Too early or too late - when to disclose the prices in the cooperation negotiations?

2019-09-04

Category: Excedea family International growth International growth - client case

Keywords: Business culture, Cooperation partners, Distributor, International Growth, Internationalization

Author:

One of the key reasons why Excedea consistently delivers high value to the clients is team work. Everyone at Excedea can always count on getting support from any of their colleagues, which gives an invaluable access to an extremely diverse knowledge and experience base. Excedea family includes people from tens of countries, who have decades of experience from hundreds of different industries and projects. To demonstrate how the knowledge sharing works in practice and also hopefully provide some valuable insights we are publishing some of the daily internal Q&A’s from Excedea digital channels.

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Dear @Viktor,

I am leading a project, where we are searching for distributors in several markets for one of our Finnish clients. The client offers high quality and high price products for B2B market.

I have contacted the set of selected distributors, and most of them are ready to discuss cooperation more deeply only after seeing at the product prices. However, our client is hesitant that “they won’t understand the quality vs price ration until they witness the products physically” and does not mandate disclosing the price lists.

Can you please give an advice how to solve it?

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Dear @Margus,

Thank you for the question. This is a fairly common situation. Let me first give you a few ideas to consider, then let’s have a sparring meeting to see what is applicable to your specific case. Bear in mind that these ideas also need to be adjusted to the cultural specifics of each market. I will give you 5 ideas below:

1) I would first consider what value I am offering to the distributors. Distributors are usually interested how they could easily make more money with my product. Do you know how? Do you have a good argument why they should go with your product? If you don’t have a definitive answer, we should address this question together with our client.

Let me give you some examples:

Nordic companies typically have expensive high quality products and it’s a red flag for many of the potential distributors. Distributors often would rather be able to sell with price, than value.  However, many times it is easier to sell cheaper products, but much harder to make decent margins. The product is too generic and the competition is too high. If you can show how distributors can make higher profits even with smaller volumes, you have their attention.

Or sometimes you can demonstrate an under-served market niche, which they can occupy with your product and thus expand and strengthen their business. Or sometimes you can show that higher quality means less maintenance, replacements, complaints handling etc., which can be translated to more profit with less effort.

If you are not certain about what your value proposition for the distributor is, you should discuss it with the client.

2) I absolutely understand where the client is coming from when they don’t want to disclose the prices to early. Without a doubt it’s a smart tactic. However, I also find that it is usually desirable that the potential distributors would understand at least the price range we are expecting for our services before the meetings and demonstrations. After all, our clients should concentrate their time and energy on the highest potential leads. If the distributor know that they will not go into our price segment, there is no need to waste each other’s time.

To the potential distributors you could give a reply along the lines of: “We are unable to give the exact price lists yet, because they largely depend on the details of our cooperation. But of course it is important that you understand our price segment. Our products are in the high quality and high value niche, meaning that the the price is in x-y range, or x-y% more expensive compared to the cheap segment. Despite the somewhat higher prices, our products are selling very well and are highly valued by our target customers. I believe this business opportunity is worth your evaluation because (state your UVPs from bullet point 1)”.

3) Are you talking to the right distributors?

Companies specializing in budget segment usually have a hard time transferring to high quality and high price segment. They lack the experience, the client base, the reputation, and sometimes the right mindset. It may be more valuable for our client if we screen more carefully for those potential distributors who understand the value though their existing business and previous experience, than spend a lot of time trying to convince the sceptics.

Alternatively, you might have a specific UVP to the distributors playing in a different price segment. The cooperation strategy may be based on widening the distributors target segment. To the budget oriented distributors you can point out that they are missing x, y, z market segments, because their product does not comply with the quality requirements. With our clients product they can start serving a wider range of customer, which will create a strong synergy between the product groups. In order to offer this strategy, you need to know the market and have really completed the segmentation analysis.

4) Many times the suppliers are way too direct trying to sell to the distributors immediately. Naturally, if you are sending strong “sales vibes”, you are framing yourself into that communication and template and it is logical and timely for the distributors to want to know the prices. Then if you don’t want to provide the prices, you may come across like one of those door-to-door vacuum cleaner salespeople, trying to get through the door. Most people don’t like that image, having experience with salespeople who try to get through the door and then waste your time and try their arsenal of manipulative sales techniques.

Instead, you want to demonstrate that you are looking for a mutually valuable partnership, not a quick sale. In that case you might find that you are skipping some crucial steps. To use an analogy from romantic relationships, you are jumping from first meeting directly to discussing marriage, skipping the crucial courtship and dating phases. It just does not seem sincere.

Even though the first meeting is probably meant as a “dating” step, it’s just too quick, too direct, too intrusive. You need to find a smoother, more gradual approach to develop the relationship. For instance, you can find better ways to demonstrate quality like making demonstrative videos, providing statistical evidence, displaying testimonials, offering market insights, etc. Going door-to-door and organizing meeting is a proven method, but it is also very “low-tech” and expensive. We probably can do better.

We have some great examples from our previous projects on how to establish a smoother process for signing and on-boarding new distributors. Let’s discuss it separately if it is relevant to the case.

5) Finally you should not dismiss the idea, that maybe disclosing the price list to the most prominent distributors is the best way to go. If that’s what you believe, you should describe the situation to the client exactly how it is: “These distributors do believe you have a good product, but they are professionals and don’t want to invest their time into meetings before they have more details, including prices.” Then have a sparring discussion with the client what is the best strategy to go forward.

All in all, as you can see, there is definitely a number of specific factors that you must take into consideration when negotiating with a distributor asking for prices. First and foremost, think of the value the products offer to the distributor, then make sure the distributor understands the price range you are talking about (or just show the prices). In addition, make sure that what the distributor wants is something they actually need, because sometimes the initial request can change into something completely new. Also, check that your pitch isn’t too aggressive by giving the distributor time to get to know our client and their services. Finally, be a good listener, but also a confident adviser to your client, they will appreciate it. Consider these ideas and let’s have a sparring meeting and see how we deliver the best value for this client.

Best,

Viktor Reppo, Partner at Excedea
Viktor.Reppo(at)excedea.com

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