Negotiating Discounts From ManufacturersBy John Honovich, Published on May 26, 2016
Is there room for just a little more discount in your purchase order?
This report outlines some common tactics that often work, and do not work, to successfully negotiate additional discounts with manufacturers.
They include the good using:
- Demo Equipment
And the bad including:
How Are Prices Set?
Before asking for additional discounts, it can be helpful to understand how a manufacturer sets prices. Though they all use different formulas and methods, the general approach is typically the same, and there are four key prices:
- MSRP - This should be a realistic selling price, but is sometimes inflated to make discounts seem better
- Dealer 1 - Discount level for a new or low-volume dealer
- Dealer 2 - Discount level for a typical dealer
- Premier Dealer - Discount level for the largest dealers
Manufacturers generally have different marketing terms for dealer levels, e.g., "Bronze", "Silver", "Gold", "Platinum", etc.
If the manufacturer sells direct and through distribution, there will be a "Distributor Price" usually just below the Premier Account price.
Standard Discount Spread
Dealer 1 price is commonly 20-30% off MSRP, but can be much higher or lower, each additional tier typically adds another 5-10% of discount level.
Manufacturers commonly rely on 1 of 2 primary ways they set MSRP and discounts.
It is important to understand a manufacturer's overall discount structure to determine how much discount is potentially available for a given order. Most manufacturers will tell you what their discount tiers are, and what it takes to get there.
Who Can Approve Discounts?
In most cases, a Regional or Territory Manager can give a 5% discount at will to "get a deal done". This is often because few dealers will be at the Premier level and those that are commonly deal with a dedicated account manager, not a regional person, so a regional can give a small discount without the risk that the deal becomes unprofitable for the company.
Mid or higher level sales managers can often approve 10% discounts.
Discounts beyond 10% will often need the approval of a VP of Sales, or sometimes even the CEO or other persons, depending on reporting structure in the company.
Most salespeople, especially VPs, are measured not just on total revenue, but also on discounts given. Even though an RSM can approve 5% discounts, they have an incentive not to do this too often, aside from the fact that providing a discount reduces revenue (and thereby commissions) for them.
Trade For Customer References
Possibly the best way to get a discount is to offer something equally valuable in return.
Manufacturers are frequently looking for a good case studies. If you have a customer/install that showcases some aspect of the manufacturer's product, or is in a key vertical, and the customer is willing to allow their name to be used in a case study, that likely has good value to the manufacturer.
Customers willing to be a reference for other customers are also valuable. School districts, retail chains, energy, and critical infrastructure customers are among many that all like to talk to counterparts that have used a system before deciding to purchase on their own. If you have a customer who would be willing to take calls as a reference for future sales, be sure to make this clear when asking about a project discount. Similarly, if a customer is willing to allow other potential customers to come to their site(s) to see a product in action, that is discount-worthy.
Work With RSM On Timing
Many people assume the end of a quarter is the best time to hold orders and ask for discounts. This can be true if the company, or RSM, is struggling, but if the RSM is on target they may not want the order in that quarter, they might prefer it to start off their next quarter strong. If you have a deal that is likely to fall around the beginning/end of a quarter, call up the RSM and ask them how they would prefer to handle it, you may have better odds if you try a "teamwork" approach instead of trying to dangle the order for a discount.
Ask For Discounts Outside Of Hardware
Physical products have hard costs associated with them, however sometimes software licenses and professional services are easier to negotiate into a deal for free. For example, you might say to the RSM "The customer has a little extra budget, if you can give me 2 extra licenses I can probably get them to buy 2 more cameras." Asking to have the manufacturer provide an SE or trainer to do a post-install training for the customer can be another way to reduce your overhead and shift some to the manufacturer.
If your company offers a warranty or maintenance plan, ask the manufacturer to include an extra year of warranty on their equipment. Make it clear that the customer sees value in this, and providing a warranty period that goes above and beyond alternative options will help sway the deal.
Leverage Demo Equipment
Demo equipment can also be a good negotiating token. If a demo unit is already installed at the customers site, and they decide they now want to deploy a full system, ask for the demo unit to be given at no cost. If your company provided the installation labor on the demo unit at zero/reduced cost, be sure to mention that as well. Sales people often have a demo pool budget, and can afford to lose some pieces of demo equipment, as long as it is not a new-release or hot item.
Negotiate Payment Terms
For larger jobs that will take a long time to complete (and thus get paid) you may be able to negotiate special payment terms on those projects. While not a direct discount, extended terms can help with overall cashflow.
Pay On Time
In addition to any of the above suggestions, pay your bills on time. It will be easier for the sales person to justify a discount, or ask upper management for bigger discounts, for an integrator who does not have a record of carrying a past-due balance.
BAD - Vague Rationale
Do not say "I need an extra 5 points (or 10 points) to stay competitive on this deal". If you are going ask a manufacturer to help keep you competitive make it very clear what discount(s) you have already applied to your own labor or materials. Also clarify if other manufacturers involved in the bid have provided discounts, and be prepared to explain why the customer is more focused on price than value of your service/solution.
BAD - Future Promises
Do not say "I need to be really competitive on this first site, but after we win this we will get X more sites". A customer that is price sensitive about 1 site is unlikely to suddenly have an open checkbook on the next 20 sites. If you truly believe this, a better approach might be to say "I am discounting my own labor on this first site, but when the order for the next 5 comes in next month I am going to need an extra 10 points from you.". This shows that you are doing your part to win the customer, and that you truly believe many more orders will come after this one.
BAD - Technical Difficulty Complaints
Do not tell the manufacturer that you need a discount or a refund of some kind because the product was more difficult to install than expected, unless you have clear documentation or proof of a product deficiency or installability misrepresentation. These kinds of requests are often not approvable without upper-level engagement.
Working With Distributors
If you are purchasing through distribution, you can also ask the distributor for a discount, though many operate on very small margins. It may be better to ask the RSM if they have a recommended distributor that is known to offer better pricing.
It may also be possible to price-shop distributors, ask multiple distributors for a quote and tell them upfront that you are looking for the most competitive pricing.
Some distributors offer configuration services or other time/cost-saving options at competitive rates. Ask your distributor if they can offer any services that will save you time, even if these are not direct discounts.