BEP 358 – Purchasing 4: Negotiating Price and Terms

Hello and welcome back to Business English Pod. My name’s Edwin, and I’ll be your
host for today’s lesson on English for purchasing and negotiating price and terms.

We’ve talked a lot about how important it is to find the right vendor. They can
make or break your business. That’s why we put so much work into meeting,
interviewing, screening, and qualifying potential vendors. But once you’ve found the
right vendor, you still need to actually make a deal. Specifically, you need to agree
on price and terms.

To set yourself up for success, it’s a good idea to do some research and
preparation. If you know what things should cost, and you know what you need
from a deal, and you can anticipate what the vendor needs, then you’ll be in a good
position to negotiate.

In your discussion, you’ll likely make price comparisons in your efforts to get a
deal. You’ll have to propose terms to the vendor, and show consideration for their
position in the negotiation. Because things like delivery and quality are so
important, you’ll also want to discuss penalties. And, like any negotiation, at some
point you’ll probably suggest a compromise. With these skills, you should be able to
get a price and terms that work for you.

In today’s dialog, we’ll hear Adam, a purchasing manager who works for a company
that makes fitness equipment called XFit. He’s been talking with Jenny, a sales rep
for a manufacturer that can make pulleys for XFit’s equipment. XFit has chosen
Jenny’s company as a vendor, so Adam now has to negotiate the price and terms.

As you listen to the dialog, try to answer the following questions:

1. What is the first issue that Adam brings up in the negotiation?

2. What does Adam first propose for delivery terms?
3. What is Adam willing to agree to if Jenny agrees to his suggestion about
penalties?

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Vocabulary

Pressed for time: in a hurry, or not having much time to do something; “If you’re so
pressed for time, then just ask Jane or Nancy for some help getting it done faster.”

To jump right in: to start talking immediately about an important issue; “All right
everyone, enough chit chat, let’s jump right in to our agenda here.”

A tad high: a little bit too high; “$850 is a tad high for us. Do you think you could
bring the price down to $825?”

Run-of-the-mill: ordinary or not special in any way; “You can get a run-of-the-mill laptop
with a cheap processor, or spend a bit more for some speed, quality and durability.”

Pulley: a special wheel used with a rope or cable to help lift heavy things;
“Elevators use several large pulleys and cables to move people between floors of a
building.”

Run: the amount produced at one time; “Let’s start with a small run of 1000, then
we can do bigger runs once we have more orders.”

Tooling: making or using the right equipment for a manufacturing job; “This job will
require some pretty advanced tooling… we’ll need to make special drills, jigs, and dies.”

Cast: something formed by pouring liquid material in a form or mold which then
dries and hardens; “We made a cast of this metal piece which we’d like you to
check for size.”

Upfront costs: expenses that are paid at the very beginning of a contract or project;
“It would be nice to own a building rather, but the upfront costs are huge.”

On someone’s end: on someone’s side of an agreement; “If the contract looks good on
your end, then we’ll take this back and talk about it with our finance department.”

To up: to raise; “The increase in material costs mean we’ll need to up our prices.”

Volume discount: a cheaper price for a good ordered in large amounts; “If you
order more than 10,000 at a time, I could give you a volume discount of 5%.”

Base price: the starting price of a good before additional features and costs are
added; “Yeah, $30,000 seems cheap for that car, but that’s base price, without any
of the extras.”

High carbon steel: steel with a carbon content over .3 percent, making it very hard
and durable but less flexible; “Good knives are made from high carbon steel that
stays sharp for a long time.”

A big “if”: something that is uncertain but very important; “If John takes another
job – and this is a big if – then we’ll need to find a good replacement.”

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Delivery at Place (DAP): an arrangement whereby the seller of a good takes care of
all costs and paperwork until the good is delivered at an agreed place; “We’d like
Delivery at Place on this shipment.”

Duties: a tax on imports or exports; “Sure, $5,000 seems like a good deal, but
you’ll also be paying at least $350 in import duties.”

Freight on Board (FOB): an arrangement whereby the seller of a good takes care of
all costs and paperwork until the good is on the ship in the home country’s port; “A
Freight on Board arrangement helps the buyer control the risks during the transport
of their goods.”

To bring something up: to introduce a topic into conversation; “I’m not sure I
should bring this up or or not Glen, but… did you finish that report yet?”

Compromise: an agreement where both sides get and give up something; “Okay,
we’ve been negotiating here for days. Can’t we just find a compromise?”

Win-win: a situation where two competing sides both benefit; “Our partnership with LG
is a win-win; we benefit from their technology, and they get access to our markets.”

Number one: most important; “Diana is a pretty good candidate, but I still think
experience is number one, so we should choose Nick.”

Defect: a fault in a manufactured good; “The warranty covers all defects for one
year, but not accidental damage.”

Major defect: a big fault in a manufactured good, which affects its functioning or
appearance; “All this discoloring is terrible. I’d definitely say that’s a major defect.”

Discrepancy: a difference between two things that should be the same; “I’ve looked at
the budget, and it seems there’s a discrepancy between the revenues and expenses.”

Critical defect: a really serious fault in a manufactured good; “This damaged wiring
could be dangerous to users, which is a critical defect and we’ll need a replacement.”

In someone’s court: used for saying it is now someone’s responsibility to make a

decision; “I sent off the proposal yesterday, so the ball’s in their court now and
hopefully we’ll hear back soon.”

Delivery at Terminal (DAT): an arrangement whereby the seller is responsible for

costs, paperwork, and risks until the goods are unloaded on delivery; “With
Delivery at Terminal, we’ll only bear the costs of getting the shipment from the port
to our warehouse.”

To come someone’s way on something: to come closer to someone’s acceptable

range or price; “$800 is still too expensive. See if they can come our way just a
little more on this.”

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Dialog

Adam: Yeah, that’s good to hear… but, I know your pressed for time, so perhaps
we can just jump right in. Big one first: price… As in: I’d really like to see if we
can bring it down a bit. We’ve looked around, and 11.50 seems a tad high.

Jenny: Well, these aren’t your run-of-the-mill pulleys, right? And this is a pretty
small initial run. All the tooling and casts… that’s a fair bit of upfront costs on
our end.

Adam: Yeah, I get that. But like you said: it’s an initial run. We’ll be upping this to
5, 6 times that on a regular basis.

Jenny: Right, happy to talk about a volume discount on future work. But base
price on this high carbon steel work is obviously going to be higher. It’s about
quality, right?

Adam: Yeah, of course. So… then if – and this is a big “if” – if we stuck with
11.50, I’d like to see us agree on DAP terms here. Delivery to Guadalajara. Fully
insured. We take care of duties.

Jenny: Uhh, not sure about that. Thought we’d talked about Freight on Board.
I’m pretty sure I brought that up way back…

Adam: Yeah, appreciate you’ve got costs to control. Just looking for a fair
compromise here.

Jenny: Sure. We’re both looking for a win-win. But my understanding was that
quality was number one to you guys.

Adam: Yes, it is about quality. So… maybe we can work on the defects issue?

Jenny: What d’you have in mind there?

Adam: I’d like to see color and finish issues as major defects. And bump any size
/ weight discrepancies to critical. We really can’t have any problems there. Full
replacement on both major and critical.

Jenny: I see… then you would agree to FOB?

Adam: Well, not exactly. It’s important to us that insurance is in your court. So
maybe we could go with Delivery at Terminal.

Jenny: Hmm… that’s a tough one for us… DAT?

Adam: Uh-huh… DAT.

Jenny: Okay, well I’m going to have to look at that a bit before I can give you an
answer. Would it be alright if I called you back on Monday? Will need to check a
few things with our agents firsts…

Adam: Thanks, just hope you can come our way a bit more on these terms… in
any case, Monday sounds good.

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Debrief

Now let’s go through the dialog again and look at the language and techniques
Adam used to negotiate the price and terms. We join the conversation after a bit of
chit chat, as Adam wants to “jump right in,” or start their discussion.

Adam: Yeah, that’s good to hear… but, I know your pressed for time, so perhaps
we can just jump right in. Big one first: price… As in: I’d really like to see if we
can bring it down a bit. We’ve looked around, and 11.50 seems a tad high.

As you can hear, Adam doesn’t shy away from discussing price. He immediately
tells Jenny that he’d like a lower price, or to “bring it down.” And when you
negotiate the price, it’s a good idea to compare with other companies’ prices. When
Adam says “we’ve looked around,” he means they’ve looked at the price of the
same piece of equipment from other companies. As he says, Jenny’s price is a “tad
high,” or a bit more than other suppliers.

Talking about price comparisons can support your requests for a lower price. That
is, if you’ve been quoted a price that’s higher than other companies. What are some
other ways we can make such comparisons? Let’s run through some more
examples.

§ This same item is about ten bucks cheaper at other suppliers.

§ Seems that you guys are quite a bit more expensive than others.
§ Is that your best price? Because I know I can get it for lower down the road.
§ Just so you know, this same thing is going for about $200 at the competition.

How does Jenny respond to Adam’s price comparisons? Let’s listen to their
exchange.

Jenny: Well, these aren’t your run-of-the-mill pulleys, right? And this is a pretty
small initial run. All the tooling and casts… that’s a fair bit of upfront costs on
our end.

Adam: Yeah, I get that. But like you said: it’s an initial run. We’ll be upping this to
5, 6 times that on a regular basis.

Jenny: Right, happy to talk about a volume discount on future work. But base
price on this high carbon steel work is obviously going to be higher. It’s about
quality, right?

In responding to the issue of price, Jenny emphasizes quality. She says they aren’t
making “run-of-the-mill” pulleys, meaning average or medium quality ones. And
she’s willing to talk about a “volume discount,” or a cheaper price per unit for larger
orders, in the future. But for now, they need to take care of their equipment and
material costs to meet Adam’s quality expectations. This is a good way of turning
Adam’s priorities back at him when he talks about price.

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But Adam brought up price at the start not only because he wanted a lower price.
In a way, it was to set up other demands. Let’s listen.

Adam: Yeah, of course. So… then if – and this is a big “if” – if we stuck with
11.50, I’d like to see us agree on DAP terms here. Delivery to Guadalajara. Fully
insured. We take care of duties.

So Adam is using the money issue to set up his proposal for terms. If he agrees to
Jenny’s price, then he would like more favorable delivery terms in return.
Specifically, Adam mentions “DAP,” which means “delivery at place.” DAP is one of
several “incoterms,” or international commerce terms. The different incoterms
determine who will pay for different parts of the transaction, such as shipping,
insurance, and duties, and where the buyer will take possession of the goods.

Proposing terms is a fundamental aspect of negotiations, so let’s try some more

ways of doing this.

§ So how about you handle the shipping costs and we cover duties?
§ We’re willing to provide payment in full once we’ve inspected the delivery.
§ We don’t mind paying 25% upfront if you can guarantee delivery in two weeks.
§ What about this: you’ll take care of the shipment just to the nearest port of entry?

So is Jenny willing to agree to DAP?

Jenny: Uhh, not sure about that. Thought we’d talked about Freight on Board.
I’m pretty sure I brought that up way back…

Adam: Yeah, appreciate you’ve got costs to control. Just looking for a fair
compromise here.

Jenny certainly doesn’t agree right away, especially since she remembers
discussing a different arrangement previously. But you’ll notice that Adam isn’t
taking an aggressive approach to the discussion. On the contrary: he’s showing
consideration for Jenny’s position, acknowledging they have costs to control.

As he says, Adam is looking for a “compromise,” or a fair agreement where both

sides get what they want. This makes him sound reasonable, especially because
Jenny has already been pretty firm on price. Let’s try some more ways of showing
consideration or appealing to fairness when negotiating terms.

§ I completely understand your concerns about trading quality for speed.

§ Your worries about costs are reasonable, so maybe there’s something we can
work out.
§ I see how that might be a tight schedule for such a large order.
§ Maybe I can help ease your concerns about the risks here?

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Now let’s get back to the dialog and see what Adam and Jenny discuss next.

Jenny: Sure. We’re both looking for a win-win. But my understanding was that
quality was number one to you guys.

Adam: Yes, it is about quality. So… maybe we can work on the defects issue?

Jenny: What d’you have in mind there?

Adam: I’d like to see color and finish issues as major defects. And bump any size
/ weight discrepancies to critical. We really can’t have any problems there. Full
replacement on both major and critical.

When Jenny brings up quality again, Adam uses it as an opportunity to talk about
“defects,” which are products with mistakes or problems. Most vendor agreements,
at least in manufacturing, will have terms that explain what happens when there
are defects.

This is Adam’s chance to negotiate penalties. There are different categories of

defects, with different penalties for each one. Adam is suggesting moving some
problems from the less serious to the more serious categories. This will mean better
protection for XFit against quality problems, as any product with color, finish, size,
or weight problems will be replaced by Jenny’s company.

There are many other ways of discussing penalties. Let’s try some more examples.

§ We’d really like to see a 5% discount on late deliveries.

§ We’re going to need immediate replacement on any major defects.
§ If this doesn’t pass our quality inspection, we’ll need a free replacement.
§ If the failure rate goes beyond 0.2%, you’ll need to replace the casts.

How does Jenny respond to Adam’s suggestions about penalties?

Jenny: I see… then you would agree to FOB?

Adam: Well, not exactly. It’s important to us that insurance is in your court. So
maybe we could go with Delivery at Terminal.

What we heard there is fundamentally how negotiations work. Someone suggests

something, you suggest something else, they ask you to give something up, and
you say you will if they give something up too. That’s the nature of compromise.

You can’t start off accepting their terms, or you won’t be in a position to suggest a
quid pro quo, as we call it. That is, you agree to one thing, if they agree to another
thing. In this case, Adam says he’s willing to accept Delivery at Terminal, another
incoterm, if Jenny accepts the penalties he’s proposed.

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Let’s run through some more ways of suggesting a quid pro quo, or compromise.
Notice that we often use the word “if.”

§ If you can lower that cost a bit, maybe we could be more flexible on delivery.
§ Well, maybe we can cover the duties if you take care of insurance.
§ With a 10% discount on orders over 500, we’d be happy to split shipping costs.
§ How about delivery guaranteed in 30 days if we agree to $10 a unit?

Of course, Jenny’s a pretty good negotiator herself, so she won’t agree too quickly,
as we can hear.

Jenny: Hmm… that’s a tough one for us… DAT?

Adam: Uh-huh… DAT.

Jenny: Okay, well I’m going to have to look at that a bit before I can give you an
answer. Would it be alright if I called you back on Monday? Will need to check a
few things with our agents firsts…

Adam: Thanks… Just hope you can come our way a bit more on these terms… in
any case, Monday sounds good.

They haven’t reached a deal, but they’re pretty close. Adam has done an excellent
job of setting up his demands. He started showing disappointment with the price,
which helped him when it came to getting compromise on delivery terms and
penalties.

Now let’s practice some of the language we learned in today’s lesson. Imagine you work
as a purchasing manager for a manufacturing company. You’re talking with a vendor
about price and terms for a part that you need. You’ll hear a cue from a vendor, then I’ll
give you a suggestion for what you can say in response. We’ll guide you through each
step in the practice and provide an example answer for each response.

Ready? Let’s give it a go.

Cue 1: So, like I said, we think $15 per unit on orders under 1,000 is fair.
Start by saying that another company you spoke with can do it for $12.
Answer:

Cue 2: Wow, I really don’t think we can go that low on this.

Now suggest talking about terms instead, and propose a 21-day delivery.
Answer:

Cue 3: Twenty-one days is not much time, especially as this is an initial order.
Next, say you understand their concerns, but that delivery is very important to you.
Answer:

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Cue 4: Well, I suppose we could agree to 28-days, but it’s still pretty tight.
Now say that you would consider 28-days, if there was a 10% discount on late
deliveries.
Answer:

Cue 5: 10%? That’s quite high. I mean, we don’t plan to be late, but that’s tough.
Finally, suggest $13 per unit if they accept 28-days and a 10% penalty.
Answer:

Answer 1: Well, I talked with another company who said they can do it for 12.
Answer 2: So how about looking at terms instead. We’d like to see 21-day
delivery.
Answer 3: Okay, I understand your concerns, but delivery is very important to us.
Answer 4: Okay, we could think about 28-days if there’s a 10% discount on late
deliveries.
Answer 5: Well, how about $13 per unit with 28-day delivery and 10% penalty?

Now let’s practice some of the vocabulary we’ve covered in this lesson. In a
moment, you’ll hear a series of sentences with a word replaced with a beep. Repeat
each sentence, including the missing word.

For example, if you hear:

Example Cue: If you want extra features, we’ll have to add that to the base <beep>.

You can say:

Example Answer: If you want extra features, we’ll have to add that to the base price.

After each response, we’ll provide the correct answer. Let’s begin.

Cue 1: We’ll need to sell these for at least $30 to cover our upfront <beep>.
Answer:

Cue 2: We’d be happy to offer a volume <beep> of 5% on orders over 10,000.

Answer:

Cue 3: Come on Pete, $5,000 seems a tad <beep> for a machine this old.
Answer:

Cue 4: I can’t help you today because I’m pressed for <beep> on another project.
Answer:

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Answer 1: We’ll need to sell these for at least $30 to cover our upfront costs.
Answer 2: We’d be happy to offer a volume discount of 5% on orders over 10,000.
Answer 3: Come on Pete, $5,000 seems a tad high for a machine this old.
Answer 4: I can’t help you today because I’m pressed for time on another project.

We’ve reached the end of this lesson, the fourth in our series on purchasing. We’ve
learned how to make price comparisons, propose terms, and show consideration for
the other party’s concerns. We’ve also looked at how to discuss penalties and
suggest a compromise.

Thanks for listening and see you again soon!

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Language Review

A. Review Quiz

For each question, you must choose the sentence that best fulfills the given
language function or purpose.

1. How could you make a price comparison when negotiating price and terms?

a) You know, we could get this for $10 less from your competition.
b) Is there a better price you’d be willing to offer on this?
c) We were really hoping that we could get this for $400, not $500.

2. Which of the following demonstrates proposing terms?

a) Tell us, what would you like to see in this kind of deal?
b) Well, we think it would be fair if you covered the shipping and insurance.
c) Any chance you could bring that price down just a little more?

3. How might you show consideration for the other side in negotiation?

a) I’m sorry but what you’ve suggested is just not possible for us.
b) Okay, if this doesn’t work then what would you like to see?
c) Listen, I know you have some concerns about your costs on this.

4. What is a good way to discuss penalties?

a) Okay, so if the delivery is late, then what do you think should happen?
b) If this can’t be done, then maybe we need to find another manufacturer.
c) We’re going to need immediate replacement on all defects.

5. How could you suggest a quid pro quo or compromise solution?

a) Well, if you can take care of duties, then maybe we’d agree to $15 per unit.
b) I really don’t see any way we can agree to Freight on Board here.
c) I’d really like it if we could get a bit better discount on larger orders.

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B. Vocabulary and Idioms

Fill in the blanks with words from the box below. Be sure to put any verbs in the
right tense.

discount bring court

come jump time

1. Come in and sit down Phil, and let’s _____________ right in, okay? Are you
going to accept this deal or not?

2. Roger, a hundred bucks is the absolute best price I can give you, so it’s in your
_____________ now. What do you want to do?

3. If we up our order from 800 to 1,000, we should be able to get a pretty good
volume _____________.

4. Listen, I’m a bit pressed for _____________ today, so could I do my

presentation at the start of the meeting and then leave early?

5. I sure hope the interviewer doesn’t _____________ up the big gap in my work
history when I was unemployed.

6. Fifteen Euros each is still too expensive for us. I’m really hoping you can
_____________ our way a bit more.

Study Strategy

Once you’ve found a vendor that you think is a good fit, you need to establish price
and terms. Ideally, this is a friendly negotiation where you both get a deal that
you’re happy with. That will involve proposing terms, understanding the other side’s
position, and finding a compromise.

Imagine you’re a purchasing manager responsible for buying important equipment

for your company. Start by making a list of key pieces of equipment that your
company depends on. Now, for each piece of equipment, write down the price and
terms you’d like to have, and the price and terms you think the other side might
like.

Now, with a colleague or friend, you’re going to imagine you’re negotiating price
and terms for different pieces of equipment. Start by proposing your price and
terms. Your partner can say something doubtful or hesitant. Next, show
consideration for the other side by acknowledging what they want. Then finally
suggest a compromise solution that might satisfy both positions. When you’re done,
switch roles and let your partner try.

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Answers

Listening Questions

1. The first issue Adam brings up is price.

2. Adam’s first proposal of terms is DAP, or Delivery at Port.
3. Adam is willing to agree to Delivery at Terminal if Jenny agrees to his
suggestion about penalties.

A. Review Quiz

1. a; 2. b; 3. c; 4. c; 5. a

B. Vocabulary and Idioms

1. Come in and sit down Phil, and let’s jump right in, okay? Are you going to
accept this deal or not?

2. Roger, a hundred bucks is the absolute best price I can give you, so it’s in your
court now. What do you want to do?

3. If we up our order from 800 to 1,000, we should be able to get a pretty good
volume discount.

4. Listen, I’m a bit pressed for time today, so could I do my presentation at the
start of the meeting and then leave early?

5. I sure hope the interviewer doesn’t bring up the big gap in my work history
when I was unemployed.

6. Fifteen Euros each is still too expensive for us. I’m really hoping you can come
our way a bit more.

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