How to Maximize Profit through Reasonable Price Strategy Leave a comment

Example

Recently, I heard a senior talk about a successful price negotiation with foreign clients some time ago. He provides Japanese clients with a piece of parts. And they routinely purchase 5,000 pieces from him every year. Clients tell him that they also buy from another Chinese supplier, whose number is about 5,000.

After receiving inquiries from Japanese clients this year, he also quoted quickly, with a unit price of $50 and a profit of about $4 per piece. However, his offer was valid for a shorter period, only 20 days, compared to at least 40 days in previous years. After the quotation had expired, clients asked him to update the price. Also, they emailed him that if he could reduce the unit price by $3, he would get more pieces, such as 7000. And he was asked to prepare all the materials because they were not stocking much.

After he heard the news, he analyzed their situation. They could not give all orders to one supplier. In general, the order ratio to one supplier did not exceed 70% of the total. So, he could get an order of at least 3,000 pieces. And clients were in urgent need of the goods. Due to process differences, his production cycle was ten days shorter than the other supplier. Therefore, clients would not put many orders to another company.

Then, he quickly replied to clients. Instead of agreeing to a price cut, he told them that he had to adjust the price to $53 because of the recent rise in material prices and the RMB exchange rate fluctuations. Although clients were not satisfied with the adjustment, they accepted it soon. But the number of orders was less, only 3,500. Meanwhile, clients stressed that the goods must be delivered on time.

Analysis

For their companies, the profit at the time of the offer is approximately $20,000. But clients ask for a price cut. If he agrees, the profit will become 7,000 dollars. At this time, the investment is larger, but the profit has been reduced a lot. It will be risky. After the price adjustment, although the order quantity is less, the profit is higher to 24,500 dollars. Profits and profit margins have increased without increasing investment.

When the senior talked about this example, he also mentioned that he dared to raise prices because he was familiar with the procurement process and model of Japanese customers. He also knew that they paid more attention to the delivery date than the price. At the same time, it was predicted that the competitors may maintain the original price or slightly lower prices, so the order volume of competitors increased.

Although the order volume is reduced, he also proposes a price that the customer can accept and increase the profit and profit margin without increasing the investment. This shows a strong ability.

Therefore, in the price negotiation, if clients increase the number of order for a price reduction, you must consider carefully whether the absolute profit is increased or not.

 

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