A View From the Other Side - A Preview
Nobody is happy when their prices increases after January 1st. Many customers feel that by signing a pricing agreement (or contract) that they can use this document to restrict price increases. But somehow, spending is more than expected during the 3 - 5 year term of a contract. What happened? How could this have happened?
You are a _____ playing in a professional league.
The English language provides many words to describe someone who is an amateur such as:
Assuming you spend enough on lab supplies to get a distributor to begin to negotiate a contact, how often do you do this? First time ever? If not, did you negotiate 3 - 7 years ago when the contract was signed? Now consider that the company you are negotiating with negotiates contracts every day and they have been doing this for decades! They have huge resources to dedicate teams of experts to this task. What are your odds of coming out with a contract that will do the job of protecting your interests? The deck is stacked. Unless you have millions of dollars to spend on lab supplies and the resources to hire experts who have extensive experience in this specific industry, it is assured that they will gain far more in the arrangement than you.
They’ve got your number.
Distributors have many years of experience in observing how lab buyers behave. Here are some of the “givens”:
1 - The lab business is “sticky.” Meaning that there is a very high likelihood that you will keep on buying from the same vendors. There is a huge reluctance on the part of laboratory managers and technologists to change regardless of the price. “If it ain’t broke, don’t fix it.”
2 - Relationships matter. If a particular distributor has been doing business with a lab for a long period of time, especially if the same representative is doing a reasonable job, they probably won’t change vendors and will tolerate larger price increases.
3 - There is a cost to change. Of course people hate change. One valid argument used against change are studies that have shown that the cost of change to an organization can range from 7 - 10%. In other words, if you aren’t saving at least 11%, you may be better off to turn down the deal.
4 - The lab wields a big stick. If the lab manager and workers are against a contract, they can and frequently do sabotage the deal. This is especially true when strong bonds between the distributor rep and the lab exist.
5 - History is a good predictor. If you have never changed distributors in the past, chances are you won’t now.
Part of every distributor game plan is to map out who all the players will be and how they will behave during contract negotiations. The analogy here is that they are able to review films of all the other players at the poker table. They can accurately predict who is bluffing and when to bet. All the while, you are wearing a blindfold.
What we will discuss in this series:
- 1.) Contract Terminology 101 - what are the components and what do they mean to you?
- 2.) Contact vs. Agreement - What’s the difference? Do you have the right to shop elsewhere? What about a “generic” or group contract?
- 3.) The Hot List and Price Caps - The pros and cons.
- 4.) Guaranteed Cost Savings - Hard vs. soft cost savings. Metrics. Penalty clauses.
- 5.) Cost Plus Pricing - Depends a lot on how you define “cost.”
- 6.) Rebates and Prebates - Sound too good to be true? Most likely it is.
- 7.) Profitization - How it’s done and how you can protect against it.
- 8.) LPS On Your Side - The LPS approach. How it addresses these issues and is a better fit for many lab