How to successfully negotiate cost price increases
Are cost price increases keeping you awake at night? Whether you’re a buyer or seller the cost of everything is increasing and you could do with passing on your pain. Availability issues, inflationary pressures, Covid challenges and Brexit are all contributing to a perfect storm which is impacting businesses like yours. The last 2 years have been tough to say the least and the need for robust negotiation skills has never been greater.
This time last year our larger clients were telling us that the big issue was the fallout from Brexit. Of course for a UK based business, not affected directly by Brexit this would have been less relevant. Other clients may have been telling us that their greatest challenge at that time was Covid 19; it will come as no surprise that those businesses we work with in the pharmaceutical world were rather pleased with the dividend that the pandemic was delivering. Back then, a whole 12 months ago, the world was different, there were multiple issues, occupying different sectors and businesses in very different ways.
During countless conversations with our client base over the past 6-8 months we have noticed that things have changed markedly. Never before have we seen a single issue causing sleepless nights for buyers and sellers alike, across every sector and in every industry (even sport!). Cost price increases (CPIs) are affecting everyone.
For retailers, CPIs have been caused by transport and labour charges, for manufacturers it has been importing and raw material price hikes and for distributors, rent charges and energy bills have been a constant challenge. The ripple effects of the impacts on these sectors are felt far and wide.
So, what is the most effective way to negotiate CPIs? How can your organisation successfully navigate these challenging times, stay one step ahead of your competitors and maintain strong relationships with your supply chain?
- Ignore the supplier. Stall, defer and procrastinate. You want them to understand that they are out of step with the market and run the risk of losing your business.
- Get them to justify their position; ask them why? Many suppliers will have been trained in negotiation and will attempt to make their responses opaque – do not make it easy for them, after all knowledge is power.
- You’re in control; actions must conform to your timings, not theirs – plan to ignore, say no and procrastinate in sequence before you get anywhere near what they are seeking.
- Disempower yourself. This will make it more likely that they will justify – how will you be able to get sign off from your boss if you do not have all of the facts? Once you have more information you will make better decisions.
- Be confident in your planning and only agree to what you are content with:
- If you must agree, do it on your terms; they want 12% give them 2.5% – know what you will agree to and get there over phased steps, it will make them work harder for their ‘reward’.
What to look out for:
- You must avoid ‘going native’. If you find yourself thinking that the supplier’s justification sounds ‘reasonable’ or ‘fair’, then you have crossed the line. Do not make decisions from a subjective position; avoid emotion at all costs.
A comprehensive, well structured plan augmented with detailed information gleaned from the other party will deliver success. Regardless of sector, our clients report X% return when dealing with cost price increases.
At bridge][ability we understand the importance of dealing with cost price increases through a comprehensive approach to negotiation. Our industry leading development programs will change the way your team negotiates, allowing you to deal the cost price increases of today and tomorrow.