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Stop Getting Squeezed By Your Customers

Jeffrey J Mayer

The Wall Street Journal recently ran two feature articles that highlighted the problems business - and sales people - are having with their customers who are squeezing them for price concessions.

The articles told the story of how Iberia Airlines squeezed Boeing and Airbus for an order of new aircraft. The second told about how Verizon is putting the squeeze on all of its technology suppliers.

Boeing Vs. Airbus Vs. Iberia

Last year Iberia, the Spanish national airline, decided it wanted to purchase new aircraft. Historically it has purchased only from Airbus but wanted to order new airplanes and knew that it could only get the lowest price if they were able to get Airbus and Boeing to compete against one another.

Iberia contacted Boeing and Airbus and told them they wanted to order new aircraft and then stated how much they wanted to pay for the $2-plus billion order. Boeing, who had never been successful in securing an order from Iberia, was skeptical about putting a bid together but decided to pursue this opportunity.

Over the course of many months the aircraft manufactures made presentations to Iberia's management, and each time they were told that their prices were too high. The airlines went back to their calculators and spreadsheets and reworked its numbers, asked for better terms from their suppliers (everybody got squeezed) and revised their bids.

At one point, Boeing tried to change the discussion from pricing to performance and use/maintenance costs, to no avail. The only factor Iberia was interested in was the lowest cost of purchase.

As the discussions were beginning to reach their conclusion, Iberia put even more pressure on Boeing and Airbus. It announced that they were considering the purchase of used aircraft - since there are so many planes available - and may not even buy any new aircraft. This forced the companies to work even harder to lower their price.

In the end, Airbus won the order, but got hammered pretty good. Boeing felt that Iberia made the wrong decision.

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February 2005