How to negotiate price with Chinese supplier(factory) - Confession of a senior native chinese sourcing manager Part 1
Filed Under:Supplier Relation | Viewed by: 13511 Persons
This article is translated from a third party sourcing manager's dairy, it doesn't represent Chinawhy's opinion. But we think the perspective in his article is very helpful to overseas buyers, to understand and manage the relation with Chinese supplier.
Many overseas buyers told me that what baffles them the most when doing sourcing in china is how to negotiate with Chinese suppliers and how to manage their relationship with Chinese suppliers. The cause for this problem is quite simple, namely, cultural and language differences. Recently I have read an article written by a senior purchasing manager in China, where he introduces his own experience of negotiating with the factories and suppliers. I quite agree with many of his ideas, therefore I especially translate and share this article on the CHINAWHY Blog. The perspective of this article is the perspective of a senior merchandiser in a trading company on how he look at the relation and how he manage the relation with factories; on how he find balance between clients and factories.
The article will mainly discuss the following four aspects.
1. How to negotiate the price with suppliers ( factories)
2. How to negotiate the payment terms with suppliers
3. How to solve dispute with Chinese suppliers
4. When customer conducts factory inspection, how to negotiate with the factory to prevent its attempt of snatching the customer.
Prior to elaborate on this topic, firstly please look at this question:
Which is more important? factories or customers ?
My point is: a good salesman should always keep in mind that factory is far more important than the customer.
Also, there is a huge market and the customers are endless, however, only a handful of factories will give you wholehearted support and cooperation. They are the most precious asset.
With a good factory to support and cooperate with you, provide you with the quality products at favorable price and timely delivery, foreign trade salesman can concentrate on developing customer. A good factory can keep worries away. When you meet with price disadvantages, a good factory can understand your dilemma and give up some profit margin without cutting corners on the product, so as to cooperate with you to get the order. When problems arise on the quality of the products, a good factory will pay enough attention, carry out proper investigation and give you timely feedback. With those positive efforts, the salesman’s sales volume will grow rapidly, wining over more and more customers.
Otherwise, if a factory is uncooperative and dishonest, the products are often of inferior quality, made by shoddy work and using inferior material and delivery delay occurs quite frequently, the salesman will eventually lose all the customers. Therefore, it can be well said that a bad factory would mess up all the customers. What’s more, dealing with such factories would be a waste of both time and energy, which will also dampen the salesman’s enthusiasm.
Therefore, when conflict arises between factories and customers, salespeople must learn to think from the perspective of the factory. I hate to see it when salesman talks to the factory in a tough tone whenever problem arises. It is naïve to think you have every right to act as God to factory. And it is very wrong to pick up the phone and scold the factory director when problem occurs. When doing business, everyone is equal. It is important to communicate properly in a reasoned and restrained way. Generally speaking, during communication, logic is of great significance and empathy is emphasized. Some salespersons are really out of focus when they speak, making people feel confused about their intention. Some salespersons always speak with a condescending tone, which is of ill manners, while some salesman often speak groundlessly and their words cannot withstand scrutiny, which is very naïve.
Part 1 How to negotiate the price with suppliers
Today's market is an ever-changing one. This year you might hold onto your regular customers and feel good about it. Next year these “regulars” may have become someone else's customers. In many cases, price plays a dominant role. Therefore, it is very important to get suppliers to support you with a favorable price.
Very often, a lot of foreign trade salespersons take the following methods to bargain with suppliers:
Playing hard to get - when they cannot bring down the price, they stop the negotiation, making it seems like the deal is over, so as to force the suppliers into compromise.
Pestering - leeching onto the suppliers, coaxing and even acting in a pettishly charming manner till the supplier agree to lower the price.
Being critical - picking on the products’ quality problems and pointing out a list of deficiencies to set back the supplier’s morale and confidence when negotiating the price.
Persuasive in good humor - persuading the suppliers into lowering price by saying that the order is huge, and customer is a potentially long-term buyer.
For different suppliers, the above manners may work differently, and these manners are all from the technical perspective. However, in the future, foreign trade salesperson should strengthen the negotiating capacity from the come from the conscious level
1)Never drive a hard bargin with factory when there is actually no order.
Never never never drive a hard bargain with many factories when there is actually no order. To illustrate this point, please see the following example:
Salesman Li received an inquiry from a customer about the price of a full container load of products. Then he made a call to factory A, B, and C respectively.
He said: now I am discussing an order with a customer, about a full container load of products, what is the best price you can offer?
After factory owners have given their quotation respectively, Li contacted Mr. Wang, director of A Company who offered the lowest price and asked Mr. Wang to reduce 5 CYN for per unit price.
Mr.Wang frowned and calculated the costs over and over again. Eventually he agreed to sacrifice some profits and reduce the final quotation by 5 CYN. However, Li failed to get the order due to various reasons, and he did not make timely feedback to Mr. Wang
Ten days later, Mr. Wang phoned Salesman Li and asked: anything new about the order? Has the customer placed the order now?
Li answered: well, the customer did not give me the order, they placed the order with other suppliers. On hearing this, Mr. Wang felt disappointed.
After several such inquiries, one afternoon the directors of factory A, B and C happened to get together and played cards.
During the meeting, Mr.Wang from factory A mentioned by chance that “a certain salesman from a foreign trade company in Shanghai contacted our factory several times for the price of XX products, urging us for a quotation. Each time I gave him the most favorable price, yet so far we haven’t got even one order from him. Now I don’t even want to give him any quotation. I guess he just wants to compare my price with other competitors and give away the orders to other factories”.
Directors from B and C factories found out immediately this was also the case with their factories: a certain salesman asked them for the price of XX product for many times and never gave any order to them. They thought the salesman is quite incapable in dealing with customers and orders.
As they continued this talk, eventually they found out the salesman they referred to is actually the same: Salesman Li.
Later on, when Li asked quotation from the three factories, factory A always beats around the bush and does not treat him seriously, while factory B and C will deliberately give him a very high quotation. As a result, Li missed many lucrative orders.
From the above example we can see that it is very unwise for salesperson to drive a hard bargain with the factory when there is actually no order. For certain salesperson, it is difficult to get the customer and their orders. Therefore, if the salesperson always asks the quotation from the factory but give them no order, the factory will regard the salesperson as incapable of handling customers and orders, or that he or she is just comparing their price between the suppliers and place the order to other factories.
A salesperson of course represents the company he or she comes from. By doing this, the salesperson’s credibility and the reputation of the company he or she represents would also suffer. Therefore, please taking warning from this case and never do such things.
Besides, during the process of negotiation with the customer, it is best for the salesperson to provide some feedback to the factory, so that the factory can feel that the salesperson is putting on great effort to win over the order and know the whole process of getting an order. All factory owners have a same kind of mentality, they like their employees reporting to them. Although the salesperson actually is not their employee, if the salesperson actively informs the factory owners of the orders, it will strengthen the relationship between the salesperson and the factory, making the factory directors think that the salesperson is on their side and fight together to get the order.
2) When there are orders in hand, salesperson should never put on airs to force the factory into accepting a much lower price.
After getting the order, salesperson can still try to bargain for a lower price. Theoretically speaking, the factory can still give you 2% off.
However, this 2% is part of the factory profit. Do remember that if the factory would give you the 2%, it is for the sake of maintaining good cooperation and relationship. In practice, it has no obligation to give you such a discount. Therefore, when you get the order, do not put on airs and say “ I have an order. If you can do it at the price of X, the order is yours, if not; I will give the order to other factories.”
This kind of talk will definitely hurt some feelings. Factory directors are quite influential and with considerable social standing. If they are in a good temper, they may ignore the salespersons’ arrogance, otherwise, it is very likely for them to turn down the offer immediately: “we don’t care about your order. Our factory won’t accept this; go find others who can do it!”
What’s worse, the factory would regard the salesperson as capricious and uncooperative, one who would make a deal with anyone who offers the lowest price. Under such circumstances, if the salesperson persistently asks the factory to lower the price still further, the factory tends to feel quite irritated.
For me, once I get an order, I will call the factory and tell the factory director that:
Now I am about to get an order from a certain customer, who is very satisfied with the sample and would like to cooperate. The only problem here is about the price. The customer said your price is X yuan higher than another supplier. And if you could lower the price to a similar level, the customer will place the order as soon as possible. What should we do now?
Usually, the factory director will respond me in two ways.
A) “Well, let me do some math and then get back to you”. And after the calculation is done, the factory director offered me a lower price.
B) “Sorry, I cannot lower the price anymore; our profit is already too small. I am really sorry about this”.
In case of scenario A),
Do not give the order to the factory immediately you get the new, lower price.
If not, the factory will infer that hat before you talk to the factory; you have already got the order.
What you said is just an excuse for getting a lower price. They may feel being fooled. So next time, the factory may not give you favorable price in the first place.
Therefore, it is advisable for the salesperson to give the order to the factory one day later after the price has been lowered, which will make the factory director feel that the salesperson is quite capable of getting the order. As long as the factory gives a favorable price, he can seal the deal with the customer. Under such circumstances, the factory director would feel that the salesperson has worked together with the factory to get the order. So in the future, it is very likely for the factory to treat the salesperson favorably, offering best price to the salesman.
It can be seen that if handled properly, the factory is willing to cut prices, and after they get the order, they will affirm the salesperson’s capability and build up mutual trust. However, if the salesperson holds the order and forces the factory into accepting a low price, the company will have some hard feelings, especially when they have already offered the best price and still cannot get the order. If this happens repeatedly, the factory will regard the salesperson as dishonest and not trustworthy.
Salesperson need to have a positive attitude when dealing with the factory. Greedily bargaining with the factory after it has already offered the best price will eventually ruin a salesman’s future. Never dry a pond just to get one small fish.
When the factory has already given you the most favorable price, you still force it to reduce by another 1 yuan per unit. Ok! The factory swallowed hard and accepted your order. Compared with the other orders, this order seems unprofitable, so it is natural for the factory to giving priority to other orders. What’s worse, some factories may even play some petty tricks like doing shoddy work and using inferior materials. To think about it, this is really more a loss than a gain
In case of scenario B
If the factory indeed cannot cut the price anymore, again, never place the order immediately.
The sales man should tell the factory director: “The customer told me that they are very satisfied with the quality of the sample and the consultation we have given them. They would like to cooperate further with us, but they are hoping that the price can be lowered. The customer said nowadays the products are selling well and they plan to launch the products to the supermarket, therefore he hopes that we can give them some support in price. But if you cannot earn money from this order, it is no point for me to getting this order. Considering this, I will negotiate further with the customer and give feedback to you.”
The factory director will think, the salesperson is really good and cooperative who knows all about win-win.
The next morning, the salesperson can call the factory director and say: “Last night I talked with customers for a whole night and tell him that our factory director has done the math and found he really cannot give you any discount. After my detailed explanation concerning the cost and every other procedure, the customer finally agrees on the price and seals the deal. Now the order has been placed. I will forward the order to you this afternoon.”
As a result, the factory director will feel quite happy and would regard the salesperson as capable, motivated, and responsible, who still work hard to get the order in his resting time (compared with the factory’s own salesperson, the factory director heaves a sigh…). From then on, the factory director would treat this salesperson with good grace. And next time the factory tends to give the salesperson the most favorable price.
Thus, paying attention to negotiating in a roundabout way can often have a very subtle effect.
Besides, the salesperson should be careful with words in the process of dealing with factory directors.
These directors have met with people from all walks of life. They may interpret an accidental slip of tongue for many other meanings.
Speaking of the above, in fact, this principle also applies to the salesperson at the factory. For these salespersons, they can take their boss as the supplier. If they repeatedly ask the factory director for a lower price but cannot get the order, the director will also doubt the salesperson’s ability. Therefore, no matter it is for the salesperson at the foreign trade company or at the factory, they should bear these in mind.
3) Never give off the floor price too easily
Negotiations require enough patience. Do not show your hand until the last moment as it will reduce many fun. It is the same case when negotiating price with the factory. Never say things like “cut the price to X, then I can get the order for you.” Because sometimes, you never know the floor price of the factory.
Perhaps recently the factory has been very busy and cannot take more orders. And perhaps recently the factory has not got any orders, the factory may accept the order with a very low price.
Therefore, what should a salesperson do is to listen to all kinds of complaint made by the factory directors, express your understanding and waiting for the result.
4) Priority: a reasonable counter-offer should based on the thorough understanding of the products
For a salesman, no matter what kind of product you are selling, you should try your utmost to understand the product.
The price of raw materials, origin of raw materials, the difference of various raw materials, machinery producing raw materials, workers’ production processes, functions of machinery and equipment, material performance, the daily output, workmanship, and problems out of neglect, and cost arise from all the aspects, etc.
When you can thoroughly understand all these, you will have a well thought-out plan about the price. For those factories that want to rip you off, you can tell them directly that with many years of experience, you know everything about every procedure of the production, and such a price is unreasonable high, which shows that the factory has no intention for cooperation. And you can tell them that there will be no discussion with them until they can give you a reasonable price. A confident, dedicated, professional, neither servile nor overbearing salesperson will exude energy. When this energy is enough to get to the others, this is what we call the Aura!
Figuring out the cost of the product, then you can do a counter-offer with the maximum efficiency: you can bargain right to their cost.
Do not be embarrassed, business is all about this. Bargaining is such a process, involving wild speculations and counter offer. When the price you asked is just the cost of the factory. Certain factories will feel that this price is not profitable, and they will stop giving quotations. Factory directors like this are generally uncooperative, with low EQ and not knowing how to make a detour. Or they simply do not care about your orders.
But other factories will feel that this customer is very professional, who knows the industry so well that he even knows the cost of the product. As a result, they factory will treat this order seriously and give carefully consideration to the price, adding only a small portion of profit and offer a very reasonable quotation.
These factories will respond you like this: I am sorry, but the price is even lower than our cost. And the price we can accept is at least XX, so please explain this to the customer and we hope we can get the order together.
Understanding the product to the core and knowing its basic cost, this is the most fundamental counterweight of negotiation.
5) Do not haggle over petty profit
When placing the order to the factory, some salesperson would do a minor change in the price without even consulting the factory, for example, the price they agree on is 120.70 per unit, when the factory get the order, it turns out the salesperson change the price to 120.50. This is very unwise; no fortune can be made out of that 0.20 Yuan.
Personally I am 100% against this kind of thing. Actually the price is almost the same, but it will leave a very negative impression on the suppliers. A salesperson should leave the price as you agreed upon, why bother to change it in such a petty way?
Since the factory knows that this salesman have a strong desire in getting petty gains, next time the factory may directly offer the price at 121, eliminating the excuse for the salesman to “keep the change”.
So never do sneaky businesses like this, because it will subtly affect your image in the eyes of the factory.
6) Mind your manners when reminding the factory to lower the price
Several years ago, I had a dinner with a factory director who told me a certain salesperson from Ning Bo is so annoying. When the price of raw material increases, the salesperson never mentioned even one word that the price of product should be higher. But when the price of raw materials drops, he would immediately phone the factory, clamoring for the factory to cut down the price. The factory director was so angry with the salesperson that he ignored him. To make matter worse, the salesperson even said things like: “I seriously doubt that your company is a professional one! Because there is a drop in the price of raw material, but your price does not drop accordingly!” the factory director speaks up against him: “Yes the price of raw material is lower! But the price for laborer is much higher! You tell me how I could lower the price!”
On hearing this, I laughed. After I went back to the hotel I think that as a salesperson we should really mind what we say. Word can make people smile with joy, while it can also make people jump with anger. This rule also applies here. If you want the factory to lower the price, you don’t need to say it from your perspective. You can say it on the “customer”’s behalf: “Customer said that recently other suppliers have lowered their quotations one after another, therefore, the customer wants to know whether your factory have done similarly. So I looked at the price of raw materials and find that recently there has been a drop in the price of raw materials. Now if you can recalculate the cost and give the customer a reasonable price, I will report to the customer and see if they have new orders, I will get it for your factory”. by doing so, the factory director may feel better and give you the support.
7) Whether to bargain should depend on whether the factory is busy
Figuratively speaking, when the factory is very busy with production and have many orders to complete, the salesperson should know better than bargaining. If you bargain with the factory director at this moment, the factory director would spare you no time at all: the whole factory is so busy with production and they have neither patience nor time for any bargaining.
For some pure hand- made or even hand- folded and packaged products which requires large amount of human labors and with a low yield, a salesperson should bargain no more and place the order as soon as possible.
Or even, for cases like that giving a little more is quite necessary.
However, if you know that the factory recently is in the off season with few orders, you can bargain as you like it, because now the factory director would have the time to calculate the cost and give you a favorable price.
8) The payment must be made timely as agreed
A salesperson should always make timely payments as agreed, or even in advance. What the factory fears the most is the customer’s outstanding payments. Put yourself to think about it, if you are a factory manager, from time to time you have to pester a salesperson for payment, while the salesperson makes all kinds of excuses to avoid paying, will you feel being respected?
Personally, I have always been timely when making payment to the factory, because it is a matter of principle. Honesty and credibility is the cornerstone for business development. Even when I am faced with financial difficulties, I will give the factory a notice in advance that for specific reason I have to delay the payment for several days, and set another date to make the payment. I will ask for the factory’s understanding in a soft and pleasant way, making it sound not too harsh.
Once I entrusted my old local suppliers to help me find a factory that makes a certain new product. And the old supplier and I went together to the new factory to discuss business details. Things went quite smoothly, but the new factory insisted that they only accept advance payment, and will only send out goods upon receiving all the payment. Thanks to my old supplier, who told the new factory that the company I represented was an honest one with high credibility, and that our payment has always been timely. And he said if the new factory still had concerns, he would like to vouch for our company and serve as a third party guarantee. Finally, the new factory agreed to receive the payment within one week after the VAT invoice is received after delivery.
Thus, timely payment is a very effective way for you to increase the factory’s trust on you.
Share This Article To Your Friends On:
Subscribe Our Newsletter:
- How to negotiate price with Chinese supplier(factory) - Confession of a senior native chinese sourcing manager Part 1
- Managing relationship with Chinese supplier Part 3 Follow the common sense
- Manage relationship with Chinese suppliers part 2 – The communication
- Manage relationship with Chinese suppliers part 1 – How do you define the relationship