Bargaining is something most buyers really enjoy doing, whether it’s a small project or a large order. So negotiations are par for the course in China. Price negotiations with Chinese manufacturers, if properly executed, can provide significant product price reductions and avoid future cost increases. In this article, you will learn what the best outcome of the negotiation is, what causes the price increase, and how to negotiate with your supplier.
What Is the Goal of Negotiation?
The best outcome of negotiation is to achieve a win-win situation, rather than blindly strive for the maximization of one party’s interests. In terms of price negotiation, the best result is that the buyer can buy his target products with high quality at the best price and maintain a good cooperative relationship with the supplier. For suppliers, the best result is to be able to get big orders, gain considerable profits, and obtain good customers at the same time. Negotiations should strive for the result that both sides are satisfied with.
Why Do Your Suppliers Want to Increase Prices?
Here are some common reasons for price increase.
Rising Production Cost
The biggest reason for merchants to raise prices is the increase in production costs, which may include raw materials, labor costs, etc.Rising raw material prices are the most common cause of price increases. While it is usually legal, it is advisable to find out exactly how much the ingredients are going up and whether it is reasonable compared to the range of price increases offered. You can check the price on the following website: IndexMundi – Country Facts
Rising Shipping Cost
As we all know, freight rates have been rising due to the COVID-19 pandemic. In some Incoterms, which require the supplier to be responsible for freight, such as CIF, DDP and so on, the supplier may ask for price increase in order to reduce the loss. Even so, it is advisable to ask several freight forwarding companies to get a rough idea of what the freight will be, in case the supplier exaggerates the offer.
Generally, the buyer pays USD to the supplier, but the supplier ultimately uses RMB, so exchange rate conversion is required. That is to say, if the dollar depreciates, your supplier will get less RMB for the same value of dollars. In order to maintain the original profit, the supplier may ask for a price increase.
Tactics to Negotiate Price with Your Chinese Supplier
After obtaining samples, comparing the quality and price of samples, then you can get a supplier list. What you need to next is to negotiate prices with suppliers, which is generally the last step before reaching cooperation. Here are some negotiation tactics for you.
Preparing Negotiation Materials
As mentioned above, suppliers may want to raise prices for three reasons, so you need to timely organize the data accordingly. For example, you should know the raw material price of the products in advance, so as to avoid being cheated by suppliers because you do not know the market during price negotiation.
Supplier: Due to the increase of raw materials, the price of our products needs to increase from $4 to $6 per unit.
Buyer: We are indeed aware of the current increase of raw materials, but according to our market survey, we find that the material price increases by 15%, but the increase of your price has reached 50%, which is not reasonable, we hope you can adjust the quotation.
Don’t Rely Too Much On Your Supplier
Get quotes from multiple suppliers and get a general idea of the price range of the item to prevent suppliers from making wild offers. It’s also a good way to let your supplier know that you have other backup candidates, which will make them aware of the crisis and give them the upper hand in the negotiation.
Supplier: The unit price of our product is $6, which is already very cheap.
Buyer: As a matter of fact, we also have quotations and samples from several other suppliers. Current offers range from $4.50 to $5. Therefore, your quotation may not be competitive and far from our target price, so we may consider changing the supplier.
Negotiating with Quantity
Generally speaking, the larger the quantity, the larger the discount given by the supplier. If your order is large enough, this is your negotiating advantage. But if your order is small, then you can request that you want to purchase different products. This can also reduce your risk and prevent the individual product from failing to sell.
Supplier:The MOQ of my product is 20000 sets, if you can reach it, I would like to reduce the unit price from $5 to $4.50.
Buyer: Well, this order is just a test order, I only want to order 5000 sets. But I can buy three other products of this series, 5000 sets each. That is also a total of 20,000 sets, but I hope you can reduce your unit price to $4.
Remember the Tips
Please keep the price negotiation in perspective and rationally. Remember the following tips can make your negotiation process go more smoothly.
- Set a realistic target price. The cost of suppliers should be taken into account, instead of blindly lowering the price. To prevent suppliers from giving you shoddy products.
- Know that your supplier can’t trade at a loss. Be aware that your supplier has to make a profit from your order, otherwise your product quality may not be guaranteed, after all, you get what you pay for.
- Choosing a right time to negotiate is important. You can’t start trying to lower the price from the start. You need to accumulate and analyze all the information first, and then negotiate the price with your supplier. It is also impossible to haggle after placing an order, which makes no sense. So pick the right time to negotiate.
There is no single way to negotiate with suppliers, it is an ongoing and complex process that still needs to be analyzed on a case-by-case basis. If you have any problems about price negotiation, please feel free to contact us for advice.