Art of Story Selling {Nov 18}: The tyranny of the lowest price clause

In ART, BUSINESS

Many of the contracts that buyers send across for acceptance (with the polite statement that non-acceptance will be viewed negatively in a competitive scenario) include a clause that means something like this:

“The seller confirms/warrants that the rates provided to the buyer in this contract are the lowest; and the same or lower rates will not be quoted when this contract is in force”

I have seen suppliers responding to it in two ways:

  1. Agree to the clause, but insert conditions like same country, same volume, same industry, same technology to all, making the clause ineffective.
  2. Reject the clause in a very nice manner saying it will be difficult to monitor and administer this clause.

The one who blinks first

The client is happy with Option A, and reluctantly accepts Option B. Everyone involved understands this is yet another game played by customers. Ask the seller to commit to something ridiculously one-sided, get them on record refusing it or qualifying it so that it can be used against them during negotiations. The sellers’ refusal to commit to ‘always low prices’ is used by the buyer to include a benchmarking clause.

Another symbol of buyer tyranny is the benchmarking exercise done by a third-party who certifies that the seller is selling at a reasonable price. Such benchmarking exercises are again used by the buyer to wrangle more discounts.

The elegant approach

I have a suggestion. Why not respond this way to such requests?

“We define customer loyalty as us being loyal to our customers, and not the other way around. This means that any lower price will be offered first to our existing customers. Should you choose to become our customer, which we very much wish for, you too would receive such reduction and discount in prices as and when we achieve efficiencies. We will never commit to lesser rates to a new customer and ask our existing customers to continue to pay more. It is against our values of customer centricity”

This calls out the buyer’s demand for what it is – a brazen and opportunistic display of power over the seller. It also shows you as a seller who cares more for existing customers. It signals to this buyer that they will be better off with you in the long run as you have already exhibited loyalty to your customers even when you did not have to.

The case of Daewoo

Slashing prices for a new customer can have a severe backlash as the case of Daewoo shows.

Some of you may remember the Cielo car by Daewoo. It sold at nearly INR 650000 before Honda entered the market with its City model. In response to competition from Honda, Daewoo cut the price of its car by INR 200000, a 30% drop. Existing customers felt cheated. The resale value of the car sank. People who were thinking about Daewoo quickly rejected it since its price was no longer considered a fair indicator of value. It was the beginning of the end of Daewoo in India.

So when a prospect asks you for a price lower than what you have sold to your loyal customers, stop and think. Don’t get sucked in. Buyers who wrangle lower rates will brag. Your existing customers will hear of it. And hate you for it. Do you want that?

Note : This article was orginally posted on LinkedIn

Ramesh Dorairaj

Ramesh Dorairaj is consultant, coach and an author. He has 27+ Years of Experience consulting for Fortune 500 companies worldwide. He has groomed 50+ leaders. Has participated in 2.5 Billion $ worth of successful deals.  He is a Certified Executive Coach at Marshall Goldsmith Stakeholder Centered Coaching, Certified Sales Coach and a Certified Proposal Coach.

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