Price wars are not fun. They are not built for the long term nor do they allow for win-win outcome.
They most often occur when we are faced with internal and/or external pressure that are out of our control. Perhaps, there was a sharp change in the supply/demand balance, or maybe an upstream supplier has been hit with a tariff for exporting materials across borders. For your sure, we can expect that primary focus shifts to a battle on price.
What can you do to safeguard yourself from drastic price changes?
Start with No
Do not be afraid to start with a negative reply to any requests for a price increase, ideally giving a good explanation (e.g., the prices to our customers are fixed for the year, we cannot accept any price increase!).
Change how we buy
Consider changing the minimum order quantities or some other elements of the value chain. If you can’t purchase large orders or bundles within product categories or geographies, consider buying across them.
Build strong alternatives upfront
Build up your BATNA by finding new alternatives and having a stronger position for bargaining. The fear of losing a customer is far greater than the potential joy of winning a new customer. This may give you the edge if your alternatives are not asking for similar price increases.
Bring new value to the supplier
Think of it like going to a restaurant with your mind made up with what you are going to order. You don’t really need to read the menu but as you do, the waiter walks past with a delicious looking meal, making you reconsider your initial choice. That is the exact effect you want to trigger when negotiating with your counterpart. Offer the chance to expand alongside your company into new markets, or to lock in a long-term contract with bonus milestones, perhaps you can find areas of optimisation across the supply chain or try to find new ways to minimize the supplier’s risks.