Impact Pricing Blog

The Power of Procurement Matters

Too much revenue, profit, and value are given away to procurement agents. This absolutely means that salespeople need to become better at negotiating and at selling value. But today’s post is a single insight that may be able to help you win more deals at higher prices.  

Sometimes procurement has power and sometimes they don’t. Procurement always has some power, but do they have an influence on which product to purchase? That is the key.  

When companies are making large purchase decisions for items like capital equipment or enterprise software, they typically put together a committee of people from different departments to figure out what is best for the company. A good salesperson is working with many if not all of the people on that committee.  Eventually, the committee makes a decision. Let’s say they choose your product. Then, they submit the request to purchase this item to procurement.  

In this situation, purchasing has no influence over what to purchase. They will pretend they do. They will tell you there are competitive alternatives and yours is too expensive. They will slow down the purchase process.  But in the end, they have no influence on the product choice. That decision was made by the committee.  

When procurement has no influence, you may want to give a small discount in the hopes of moving the process along faster, but you do not need to give a large discount. You already won. You just have to realize it. 

On the other hand, when procurement buys components that get built into the products they manufacture, second-source components are often specified by the designers. This gives procurement the power to determine how much business each vendor will receive. In this case, you must be careful. The procurement agent will likely still fabricate stories, but it’s much harder to call the bluff. To make matters worse, when you don’t appease procurement with this price they can often punish you by limiting other deals you may win with them. That’s even more power. Ugh. This negotiation is a careful dance. 

You may sell something other than a component or enterprise software. The lesson you want to learn is to determine how much power procurement has. Do they get to decide what to purchase or is the decision made before it gets to them? Knowing this one piece of information can dramatically impact how much you need to give up during negotiations.  

Tags: pricing, pricing foundations, pricing value

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