The regional manager of an international health care company approached Accordence when he was concerned about losing business with one of his largest clients. The regional manager had recently been hired by the health care company, and was reviewing the average unit price that different labs and hospitals were paying for his company’s products. He found that the average unit price (AUP) was abnormally high for one medical lab, especially considering the number of units the lab was purchasing and the marketplace the lab was in. This laboratory was the regional manager’s second largest revenue account and one of the top accounts for the entire company. The regional manager expressed concern about this price to the account executive covering the account, stating that the price might have to be reset to make it more in line with market value. The account executive assured the regional manager that the AUP was not a problem because the lab had always paid this price and had never objected.
When the regional manager and account executive were visiting the laboratory to speak with the Head of Operations of the lab, the CEO of the lab interrupted their meeting to discuss the AUP that his lab was paying. The CEO explained how he had canvassed his friends and colleagues from other local labs and hospitals that used the same health care products, and found that they all paid a lower AUP for their products than his lab did. He also discovered that many of these competitors were paying lower average unit prices despite buying fewer annual units than his lab. Feeling somewhat taken, he asked the account executive and regional manager to leave his lab and told them he was going to entirely move his business to their main competitor.
The regional manager contacted Accordence and explained his scenario. Since losing the lab as a customer, the regional manager had called the CEO and asked for a chance to meet in person and discuss what had happened since he was new to the region. The regional manager’s goal was to change the CEO’s mind about switching all of his lab’s business to the health care company’s main competitor. The CEO reluctantly agreed, but said that the regional manager should not bring in the account executive. In addition the CEO said he wanted a $5 reduction in his current AUP of $13. The regional manager met with an Accordence Consultant to design an ICON® model and explore their options strategies for his upcoming meeting with the CEO.
The regional manager and Accordence Consultant explored their interests and those of the CEO and his lab. They found that 60% of the lab’s business used their company’s testing products. They believed that the CEO did not really want to change entirely to the competition, because his company had spent a great deal of money on equipment to specifically run the health care company’s tests and employees had invested time in being trained to operate this equipment. Also, specific doctors often requested the company’s testing product by name, and the lab did not want to disappoint the doctors and medical professionals with whom they did business. While the CEO had threatened to entirely move business to the company that supplies the other 40% of its products, the Accordence Consultant pointed out how this threat was likely driven by emotions and the feeling of being cheated by the account executive; the fact that the CEO had agreed to a meeting exclusively with the regional manager provided hope that the CEO was willing to rebuild his relationship with the health care company.
The Accordence Consultant and regional manager explored a variety of options. The most basic option for the health care company was for the regional manager to agree to reduce the tests by $5 and meet the CEO’s stated needs. However, this idea was considered unfeasible, because this would basically reset the market price to lower than all other similarly situated accounts and do extreme damage to the regional manager’s whole region of business. Cutting one lab’s AUP in half would cause a chain effect leading to demands from every other lab and hospital to pay lower prices. While the health care company is an international company that could have survived such a blow, the regional manager knew that such an agreement would greatly hurt his region’s profitability. The regional manager and Accordence Consultant also considered going back for the past year and finding out how much the lab had overpaid due to the inflated AUP, and giving them a one-time reduction as a paying-of-debt to satisfy the CEO. Another option was immediately bringing the lab to market price. The regional manager could afford to even bring the lab a bit below market price, in exchange for the CEO moving more business from the competitor to them. The regional manager did research to find two or three examples in which the health care company had worked out AUP problems with previous clients and were now on good terms. He also found exact numbers on the current market price to use as criteria that could be shared with the CEO. They also believed that this would demonstrate the honesty that the regional manager was bringing to the new negotiation.
The two worked together to dig up the no-agreement alternatives for each side if an agreement could not be met. They believed the CEO did not have a good alternative if a deal could not be struck, because he would have trouble converting 100% of his business to the competitor. They both agreed that establishing trust, reviewing criteria, and taking emotions out of the negotiation would be the keys to creating a solution that helps both sides win.
The regional manager went into his negotiation with the CEO with a plan to show his respect and honesty from the first moment. He did this by laying his ICON diagram out on the table for the CEO to see. He talked the CEO through his whole thought process, and laid out all of his options to show exactly what he was thinking. He told the CEO that certain criteria made a $5 discount nearly impossible for him to give, because other companies would catch wind of this and demand their own discounts as well. As the CEO added interests of his that the regional manager had not listed, they were able to find where their views and needs intersected. They ended up agreeing on setting the AUP at $1.25 below market price in exchange for the CEO increasing his business with the health care company from 60% to 80% of his lab’s total business. This AUP ended up being $2.50 above the $5 reduction, allowing the RBD to continue to run a profitable business in the area and for the CEO to be happy knowing that he is getting a great deal on his medical tests.
The regional manager’s ICON model helped him develop a complete thought process, and then gave him a tool to demonstrate his complete honesty in the relationship. This forthrightness was the backbone for rebuilding the trust in their relationship. In fact, one year after the CEO had angrily threatened to switch his business, the CEO and his family invited the regional manager and his wife to join them for a weekend at their beach house, and the two remain colleagues and friends today.