I still remember sitting in the car with our French representative on the way to our customer’s factory north of Paris some five years ago. At that time I was Director International Sales for a German technology company. The conversation went this way.

“Alain, what do you think? How much of a discount will Monsieur Ribault expect? You know, we offered the instrument including all accessories, installation and commissioning for 350,000 USD.”

“The last time, we sold the same machine for 280,000 USD was four years ago. Also, I know, you added some features to the machine that improved its performance. However, knowing M. Ribault, it will be tough to achieve a higher price than last time.”

“The price for the previous machine was already at the bottom. Our cost increased, not decreased, with higher wages, higher material cost and improved design. So we need a higher price this time.”

“Well, we can try to get him on 300,000 USD. Would that still be acceptable?” I inquired.

“Actually not, but o.k. At the same time we need this order now, so if he can decide immediately, we are willing to compromise to 300k.”

I knew that M. Ribault was a tough negotiator but I also knew that his company, a multi-national automotive corporation, was very satisfied with the machine they bought four years earlier.

When we met M. Ribault, he opened the conversation by saying that his top management’s requirement was to reduce the cost for any supplier by 3.5% per year on the average. This policy was introduced the year before.

M. Ribault was not a man of many words and he frankly stated: “We need your price to go down by 7% at least, i.e. the maximum we can pay for this machine is 260,000 USD. If you can’t follow our policy and efforts to reduce our cost, I’m afraid that we will need to look for alternative suppliers.”

Wow, there I sat, expecting to get a better price and now I had an important customer seriously saying that if we didn’t lower our price to 260,000 USD, we would be out of the game.

At first, I tried to explain why in this case it was impossible for us to lower the price and that we actually needed 7% more, not less. I realized quickly that this attempt would lead nowhere.

So what to do? Negotiate and pressure him so long until we reached a somewhat still tolerable compromise? Perhaps to reach at least the same price as last time? Give up? Give in? It seemed like one of us had to lose and that one would most likely be us, no matter if we compromised or not.

When I thought more about it, I realized that M. Ribault’s company would also lose. I knew that our instrument was by far the best the solution they could get for this application, so if we gave up, they would lose by choosing another supplier. If we gave in, they would lose because with such a bad margin on our side, service would be reduced to an absolutely necessary minimum in order to recover at least some of the lost margin.