Don’t count on renegotiating the terms of a master supply agreement at renewal time

At the IACCM annual conference, someone made the comment that renego­ti­a­ting a master supply agreement with a customer at renewal time can be really tricky, because the vendor isn’t likely to get as good a deal. This is probably one of those truths universally acknowledged [1]. Here are a few possible reasons:

• People tend to resist change, sometimes “just because.” If a vendor proposes new pricing or new terms as part of a master-agreement renewal, the customer is likely to respond with, “why do we need to change things?”

• As a matter of negotiation strategy, the renewing customer might well invite other vendors to bid on the renewal. Each of these other vendors will have an incentive to beat the existing vendor’s current pricing and terms. (Not least, a would-be replacement vendor will almost surely want to be able to mention to other prospective customers that “Customer X switched their business to us,” thus taking advantage of social proof as a powerful sales tool.) That will put pressure on the existing vendor, which could find that holding the line with its current pricing and terms is about the best it can hope for.

• The renewing customer will probably trot out a list of complaints, minor or major, about the existing vendor’s past performance. These “disappointments,” according to the customer, warrant getting concessions from the vendor as a condition of renewal.

• Delusions can come into play: Just as some men leave their long-time wives to take up with trophy girlfriends, some customers might imagine that a dif­fer­ent vendor will magically give them the idyllic relationship they never seemed to achieve with the existing vendor.

Notes

[1] I’ve never read any Jane Austen novels but I’ve certainly heard and read the famous first sentence of Pride and Prejudice: “It is a truth universally acknowledged, that a single man in possession of a good fortune must be in want of a wife.”