The right of first refusal. Fancy sounding words for a sleazy practice in purchasing.

Right Of First Refusal Defined
Right of first refusal simply means that once you provide buyers with pricing, they will show this information to their incumbent supplier (i.e. your competitor) to see if they can beat your price. Not too competitive is it? Seems unethical to me.

If you’re in a business that does a lot of bidding (e.g. construction), you see this all the time. However, all products and services are susceptible to this practice.

Right of first refusal is like an iceberg. You just see the tip. There is significantly more “price sharing” going on than you realize. The majority of buyers never divulge that they are providing your competitor with your pricing.

The Reality
You’ll probably be in agreement with me when I say this practice should be illegal. It smacks of collusion, monopolization, restraint of trade and a bunch of other $1.95 words. Have I mentioned that it’s sleazy too?

Rest assured the Purchasing Managers Association is lobbying heavily to ensure this kind of legislation is never passed.

Unfortunately, right of first refusal has been around for a long time and isn’t going away.

Hang On A Second
Before we get too angry at  purchasing types, let’s remember it takes two to tango.  For this little game to exist there have to be sales professionals who too quickly reveal price information to buyers. This data is then added to the buyer’s pricing spreadsheet. Cut off buyers’ information sources and this little charade ends.

3 Sales Tips For Managing Right Of First Refusal

1. Just because a prospect asks for a price doesn’t mean you have to give it to them. Qualify them first.
2. If you can’t establish some kind of benefit for the prospect to do business with you other than price, move on.
3. Prospects that have strong, long-term, established relationships with incumbent vendors should not be given any pricing until you completely understand the competitive landscape. Don’t provide pricing to these prospects unless you can get them to see an advantage of doing business with you versus the incumbent.

Sales Blog Epilogue
Whenever prospects ask for price, they are usually comparing you against an incumbent supplier. If you’re less expensive, they will use it as leverage with the incumbent. If you’re more expensive, you’re history.

I know it’s hard to stand up to aggressive buyers who are insisting on quick pricing. But hold firm. You win more business ultimately by first establishing value, not by spewing out prices. Make prospects earn your price quote.

Further reading:
Has Price Quoting Made You A One-Trick Pony?
Stop Being A Wimp And Start Defending Your Sales Price
Training Your Customer, Part 1 of 2

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Tags: competition, pricing, Prospecting, prospects

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