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Vendor Ploys

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The “Price Increase is Coming” Ploy by Joe Auer

The “price protection contract” ploy is generally used when the customer and vendor are not in the middle of negotiations on a new acquisition or other transaction. However, when negotiations are in progress, the vendor may use a related strategy known as the “price increase coming” ploy.

Like its relative, this ploy can cost the customer money. In implementing this strategy, the vendor strives to convince the customer that the most important factor in the transaction is for the customer to avoid an impending (and sometimes already announced) price increase. Consequently, the customer drops its guard and fails to pursue other concessions that might be more valuable than the savings from avoiding the price increase.

In one example of this ruse, the vendor’s marketing representative said, “If we can get this contract signed and into Atlanta by March 31, you’ll avoid the 6% price increase that goes into effect then.” In subsequent negotiations, the marketing representative demonstrated that a 6% savings on $1 million of equipment would be a handsome $50,000. In an effort to collect this savings, the operations manager talked his company into proceeding with the transaction by the deadline set by the vendor.

In doing so, the customer executed the vendor’s standard form contract and purchased the system at list price (the “old” list, to be sure). What the customer’s manager overlooked was that, at the time, the vendor’s “standard” discount on the system was about 12%. If the customer had waited for the price increase, negotiated a good contract, and obtained the then-standard discount, it actually would have saved somewhat over $60,000. Indeed, the customer might have been able to negotiate the contract and achieve the standard discount before the price increase, thereby saving about $120,000, if it had not been so preoccupied with the vendor’s “price increase coming” ploy.

A minor variation on this ploy involves the vendor’s announcement that prices have already gone up, officially, but the customer can still buy at the old prices if the contract can be signed within the next 24 to 48 hours. This variation involves all the hazards mentioned above, plus the additional risk that the customer will make a rash, and probably imprudent, decision to acquire the equipment without taking the time to conduct a careful analysis of its overall equipment needs.

The easiest way for a customer to avoid both of these ploys is to develop two firm rules. First, the customer should never sign a “price protection contract” without full review, approval, and negotiations. Second, the customer should never be rushed into acquiring any item of major equipment, particularly when the vendor seems to be dangling a carrot. To borrow from an old axiom, the customer should beware of vendor representatives bearing gifts.

The vendor, after all, is out to make a profit. Trite as it may seem, if the deal seems too good to be true, it may well be just that. Contrary to the marketing representative’s opinion, slowing down the transaction may be the best possible strategy for the customer. This is particularly true where discounts may be available. Many vendors, including some that claim otherwise, offer discounts that increase in direct proportion to the time elapsed since introduction of the equipment.

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