When a supplier sends through a price rise, most buyers instinctively ask:
“Is this justified?”
Fair question. But it is usually the wrong one to start with.
We have seen substantial price rise notices across the board being issued from large suppliers recently due to the Iran War causing supply chain disruption out of the Middle East. Very rarely are these just an administrative update; it is a commercial move that should be recognised as such.
The question is not “Can they increase price?” it is “Are they expecting us to accept in full, or are they factoring in pushback?”
Figuring this out is easier said than done, because there can be situations where the right thing to do is accept it in full. There may be a legitimate need to protect the supply chain, the business and relationships that warrants this.
There are many challenges for negotiators facing price increases from suppliers. Particularly when it comes to:
- Knowing when & how to engage
- Understanding the limits to imposing our will or arguing against the increase
When a supplier sends a formal notice. It mentions freight, energy, labour, commodities, currency, the war or “ongoing market pressures.” A PR department has massaged the language to make it sound polished and legit, the increase sounds inevitable, in the endeavour that you treat it as a fact.
But in Scotwork terms, that is often just an opening demand. Quite often we see opening demands are not designed to be fair. They are designed to test:
- How commercially disciplined you are
- How many customers will simply absorb the increase.
Many price rises are not issued with the assumption that every customer will accept it in full. They are often built with customer behaviour in mind.
Why Accepting Too Quickly Can Be Costly
There is a common fear in procurement and commercial teams that pushing back too hard on a price rise will “damage the relationship.”
What will damage your relationship more is becoming known as the customer who accepts too easily.
Suppliers remember who asks questions and who do not. They remember those that trade value to protect their commercial positions and those who do not.
If you accept every increase with little challenge, you may think you are being “reasonable.” Commercially, what you may be unintentionally signalling is “This account is unlikely to resist.” We are then left wondering why they keep pushing our prices up.
Sometimes Your Best Response Is Not To Engage
One of the easiest mistakes to make is responding too early or responding with questions that push the issue into a haggle or problem solve.
For example: Asking “Can you do better?” will invite a haggle and signals a willingness to pay some of the increase.
It might be possible to delay responding and buy some thinking time. It could work, depending on the supplier, the relationship, the size of the account, the number of other competitors, volumes, etc.
What If We Can Convince Them Not to Increase the Price?
You might find some success by attempting to convince them to drop the increase. This type of dialogue might sound like:
- “I don’t think we’re close enough yet.”
- “There’s more work to do before this is something we could support.”
- “That is well beyond what we were expecting.”
- “Surely there are other customers larger than us that you could look at first.”
These could work or not, give it a go. The pay off? It costs you nothing for them to agree. However, it’s important to recognise when this is not working.
We Are in a Position of Strength: Let's Just Say No?
Sometimes we are much stronger than the counter party with more negotiating power. We may be bigger, or they are more dependent upon us or the contract favours us more than them. Imposing your will, might get you out of the jam now, but it can be damaging on the relationship and increase the competitiveness over time….
What happens next time when we need them more than they need us?
How Scotwork Would Approach It
Scotwork has a proven methodology built on a practical skillset and a mutual-gains approach that consistently delivers results. That does not mean every price rise should be rejected. It means every price rise should be tested and explored. A disciplined response usually follows a pattern.
- Ask questions before you make statements.
- The Scotwork way: do not push against the letter, seek to understand the underling intent.
Before you tell a supplier what you think of the increase, you want to understand how well they have thought about it and what are the underling needs driving it. Be curious and don't be afraid of the answers. Have follow up questions and listen to their responses. Sometimes what they do not say speaks louder than what they do say.
If their increase is poorly structured, unsupported, or opportunistic, it often starts to show under pressure. And if it is legitimate, you are still gathering information that helps you negotiate more intelligently.
Assuming we’ve decided to negotiate….
Don’t ask yourself, “Should I accept this?” instead ask, “If we do accept any of this, what should we be getting back in return?”
If we’ve established that an increase is legitimate, the surrounding terms could be negotiable. There may be immense value in gaining favourable outcomes on areas like:
- Payment terms,
- Rebates,
- Service level guarantees,
- Temporary surcharges instead of permanent base changes
- etc…
Effective negotiators protect value. Not by saying “No” to everything, or by pulling the number down but through trading.
Final Thought
If a supplier sends through a price rise, don't treat the document as the decision. Treat it as the opening move. And opening moves should never be accepted without being tested. Because in negotiation, the first price is rarely the final one. The real question is whether you are prepared to negotiate like that is true.
Dealing with a price rise demand? How will you protect your commercial position? If you want support, let's talk. Get in touch with the Scotwork team HERE.