                                            Labor

                                                            Overhead

                                                            Profit

                                                            Non-Recurring

                                                             (i.e. tooling)

After making the list above, the buyer hands the marker to the supplier and says:  “Please list for us where the price increases have occurred, the percentage of the total price they represent, and how the price increase was calculated.”

Many salespeople, and even their bosses, are not prepared to do that.  They will try to “fog” you off the topic so they don’t have to respond.  But, our clients have found that if you are persistent in forcing them to respond, in many cases, you will hear a phrase something like – “”Hey, what are you looking for?  What does it take to make you happy?”

Therein is the beginning of the WIN/WIN negotiating process, so be prepared to tell them specifically “what would make you happy.”

Tenacious follow-up questioning and fair, but firm, responses can greatly build your leverage. 

REAL WORLD NEGOTIATING™

The Real World NegotiatingÔ course provides an in-depth understanding as to how to use the Grid mentioned above in fighting price increases from a cost-based model as well as:

• What are the 2 best times to successfully obtain a cost breakdown from a supplier?
• What are the 3 major laws in fighting a price increase?
• When, specifically, to use a market-based strategy and when to use a cost-based strategy.