- January 13, 2020
Buying a new car is one of most exciting and miserable experiences all rolled into one.
On one hand, there is that shiny, new set of wheels you’ve wanted for a while now – maybe even your entire life. On the other, there’s the price tag; the mere sight of which invokes that inevitable thought: I can’t believe I’m about do this.
So you do what everyone does. You negotiate.
Every conceivable point of leverage is applied full tilt in an effort to drive off the lot feeling high on that new car smell undeterred by an emptiness in the pit of your stomach (and wallet).
The sales rep starts at the sticker price, you start somewhere short of it, and together you embark on a battle between “This is as low as we can go” and “This is the most I’m willing to pay.”
Fueled by stubbornness and stale coffee you hold your ground as the rep pawns himself between you and the number cruncher fighting to protect the dealership’s bottom line. Minutes turn into hours and you gaze out the showroom window wondering whether that beige sedan with the dirty windshield is really so bad after all.
You might not know it, but the similarities between haggling over the price of a new car and bargaining for better shipping rates are striking. Take the following into consideration during your next carrier negotiation:
The Sales Pitch
The best car for the money vs. The best discounts in the market
Let’s face it, it’s about the margins. Whether you’re buying the car or negotiating a carrier contract, finance is looking at the bottom line: How much money will we make?
Don’t take offense; that’s why people are in business.
But don’t take no for an answer, either.
What most buyers don’t know (or don’t realize) is that in both situations the sales rep doesn’t actually know where the bottom line is. He or she is simply at the mercy of the pricing department. In both scenarios, the bean counters are calling the shots, and they are going to spoon feed information to sales reps that are compensated to close deals, not necessarily to protect margins.
In many cases, the sales rep is probably more on your side then they are on their own company’s!
While that may seem hard to fathom, think about it: How badly would the company’s margins deteriorate over time if the balance of power was spread haphazardly throughout the sales team?
Sure, some would be diligent in their attentiveness to the bottom line, but salespeople are salespeople. They get paid to sell, and many of them are going to justify a sale above all else, including the company’s profit.
Car dealerships and carriers alike are very aware of this, and take measures to limit how low the company can actually go. That’s why the car salesperson makes so many trips back and forth with the message “This is lowest price we can offer.” Like it or not, your carrier rep is trained to do the exact same thing.
They can go lower. And if you play your cards correctly, they will go lower.
The Value Proposition
The service plan vs. The warehouse design
How many times have you ever bought a car and not been lectured on the value of the service plan? It comes in many forms. Extended warranties, free maintenance, you name it. This essentially costs the dealership nothing, and more often than not the value doesn’t come anywhere close to offsetting the hard-dollar savings you will forgo in exchange for it.
The carriers push value adds in much the same way. Take warehouse design, for instance. You may have heard something along these lines before: We can’t discount the services any more than we already have, but what we can do is help you eliminate inefficiencies which will save you even more money.
Says who? And who’s math are we going to trust when calculating the tangible benefit will your company receive from something like a warehouse design? Maybe you will save money that way, but the carrier will benefit, too; probably by lowering its cost to service your account.
The point is that, as is the case with the service plan, the cost to your carrier is not equivalent to the hard-dollar savings you’re looking for on the front end.
Furthermore, the carrier has the ability to do both for you. If you weren’t talking discounts and needed the same help on a certain supply chain initiative, your carrier likely would be all ears. They might not be as eager to jump on it (What do they really stand to gain?). But if they are honest about their commitment to partnership, the two of you will find ways to make ends meet.
Stay focused on the price, and let your carrier know that cost is your number one concern.
The Electric Bill
After we pay the light bill… vs. After we pay the light bill…
We all have bills to pay. If you tell your boss you need a raise because there isn’t a whole lot left after you pay the light bill, you’re not going to get very far. Everyone has an operating ratio.
People who own car dealerships own 70-foot sport-fishing yachts. People who own UPS and FedEx own hundreds of airplanes and tens of thousands of vehicles. All of them can pay the light bill, believe me.
It’s a legitimate point, to be sure. Everyone has to look out for the bottom line, and no one is in business to lose money.
However, pricing engineers have factored every penny into the equation and have a very clear picture of how low they can go. If you’re requesting discounts so steep that the company on the other end of the negotiation can’t pay the bills, then the answer will be no, plain and simple. If they start nickel-and-diming, it may be an indication that you’re getting close to the breaking point. Don’t forget that the other side is fighting for ground just like you.
These and other similarities are found in just about all good negotiations. It’s easy for decision makers to worry about rubbing their carrier the wrong way, considering the vital role that the national carriers play in helping businesses get their products into their customers’ hands quickly and reliably. The fact that there are essentially only two players in the small package market means that leverage is harder to come by. Unlike the car dealer, the carriers have the upper hand since they know your options are limited.
Regardless, no company wants to lose business. It’s important to remember that so long as the business is profitable, it still makes good sense. If you do your homework and can resist the pressures to focus on anything other than the bottom line first (the bells and whistles may be important, but first make sure they are affordable), then you will arrive at a solution that makes everyone happy. You will save money and your carrier will make money.
Then both of you can buy a car!
Brandon Staton is President and CEO of Shipmint, Inc. and has spent the last decade helping corporate shippers plan and execute sustainable cost-control and cost-containment strategies. Brandon earned an MBA in Entrepreneurship, Leadership and Strategy from UNC Kenan-Flagler Business School.