Some companies press their suppliers for lower prices because it is their business model. They drive prices down to drive cost out of the business and pass those savings on to their customers. This is what Walmart does in the United States, and Aldi does the same in Europe. If you are a supplier, you know this going into a deal, and you know it’s all about pennies.
But other companies focus on cutting their supplier’s prices because they have a sales problem.
Sometimes, when a company doesn’t have the revenue they need, they start making cuts. They start by cutting anything non-essential to the business, then they work on their suppliers. They have to find money somewhere, and it is easier to push your suppliers to cut their prices than it is to build an effective sales organization.
As a supplier, vendor, or strategic partner, you inherit their sales problem. Their sales problem becomes your problem as soon as they ask for a price concession.
Other times, a company will grow their top line very well, but they’ll spend too much money to deliver that top line growth. Sometimes they spend too much on client acquisition, things like sales and marketing. But more often they spend too much money executing and delivering for their customers. Their profit margins don’t match the value that they are creating for their customers, and that is oftentimes how they won the business.
As someone who supplies them with the things they buy, they hand you down their sales problem. Because they can’t make money, they need you to lower your price to help them correct the fact that they have under-priced their offerings.
You can always know if a company has a lowest-price business model. But it is difficult to tell what kind of a sales organization your prospect might be. They can measure their revenue in the billions and still have a revenue problem caused by poor sales. You can find companies that appear to be doing well only to later discover they aren’t profitable because they are winning business at prices that don’t support the business.
If your customer has a sales problem of their own, you will end up inheriting that problem. Eventually.
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Filed under: Sales