Commoditization is accelerating at an alarming rate and increasingly with differentiated high-value products and services. Commoditization means that while these offerings may be more valuable than competitive offerings, there is a strong tendency for suppliers to compete on price. Recent work in medical devices, insurance, financial services, IT services, and professional services has shown that most suppliers in these industries struggle with increasing price competition. In many cases, discounting, combined with the high costs of R&D, supply, service, and support, leaves little left over for the most important indicator of business success: profits.
One of the biggest contributors to profit decline is negotiations with the customer’s procurement arm. Most managers still haven’t faced or even plan to address this very real change in the customer’s business practices. It involves procurement review and negotiations for goods and services. At the same time, procurement processes and goals have matured into professional cost-cutting forces. Importantly, as a supplier, the firm must adapt its approach to accommodate procurement’s involvement in the buying of the product or service. The greatest opportunity for managing price in procurement negotiations is to train and prepare salespeople and executives for the “procurement pricing buzz saw.”