Do this or else!
People often give ultimatums. It could be about project timelines, allocation of risk or of course pricing.
The problem with demands and ultimatums like this is - we need to figure out if it is credible and we need to move, or if it just a feeble attempt at a ‘fishing expedition’ to get us to move!
Are they bluffing? How can you tell?
By asking good questions to understand their demands, it will quickly become clear if their demands are credible or ambit. Maybe the market has moved and you need to accept the price rise to meet the market or maybe the price rise they're asking for is more than the market has moved and some of their demand is ambit.
If you decide its credible and you need to move - you move to meet the market. If however it is ambit, these strategies may help: problem solving, saying no or Giving Them What They Want On Your Terms (Negotiating).
The Give Them What They Want On Your Terms (GTWTWOYT) approach goes a little bit like this. If you agree to a 40% increase in volumes, we’ll agree to a 20% reduction in price. The trouble with many of these approaches is that they accept the reduction and make their best endeavours on the volume, but never achieve it. Drug companies often fall for this trap and offer special deals in return for exclusivity from retailers. The retailer agrees and then the drug reps find out later that other competing suppliers’ products are still on the shelves! This is where negotiating discipline and ‘corporate will’ intersect.
An alternative approach is to re-engineer your product to meet the buyer’s price demands while maintaining your margins. You reduce quality and quantities simultaneously if possible. There are many examples of new packaging being used to disguise reductions in quantities. However, this doesn’t always work as, unfortunately brand loyalists will read the label and claim a ‘rip-off’, as took place with an iconic Tasmanian beer brand (the backlash was so great that they had to revert to the original sized container). Similar damage was done to another famous brand where there was a slight reduction in alcohol content to reduce excise. Again, outrage from brand loyalists and permanent brand damage.
If you’ve made a deal on conditions that obviously aren’t being met, then there must be a will to enforce the performance of the deal. Previous pricing is resumed with an appropriate explanation of why you’re taking this action. If you don’t, then the other party will understand that you’re not prepared to enforce your conditions. This is an implementation concession with nothing in return.
When faced with this particular demand by a carmaker with a familiar dog name, Rover, a UK consultant came up with an elegant solution. At that time the course fees were $4k per place on open courses, and $40k for a one-company course. The demand for a 25% reduction was particularly difficult for the company concerned, because they had a long-standing policy that the course fee was SET.
The proposal in return from Scotwork (yes us!) was: if you buy a one-company course ($40k), we will allow you to sell six places to your suppliers at the open course fee of $4k per head ($24k); meaning your participants will cost $18k for six or $3000 per head. This represents a 25% reduction on your course fee.
In summary, the client received the 25% discount and Scotwork maintained its one-company course fee and had the benefit of being introduced to six potential new customers. Sheer brilliance!