Core conclusions:For negotiating prices with domestic customers, there are three steps to follow: First, use a stepped pricing strategy to transform “price reductions” into “increased quantities”. Then, negotiate payment terms, shipping costs, and mold fees to gain more room for price adjustments. Finally, use a minimum price list to ensure that the bottom line is maintained. Taking a product with an ex-factory price of 100 yuan as an example, a quotation of 98 yuan can be offered for 3,000 units, 95 yuan for 10,000 units, and 92 yuan for 30,000 units. By linking quantity with price, it becomes possible to achieve a profit of 3 percentage points, rather than just getting a free profit.
1. First step: Provide step-by-step pricing options, focusing on the volume of orders involved in each offer.
The most common mistake when customers try to negotiate prices is asking for a fixed amount upfront and then offering a lower price. The correct approach is to first present a set pricing structure: state a standard price for larger orders, and then offer two tiers of pricing options. For example (numbers are for illustrative purposes; factories can adjust these prices based on their costs): the factory price is 100 yuan. For 3,000 units, the price would be 98 yuan; for 10,000 units, it would be 95 yuan; and for 30,000 units, it would be 92 yuan. What customers see is that the cheaper the quantity ordered, the better the price. However, your actual savings are limited to the incremental orders. If customers actually place orders of 30,000 units, the 92 yuan price per unit would still be higher than the 98 yuan price for 3,000 units. In other words, the total gross profit from ordering 30,000 units might not be lower than that from ordering 3,000 units.
The design of the steps involves two key points: the difference between each level should be set at 2 to 3 units. If the difference is too small, customers won’t notice it; if it’s too large, it will result in a loss of production capacity. The price at each level must cover the actual cost variations associated with the volume of products sold. As the volume increases, the purchase price of raw materials, manufacturing costs, and labor costs all decrease. The portion of costs that decrease should be passed on to customers as a reasonable discount. However, the remaining costs should not be left uncompensated.
II. Second step: Changing conditions to match prices. Even if the unit price remains unchanged, concessions can still be made.
The unit price represents the most expensive concession that can be made. It should only be given if absolutely necessary. When customers request a price reduction, they can offer the following conditions in exchange: payment in full upfront could earn them an additional 2 percentage points; a 60-day payment period would result in a price reduction of 1 percentage point. If customers prefer to pick up their goods themselves, they could get an extra 1 percentage point, while ordering delivery services would keep the original price unchanged. For mold costs, if customers are allowed to share the costs, they could get an additional 1.5 percentage points. If they choose to have the molds custom-made without sharing the costs, the price remains unchanged. Every concession comes with its own cost analysis—a long payment period represents capital occupation, shipping costs represent logistics expenses, and molds are fixed asset investments. By converting these costs into points, concessions become equivalent exchanges.
| Ways of making concessions | The actual efforts put in by the factory | applicable scenarios |
|---|---|---|
| Increase the degree of reduction | Material and model conversion costs that are reduced in bulk | Customers are sensitive to prices, and there is a large potential for generating multiple sales. |
| Use cash to exchange for points | Less capital is required, resulting in a gain of 1-2 percentage points. | The customer has sufficient cash flow, and also has strong bargaining power. |
| The payment period remains at the original rate. | With a payment period of 60 days, the capital cost is approximately 1 percentage point. | When customers demand payment earlier or lower prices, it’s important to prioritize sticking to these terms. |
| Mold sharing points | The mold is transferred, resulting in a gain of 1-1.5 points. | Customized items, designed specifically for customers |
Once you get used to dealing with conditions in terms of prices, there’s another advantage: when customers try to negotiate further, you have four options at your disposal: payment in full, pickup at the buyer’s location, sharing the costs with others, or getting a larger quantity. This means that negotiations aren’t limited to just one option like “reducing the price by 1 point”. With more choices available, it becomes easier to avoid ending up in a situation where you’re forced to switch suppliers.
III. Third step: The bottom line. Write down the minimum price before starting negotiations.
The price table is the last barrier in price negotiation. The approach is to break down the cost of each product into various components: materials, labor, manufacturing costs, packaging and shipping expenses, sales expenses. By adding together these costs along with the minimum gross profit requirement, we can determine the “channel-specific base prices” – the prices set for distributors, major customers, and e-commerce channels. These prices vary because the service costs and payment terms differ across different channels. Any offer lower than the base price table cannot be accepted during negotiations. If a breakthrough is needed, it should be decided by the manager, rather than being decided on the spot by the salesperson.
The minimum bid list should be reviewed quarterly. Changes in raw material prices, labor costs, and transportation expenses can all affect the bottom line of the bids. Factories that don’t have a clear minimum bid list rely solely on intuition when negotiating prices with customers. The same product may be offered different prices by different salespeople, leading to confusion among customers when comparing prices across products.
4. Common questions
1. If the customer offers a lower price by comparing it with other companies’ quotes, and the price is even lower than the base price, what should we do?
First, verify the comparability: check whether the product specifications, materials used, minimum order quantity, and payment terms offered by the other party are consistent with those you have proposed. Also, compare the prices of similar products in the industry. If they are indeed comparable, then make a decision based on the lowest price list. If the price is lower than the lowest limit, then decline the offer. Clearly state your position: “The materials used in this product can be compared with samples.” If the price is above the lowest limit, then you can negotiate additional conditions to get a better deal, rather than sticking to a fixed unit price.
2. Retired customers tend to offer lower prices than new customers. How should we handle this situation?
Regular customers often negotiate prices with the expectation of continuing their business. It’s appropriate to use annual framework agreements for such customers: provide them with tiered rebates or direct discounts based on the annual purchase volume committed to. The benefits should be tied to the overall volume, rather than individual orders. This way, the loyalty of regular customers is rewarded, and your concessions are also covered by the overall volume commitment. For customers who only negotiate prices without committing to a specific volume, standard tiered pricing can be applied.
3. What should I do if the step-by-step quotation is sent out, and the customer simply negotiates the price based on the lowest option?
This indicates that customers are interested in the highest-tier options, but they prefer to purchase smaller quantities at lower prices. The solution is to maintain a consistent pricing structure: clearly define the relationship between small quantities and low prices. The difference in quantity can be compensated for through “batched orders and price adjustments based on cumulative sales volume”. For example, start with 3,000 units as the first batch of orders. When the total number of units reaches 10,000 units throughout the year, the differences between the two batches can be compensated. This approach ensures that the pricing structure remains stable, while also offering customers significant discounts on larger orders.
For factories engaged in domestic trade, bargaining isn’t an enemy of profit. What truly matters is making concessions without any structure or plan. By setting price thresholds, companies can ensure that their concessions are equivalent to the value offered. A minimum price list serves as the last line of defense. Once these three steps are completed, a price war can be transformed into effective profit management strategies.
Qihang Zhilian Foreign Trade Research Institute·Let China's intelligent manufacturing industry set sail to sea·Tel: 180-0327-6609
